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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|x| Annual Report Pursuant To Section 13 or 15(d) Of The Securities Exchange Act
of 1934 (No Fee Required)For the fiscal year ended January 31, 1998
OR
| | Transition Report Pursuant To Section 13 or 15(d) Of The Securities Exchange
Act of 1934 (No Fee Required)For the transition period from
Commission file number 0-15385
ONE PRICE CLOTHING STORES,
INC.
(Exact name of registrant as specified in its charter)
Delaware 57-0779028
(State or other jurisdiction of organization) (I.R.S. Employer Identification
No.)
1875 East Main Street
Highway 290, Commerce Park
Duncan, South Carolina 29334
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 433-8888
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of Class)
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 the voting stock held by non-affiliates of the
registrant as of April 17, 1998: Common Stock, $0.01 Par Value - $13,871,245
The number of shares outstanding of the issuer's classes of common stock as of
April 17, 1998: Common Stock, $0.01 Par Value - 10,435,531 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement to be filed with respect to the annual
shareholders meeting to be held June 10, 1998 are incorporated by reference into
Part III.
PART I
ITEM 1. BUSINESS
General
One Price Clothing Stores, Inc. (the "Registrant" or the "Company") operates a
chain of off-price retail women's and children's specialty stores offering a
wide variety of first quality, contemporary, in-season apparel and accessories.
During fiscal 1997, the Company expanded its merchandise offerings to include
additional categories and styles of merchandise to be sold at price points other
than its previous uniform $7 price point. This merchandise mix expansion was
designed to meet customer demand for items that the Company could not profitably
offer for sale at a retail price of $7. The Company purchases merchandise at
heavily discounted prices in large quantities from a broad mix of manufacturers,
jobbers, importers and other suppliers. The Company is able to acquire such
merchandise at heavily discounted prices because of imbalances between supply
and demand, order cancellation and vendor needs for liquidity. The Company is
able to take advantage of these circumstances because of its willingness to
purchase large quantities and odd lots and to buy goods later in the season than
many other retailers. This purchasing strategy allows the Company to obtain a
price advantage and to react quickly to seasonal fashion preferences and weather
conditions affecting consumer spending. It is the Company's policy to offer only
first quality apparel; the Company does not purchase "seconds" or irregular
merchandise from its suppliers.
Company History and Organization
The Company opened its first store in August 1984. On February 9, 1994, a
wholly-owned subsidiary of the Company, One Price Clothing of Puerto Rico, Inc.,
was incorporated in Puerto Rico. It commenced operations on May 28, 1994. On
January 31, 1997, a wholly-owned subsidiary of the Company, One Price Clothing
- -- U.S. Virgin Islands, Inc. was incorporated in the U. S. Virgin Islands. It
commenced operations on March 20, 1997. On June 11, 1997, a wholly-owned
subsidiary, One Price Realty, Inc. was incorporated in South Carolina, to hold
title to the Company's Home Office and Distribution Center facilities in Duncan,
South Carolina. As used herein, unless the context otherwise indicates, the
"Company" refers to One Price Clothing Stores, Inc., a Delaware corporation, to
its immediate predecessor, a South Carolina corporation of the same name, to the
South Carolina corporation's predecessor, a North Carolina corporation organized
in 1984 under the name J. K. Apparel, Inc. to One Price Clothing of Puerto Rico,
Inc., to One Price Clothing - U.S. Virgin Islands, Inc. and to One Price Realty,
Inc.
Industry Segments
The Company operates in only one industry segment. All of the Company's assets
and significant revenues and pre-tax earnings relate to retail sales of women's
and children's apparel and accessories to the general public through
Company-operated stores. Other than operations in Puerto Rico and the U.S.
Virgin Islands, the Company had no operations outside the continental United
States at the end of fiscal 1997 and no export sales. Reference is hereby made
to the financial statements included in Part II for information about the
Company's assets, net sales and profitability.
Operations
The Company operates a chain of off-price retail women's and children's
specialty stores offering a wide variety of first quality, contemporary,
in-season apparel and accessories. Prior to fiscal 1997, this merchandise was
offered at the uniform retail price of $7. The Company currently offers most of
its merchandise at or below $7 and offers certain additional categories and
styles prices higher than $7 when such merchandise is clearly desired by the
Company's customers. Such higher priced merchandise is offered primarily at $10.
A limited number of items will be priced at $12 and $15. This expansion of
merchandise categories at prices higher than $7 is referred to within the
Company as its "Expanded Price Program" or "EPP."
The Company registered the trademark "One Price" with the United States Patent
and Trademark Office in June 1990 for a ten-year period with the option to renew
upon expiration. The Company intends to apply for renewal for this trademark.
This trademark was accorded incontestable status by the United States Patent and
Trademark Office. The Company considers the "One Price" trademark to be
valuable and significant to the conduct of its business. The Company registered
"One Price" and "Un Solo Precio" in Mexico in June, 1993. Management has decided
to forego use of these marks at this time in Mexico which may result in the
lapsing of such registration in Mexico. The Company has been notified of
approval to register "One Price" and "One Price Plus" in Canada. Management has
decided to forego use of these trademarks in Canada at this time, which may
result in lapsing of the applications in Canada. The Company has registered
"Ropa a un Precio" in the United States and is using this trademark in those
stores with Spanish-speaking customers.
The One Price Store. The Company's typical store has approximately 3,300 square
feet, of which approximately 2,450 square feet is devoted to selling space. The
Company's current strategy is to open stores larger than this average and
expects to continue the trend. All of the Company's stores are located in leased
facilities with convenient access to adequate parking or public transportation.
At January 31, 1998, approximately 80% of the Company's stores were located in
strip shopping centers and the remaining stores were located in central business
districts or malls. The Company does not franchise its stores.
The Company's stores are primarily located in or near communities with a
population of at least 40,000 - 50,000, as well as in large metropolitan areas.
Most of the Company's stores are open seven days a week and typical hours of
operation are from 10:00 a.m. until 7:00 p.m. or 9:00 p.m., Monday through
Saturday, with shorter hours on Sunday. A typical store employs a full-time
manager, one or two full-time assistant managers and up to ten additional
part-time sales associates.
The Company's stores are designed for customer convenience and for attractive
presentation of merchandise. All apparel is displayed on hangers and is
organized by classification, style and color, promoting a pleasant shopping
environment and customer convenience.
The Company's store operations department is headed by a Senior Vice President
of Stores who is assisted by regional and district sales managers. Each regional
sales manager is responsible for approximately 8 districts. Each district sales
manager is responsible for approximately 11 stores and visits each store in his
or her district on a regular or as-needed basis to provide assistance in
promoting sales, training, store layout and merchandise presentation, and to
monitor adherence to the Company's operational and management policies.
Store Locations and Expansion. At January 31, 1998, the Company operated 660
stores in 27 states, the District of Columbia, Puerto Rico and the U.S. Virgin
Islands. The Company opened 64 stores, relocated 13 stores and closed 49
underperforming stores in fiscal 1997. The Company will limit the number of new
store openings in fiscal 1998 to those for which the Company is contractually
obligated. The Company will close the remainder of the 75 underperforming stores
originally identified in its restructuring plan described in Items 7 and 8 of
this document. Approximately 30 such underperforming stores were closed during
January 1998. The Company will also limit the number of stores it relocates in
fiscal 1998.
Purchasing. The Company's practice is to offer value to its customers by selling
desirable, first quality women's and children's apparel and accessories at
considerably lower prices than generally would be available from department
stores and other specialty retailers. The Company purchases its merchandise at
heavily discounted prices and on favorable terms from manufacturers, jobbers,
importers and other vendors.
The Company typically is able to purchase merchandise from vendors at
substantially discounted prices as a result of the following circumstances: the
inability of a manufacturer or importer to dispose of merchandise through
regular channels, the discontinuance of merchandise because of changes in color
or style, over-production by manufacturers, cancellation of orders by
conventional retail stores, the need of catalog retailers to dispose of
inventories of unordered catalog merchandise, and manufacturers' need to utilize
excess capacity or import quota or need for liquidity. The Company's ability and
willingness to purchase in large quantities and in odd-lot or broken-size
assortments and its reputation for reliability in the industry provide the
Company with purchasing advantages. The Company buys its merchandise
opportunistically which includes the purchase of merchandise close to and during
each selling season, later than department stores and other specialty retailers.
This purchasing strategy permits the Company to react to fashion trends and
opportunistic developments during a selling season. The Company also purchases
selected merchandise in advance of a selling season.
During fiscal 1997, the Company purchased merchandise from approximately 750
vendors, including manufacturers, jobbers, importers and other vendors. No
vendor accounted for more than 10% of the Company's total purchases for the
fiscal year. The number of vendors in any particular fiscal year fluctuates due
to the Company's opportunistic buying strategy.
Although there can be no assurance that the Company will be able to continue to
acquire sufficient quantities of first quality merchandise at such low prices
and on favorable terms, the Company continues to add new vendors and believes
that adequate sources of first quality merchandise are available at appropriate
price levels. The Company does not maintain long-term or exclusive purchase
commitments or arrangements with any vendor.
Corporate Offices and Distribution Center. The Company's Corporate Offices and
Distribution Center are located in Duncan, South Carolina. With the exception of
functions performed by certain merchandise buyers (including those based in the
Company's New York City office), regional directors of real estate, district and
regional sales managers, loss prevention investigators and field audit personnel
and certain administrative functions performed in Puerto Rico, substantially all
purchasing, accounting and other administrative functions are centralized at the
Corporate Offices.
Merchandising. The Company's merchandising strategy emphasizes contemporary and
in-season apparel for juniors, misses, large-sized women and children. The
Company's target customers are value and fashion-conscious women, primarily in
lower and middle-income brackets. The Company offers only first quality
merchandise and emphasizes the value of its merchandise compared to similar
merchandise sold elsewhere at higher prices. Women's apparel sold by the Company
includes contemporary sportswear such as knit tops, pants, blouses, shirts,
skirts, sweaters, jackets and shorts. In addition, the Company sells other types
of merchandise such as dresses, swimsuits, lingerie and other related items. The
Company also offers selected accessories such as scarves, socks, belts,
handbags, jewelry and fragrances, in addition to apparel. Accessory sales as a
percentage of net sales were 12%in both fiscal 1997 and 1996 and 11% in fiscal
1995, respectively. Sales of children's clothing as a percentage of net sales
were 8% in both fiscal 1997 and 1996 and 9% in fiscal 1995, respectively. In
fiscal 1997, the Company began offering additional categories of merchandise
such as jeans, silk jogging sets, sweaters and heavier jackets at price points
other than its previous uniform $7 retail price point. In addition, the Company
adjusted its base prices in Puerto Rico and the U.S. Virgin Islands to $8. Also,
the base price for plus-sized apparel in the United States was adjusted upward
to $8.
Inventory Monitoring. The Company's management information systems, featuring
point-of-sale cash registers and a computerized inventory management system,
permit management to review each store's sales and inventory on a daily and a
weekly basis, thereby enabling the Company to tailor its purchasing strategies
and merchandise shipments to stores based on customer demand.
Distribution Systems. Substantially all merchandise is shipped directly from
vendors to the Company's Distribution Center where the goods are inspected,
processed and sent to the Company's stores. The majority of shipments to stores
are made by common carriers. During fiscal 1995, the Company implemented a new
warehouse management system to improve the management of the location and flow
of merchandise within the Distribution Center.
Change in Fiscal Year
In March 1996, the Company elected to change its fiscal year from the Saturday
nearest December 31 to the Saturday nearest January 31, beginning in fiscal
1996. This change was made to conform the Company's fiscal calendar to the
seasonal patterns it experiences, as well as to enhance comparability of its
fiscal quarterly and annual results with those of other retail companies.
Seasonality
The Company's sales and operating results are seasonal. Based on the former
fiscal calendar (January - December), the Company's sales historically were
lowest during the first quarter (January - March) and third quarter (July -
September) and highest during the second quarter (April - June) and fourth
quarter (October - December). Reduced sales volumes in the first and third
quarters coincided with the transition of seasonal merchandise. Therefore,
increased levels of markdowns occurred during those transitional periods, and
operating expenses, when expressed as a percentage of sales, were typically
higher. As discussed above, the Company changed its fiscal year end to conform
the fiscal calendar to the seasonal patterns it experiences. As a result, the
Company's historical quarterly patterns have changed. The 1997 and 1996 fiscal
years and proforma fiscal 1995 produced higher sales and operating results in
the first quarter (February - April) and second quarter (May - July) compared to
the third quarter (August - October) and fourth quarter (November - January).
Management is unable to predict if this trend will continue in the future.
However, management is developing merchandise strategies that should increase
sales volume in the third and fourth quarters.
Working Capital Requirements
The Company's revolving credit facility, which provides up to $37,500,000 of
borrowing capacity (including a letter of credit sub-facility of up to
$25,000,000), expires in March 2001. Borrowings under the facility are
collateralized by all assets owned by the Company during the term of the
agreement (other than the land, building, fixtures and improvements
collateralizing the mortgage loan discussed below). During fiscal 1997, the
Company repaid the term loan portion of its primary credit facility and entered
into a twenty-year mortgage agreement with a commercial bank of $8,125,000
secured by the land, building, fixtures and improvements located at the
Company's Duncan, South Carolina Corporate Office and Distribution Center. Also
during fiscal 1997, the Company entered into an agreement with a commercial bank
to provide an additional letter of credit facility of up to $3,000,000. This
agreement was recently amended to extend the term of the agreement through June
1999. These lending agreements contain certain covenants and terms described in
Items 7 and 8 of this report.
Merchandise inventories are typically purchased on credit or, for certain
merchandise inventories from foreign suppliers, by the use of letters of credit.
All such purchases are paid in United States dollars; thus, the Company is not
subject to foreign currency risks. As a result of the Company's opportunistic
buying strategy and to ensure that an adequate supply of merchandise is
available for shipment to its stores, the Company may, at times, invest a
significant amount of its working capital in merchandise inventories.
Revenues from retail sales are recognized at the time of the sale. The Company
accepts cash; checks and certain major credit cards. All stores offer a liberal
exchange and return policy. A reserve for estimated merchandise returns is
recorded in the period that the merchandise is sold.
Customers
No material part of the business of the Company is dependent upon a single
customer or a few customers.
Competition
The women's retail apparel industry is highly competitive. In order to compete
effectively, the Company is dependent upon its ability to purchase merchandise
at substantial discounts. The Company competes with department stores, specialty
stores, discount stores, other off-price retailers and manufacturer-owned outlet
stores, many of which are owned by large national or regional chains with
substantially greater resources than the Company. There can be no assurance that
other retailers with substantially greater financial resources than the Company
will not adopt a purchasing and marketing concept similar to that of the
Company. Management believes that the primary competitive factors in the retail
apparel industry are price, quality, fashion content, variety of merchandise,
good site selection and low cost of operation. The Company believes that it is
well positioned in all of these areas to compete in its markets.
Environmental Factors
The Company is not aware of any federal, state or local environmental
regulations that will materially affect its operations or competitive position
or require material capital expenditures. The Company cannot predict, however,
the impact of possible future legislation or regulation on its operations.
Employees
At January 31, 1998, the Company had approximately 4,300 employees, of which
approximately 49% were full-time employees. The Company, like other retailers,
experiences a high turnover rate of full-time and part-time store employees but
has generally not experienced difficulties in hiring qualified personnel. None
of the Company's employees are covered by a collective bargaining agreement, and
management believes that the Company's relationship with its employees is good.
Private Securities Litigation Reform Act of 1995
All statements contained in this Annual Report on Form 10-K as to future
expectations and financial results including, but not limited to, statements
containing the words "believe," "anticipates," "expects," and similar
expressions, should be considered forward-looking statements subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995. The
Company cautions readers of this Annual Report on Form 10-K that a number of
important factors could cause the Company's actual results in fiscal 1998 and
beyond to differ materially from those expressed in such forward-looking
statements. These factors include, but are not limited to, the general economic
conditions and consumer demand; consumer preferences; weather patterns;
competitive factors, including pressure from pricing and promotional activities
of competitors; the impact of excess retail capacity and the availability of
desirable store locations on suitable terms; whether or not the Company's
merchandising strategy to offer alternative categories of merchandise at
alternative price points will increase sales and operating results or increase
and attract new customers; the availability, selection and purchasing of
attractive merchandise on favorable terms; credit availability, including
adequate levels of credit support provided to certain of the Company's vendors
by factors and insurance companies; import risks, including potential
disruptions and duties, tariffs and quotas on imported merchandise; and other
factors that may be described in the Company's filings with the Securities and
Exchange Commission from time to time. The Company does not undertake to
publicly update or revise its forward-looking statements even if experience or
future changes make it clear that any projected results expressed or implied
therein will not be realized.
ITEM 2. PROPERTIES
The Company leases all of its store locations. At January 31, 1998, the Company
had 660 stores operating in 27 states, the District of Columbia, Puerto Rico and
the U. S. Virgin Islands. The Company leases its stores under operating leases
generally with initial terms of five to ten years and with one to two renewal
option periods of five years each. The leases typically contain kickout
provisions based on that store's annual sales volume and/or the shopping
center's occupancy. The leases generally provide for increased rents resulting
from increases in operating costs and property taxes. Certain of the leases
provide contingent or percentage rentals based upon sales volume, and other
stores are leased on a month-to-month basis. To date, the Company has not
experienced difficulty in obtaining leases for suitable locations for its stores
on satisfactory terms. Approximately 80 existing store leases expire or have
initial lease terms containing lessee renewal options, which may be exercised
during fiscal 1998. Management believes that the Company will not experience a
significant increase in lease expense as a result of exercising renewal options
or negotiating additional lease terms for such locations. The following is a
list of store locations as of January 31, 1998:
NUMBER OF
STATE STORES
Alabama................................................................................................ 14
Arizona .................................................................................................. 11
Arkansas ................................................................................................. 5
California ............................................................................................... 65
Florida .................................................................................................. 64
Georgia .................................................................................................. 37
Illinois ................................................................................................. 32
Indiana .................................................................................................. 10
Kansas ................................................................................................... 3
Kentucky ................................................................................................. 8
Louisiana ................................................................................................ 18
Maryland ................................................................................................. 17
Michigan ................................................................................................. 17
Mississippi .............................................................................................. 12
Missouri ................................................................................................. 18
North Carolina ........................................................................................... 36
New Jersey ............................................................................................... 8
New Mexico ............................................................................................... 7
New York ................................................................................................. 14
Ohio ..................................................................................................... 21
Oklahoma ................................................................................................. 8
Pennsylvania ............................................................................................. 25
Puerto Rico .............................................................................................. 30
South Carolina ........................................................................................... 33
Tennessee ................................................................................................ 24
Texas .................................................................................................... 92
U.S. Virgin Islands ...................................................................................... 2
Virginia ................................................................................................. 21
Washington, DC ........................................................................................... 2
Wisconsin ................................................................................................ 6
TOTAL STORES.............................................................................................. 660
The Company's Corporate Offices and Distribution Center are located in Duncan,
South Carolina on approximately 82 acres which are owned by the Company. In
fiscal 1993, the Company completed a 28,000 square foot expansion of its
Corporate Offices. During fiscal 1995, the Company expanded the Distribution
Center by approximately 90,000 square feet. These expansions increased the total
size of the Corporate Offices and Distribution Center to approximately 500,000
square feet. The Company's Distribution Center should be able to support the
Company's growth over the next several years. The Company's borrowings under its
mortgage loan facility are secured by the Company's real property located at its
corporate offices including land, buildings, fixtures and improvements.
Borrowings under the credit agreement with the primary lender are collateralized
by all assets owned by the Company during the term of the agreement other than
the land, building, fixtures and improvements collateralizing the mortgage loan.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is a defendant in legal actions involving claims
arising in the normal course of its business. The Company believes that, as a
result of its legal defenses and insurance arrangements, none of these actions
presently pending, if decided adversely, would have a material adverse effect on
its financial position and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The Company's common stock is traded under the symbol ONPR in the National
Market System of NASDAQ. As of April 17, 1998, there were approximately 400
shareholders of record.
The Company has never paid cash dividends since its inception. The Company's
credit agreement contains covenants which, among other things, prohibit the
Company from paying dividends. Currently, the Board of Directors intends to
continue its policy of retaining earnings for operations, debt repayment and
expansion of the business.
The quarterly high and low sales prices of the Company's Common Stock as quoted
by NASDAQ are shown below.
Fiscal Year Ended Fiscal Year Ended
January 31, February 1,
1998 1997
--------------------------- --------------------------
High Low High Low
First ........................................ 4 1/2 3 1/8 4 3/4 2 3/4
Second ................................... 4 7/8 3 5/16 6 1/8 3 7/8
Third ...................................... 3 5/8 3 4 1/2 2 7/8
Fourth .................................... 3 1/8 1 1/8 3 3/4 2 1/2
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for the Company for each of
the five fiscal years ended January 1, 1994 through January 31, 1998, including
the 5-week period ended February 3, 1996 ("the Transition Period"), resulting
from the Company's change in fiscal year end. The selected financial data are
extracted from the Company's audited financial statements and should be read in
conjunction with the financial statements and the notes thereto included under
Item 8 of this Form 10-K and Management's Discussion and Analysis of Financial
Condition and Results of Operations included under Item 7 of this Form 10-K.
Transition
Fiscal Year Ended Period Ended Fiscal Year Ended
January February February 3, December December January 1,
31, 1, 30, 31,
1998 1997 1996 1995 1994 1994
---------------------- ------------ ------------ ------------------------
Dollars in thousands except per share
amounts
1 Net sales $ 302,285 298,986 15,022 294,692 283,326 234,698
2 Restructuring charge $ 2,265 -- -- -- -- --
3 (Loss) income before income taxes and
cumulative effect of changes in accounting
principles $ (13,493) (1,994) (9,091) (2,595) 7,138 13,959
4 (Loss) income before cumulative effect of
changes in accounting principles $ (11,320) (1,267) (5,634) (1,304) 4,389 8,724
5 Cumulative effect on prior years of changes
in accounting principles $ -- -- (1,090) -- -- --
6 Net (loss) income $ (11,320) (1,267) (6,724) (1,304) 4,389 8,724
7 Current assets $ 48,331 61,891 52,517 35,990 31,252 35,336
8 Long-term assets $ 39,781 39,076 41,663 43,374 36,678 28,865
9 Total assets $ 88,112 100,967 94,180 79,364 67,930 64,201
10 Current liabilities $ 44,080 48,722 40,669 18,594 13,035 14,798
11 Long-term debt $ 7,915 4,868 6,447 6,579 -- --
12 Deferred income taxes $ -- 718 818 1,482 1,449 1,166
13 Other noncurrent liabilities $ 3,095 2,317 1,089 828 372 411
14 Shareholders' equity $ 33,022 44,342 45,157 51,881 53,074 47,826
15 Stores opened (closed) during the period, #
net 15 (43) (13) 60 101 94
16 Stores operating at period-end # 660 645 688 701 641 540
17 Number of employees # 4,269 4,105 4,574 4,841 4,907 4,199
18 Weighted average common shares (000) -
diluted # 10,436 10,401 10,335 10,314 10,527 10,484
19 Common shares outstanding at period-end
(000) # 10,436 10,436 10,335 10,335 10,305 10,221
20 Diluted (loss) income per common share
before cumulative effect of changes in
accounting principles (1.08) (0.12) (0.55) (0.13) 0.42 0.83
21 Cumulative effect on prior years per common
share of changes in accounting principles $ -- -- (0.10) -- -- --
22 Diluted net (loss) income per common share $ (1.08) (0.12) (0.65) (0.13) 0.42 0.83
23 Cash dividends declared per common share $ -- -- -- -- -- --
Notes to Selected Financial Data
Line Definitions
17 Number of employees -- Number of full and part-time employees at year-end.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In March 1996, the Company elected to change its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest January 31. This change was
made to conform the Company's calendar to the seasonal patterns it experiences,
as well as to enhance the comparability of its quarterly and annual results with
other retail companies.
For comparability purposes, the Company elected to disclose in Item 8 of this
report certain unaudited financial information for the 53-week period ended
February 3, 1996 ("proforma fiscal 1995").
The Company's operating results reflect the change in fiscal year, as well as
the impact of certain changes in accounting for merchandise inventories and the
adoption of the accounting standard (SFAS 121) relating to long-lived assets.
The cumulative effect of these changes in accounting methods was included in the
Transition Period.
FINANCIAL SUMMARY
The following table sets forth, for the three most recent fiscal years and for
the Transition Period, certain financial statement elements expressed as a
percentage of net sales:
Transition Fiscal
Fiscal Year Period Year
Ended Ended Ended
Jan. 31, Feb. 1, Feb. 3, Dec. 30,
1998 1997 1996 1995
----------- --------- ---------- ---------
PERCENT OF NET SALES:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, distribution and
buying costs 66.8% 64.7% 96.8% 66.3%
------- -------- -------- -------
Gross margin 33.2% 35.3% 3.2% 33.7%
------- -------- -------- -------
Selling, general and administrative expenses 25.8% 25.3% 46.3% 24.3%
Restructuring charge 0.7% -- -- --
Store rent and related expenses 8.7% 8.6% 13.5% 8.4%
Depreciation and amortization expense 1.7% 1.6% 2.7% 1.5%
Interest expense, net 0.7% 0.6% 1.2% 0.4%
------- -------- -------- --------
Net expenses 37.6% 36.0% 63.7% 34.6%
------- -------- -------- --------
Loss before income taxes and
cumulative effect of changes in accounting
principles (4.4)% (0.7)% (60.5)% (0.8)%
Benefit from income taxes (0.7)% (0.3)% (23.0)% (0.4)%
-------- ------- ------- --------
Loss before cumulative effect
of changes in accounting principles (3.7)% (0.4)% (37.5)% (0.4)%
Cumulative effect of changes in
accounting principles, net of income tax
benefit -- -- (7.3)% --
-------- ------- ------- --------
Net loss (3.7)% (0.4)% (44.8)% (0.4)%
======= ======= ======= ========
Stores in operation at period-end 660 645 688 701
======= ======= ======= =======
FISCAL YEAR ENDED JANUARY 31, 1998 (FISCAL 1997) COMPARED TO FISCAL YEAR ENDED
FEBRUARY 1, 1997 (FISCAL 1996)
Net sales in fiscal 1997 increased 1% to $302.3 million compared to $299.0
million in fiscal 1996. This increase in net sales is primarily due to more
stores being in operation, on average, during fiscal 1997 as compared to fiscal
1996. In fiscal 1997, comparable store sales decreased 1% for the year compared
to fiscal 1996. Comparable stores are those stores in operation at least 18
months.
The Company opened 64 stores during fiscal 1997, relocated 13 stores and closed
49 underperforming stores. The company opened 23 stores during fiscal 1996,
relocated 11 stores and closed 66 underperforming stores.
During fiscal 1997, the Company implemented its previously announced strategy to
offer additional categories of merchandise at price points other than its
traditional $7 retail price. However, during the implementation of this strategy
(which is referred to within the Company as its "Expanded Price Program" or
"EPP"), management believes that the Company confused its customers by
introducing too many items at price points higher than its previous $7 price
point. In addition, these higher priced items were offered at too many price
points. This combination of too many higher priced items at too many price
points had a negative effect on markdowns and selling, general and
administrative ("SG&A") expenses as discussed below. During the fourth quarter
of fiscal 1997, the Company adjusted its pricing and merchandising strategy by
increasing the portion of its merchandise priced at $7 or less. Also, the
Company established clear policies to limit its higher price point items to only
that merchandise which has been determined to be clearly desired by its
customers and cannot be offered for $7, thus focusing its merchandising strategy
on quality, value and selection. Such higher priced items will be offered
primarily at $10. A limited number of items will be priced at $12 and $15.
In response to lower than expected operating results, the Company announced a
restructuring plan during the fourth quarter of fiscal 1997. The plan includes
initiatives which are designed to return the Company to profitability by
lowering operating costs, redeploying assets and curtailing the number of new
store openings until the Company's existing stores are operating profitably.
Under the restructuring plan the Company will close approximately 75 low-volume,
underperforming stores and eliminate approximately 300 positions. The Company
recorded a one-time charge of $2,265,000 during the fourth quarter of fiscal
1997 to cover costs associated with the plan. The total charge of $2,265,000
includes costs to close stores, such as the noncash write-off of fixed assets
and store supplies of $1,378,000, lease buyouts of approximately $398,000, and
employee severance, outplacement costs and other miscellaneous expenses of
approximately $489,000. These initiatives, in the aggregate, are expected to
result in future annualized cost savings of approximately $6.5 million.
Gross margin as a percentage of net sales was 33.2% in fiscal 1997 compared to
35.3% in fiscal 1996. This decrease in gross margin as a percentage of net sales
primarily resulted from a significantly higher level of markdowns taken during
fiscal 1997. Higher levels of markdowns were taken during the third quarter of
fiscal 1997 in an effort to clear transitional merchandise which was not
"fashion right." Higher levels of markdowns were taken during the fourth quarter
of fiscal 1997 in order to clear inventory as part of the Company's initiative
to aggressively close underperforming stores and to adjust price points in
certain merchandise downward as part of the Company's strategy to offer most of
its merchandise at $7 or under.
SG&A expenses as a percentage of net sales were 25.8% in fiscal 1997 compared to
25.3% in fiscal 1996. When expressed as a percentage of net sales, home office
and store operating costs increased. SG&A expenses in dollars on an average
store basis increased 5%. These increases resulted primarily from increased
marketing costs as a result of producing in-store signs and posters to promote
the new merchandising strategy and to display the many new price points and
increased equipment lease costs in the Company's home office. Average salaries
and wages in the Company's stores increased 6% in fiscal 1997 compared to fiscal
1996. This increase, affecting primarily part-time associates, was due to an
increase in average store hours and to increases in the Federal Minimum Wage
which were effective in October 1996 and September 1997. Management allocated a
higher number of average payroll hours per store in fiscal 1997 compared to
fiscal 1996 because management believed introduction of the higher price points
would necessitate additional training and a higher level of customer service. In
fiscal 1998, management intends to focus on process changes which will aid in
reducing the rate of increase in store labor costs.
Store rent and related expenses as a percentage of net sales were 8.7% in fiscal
1997 compared to 8.6% in fiscal 1996. Average store rent and related expenses
increased 5% in fiscal 1997 compared to fiscal 1996 primarily due to the
continuation of the Company's store expansion strategy of increasing the
proportion of larger, higher volume stores, and, thus entering more costly sites
with higher rents, and the closing of older, underperforming stores which had
lower average rent costs. Management anticipates that this trend of increasing
average store rents per square foot will continue. The Company has approximately
80 existing leases that expire or have initial lease terms containing lessee
renewal options which may be exercised during fiscal 1998. Management believes
that the Company will not experience a material increase in aggregate store
rents as a result of renewal options or negotiating new lease terms for such
locations.
Depreciation and amortization expense was 1.7% of net sales in fiscal 1997
compared to 1.6% of net sales in fiscal 1996. This increase in depreciation and
amortization expense resulted primarily from fixed asset additions associated
with new store openings in fiscal 1997 and to software upgrades in the Company's
home office.
Net interest expense was 0.7% of net sales in fiscal 1997 compared to 0.6% of
net sales in fiscal 1996. This increase in net interest expense resulted from a
combination of slightly higher average borrowings and a 0.5% higher average
borrowing rate in fiscal 1997 compared to fiscal 1996.
The effective income tax benefit rate for fiscal 1997 was 16.1% compared to
36.5% in fiscal 1996. This decrease was primarily attributable to the recording
of valuation allowances related to the Company's tax loss and credit
carryforwards in fiscal 1997. Management estimates the Company's effective
income tax rate will be approximately 40% in fiscal 1998; however, if sufficient
levels of profitability are not achieved, the effective income tax rate may
increase significantly.
OUTLOOK
Sales trends thus far in fiscal 1998 through the Easter holiday are modestly
ahead of fiscal 1998 planned levels through the corresponding time period.
Management believes this trend is, in part, due to improvements in the women's
apparel industry as a whole, as well as to an improved execution of its
merchandising strategy of emphasizing value and quality. During fiscal 1998, the
Company intends to focus its efforts on improving sales in existing stores and
achieving its margin and cost-containment targets.
Average store rent and related expenses are expected to increase in fiscal 1998
due to the structure of leases on stores opened in fiscal 1997 and the closing
of older, low-volume stores. Management will seek to leverage these increases
through improved average store sales volumes.
As part of its strategy to focus on improving sales in existing stores, the
Company will limit the number of new store openings in fiscal 1998 to those for
which the Company is contractually obligated. The Company will close in fiscal
1998 the remainder of the 75 underperforming stores originally identified in the
restructuring plan. Approximately 30 such underperforming stores were closed
during January 1998.
FIVE-WEEK TRANSITION PERIOD ENDED FEBRUARY 3, 1996 COMPARED TO FOUR-WEEK PERIOD
ENDED JANUARY 28, 1995 (UNAUDITED - SEE NOTE I)
Net sales for the five-week period ended February 3, 1996 were $15,022,000
compared to $12,173,000 for the four-week period ended January 28, 1995. On an
average store basis, net sales decreased 9%. Comparable store sales (adjusted
for the calendar shift to compare the five-week period ended February 3, 1996 to
the five-week period ended February 4, 1995) decreased 22%. Management believes
the decline in sales reflected the continued softness in the women's apparel
market experienced throughout fiscal 1995 and the impact of adverse weather
conditions incurred nationwide in January 1996.
During January 1996, there were no new stores opened, one store was relocated
and 13 stores were closed.
Gross margin was 3.2% in January 1996 compared to a deficiency of 5.7% in
January 1995. The improvement in gross margin was principally due to the change
in accounting for merchandise inventories discussed below and efficiencies in
the Company's distribution center. Like most retailers, the month of January is
historically the lowest sales month of the year, both in absolute dollars and on
an average store basis, resulting in substantial markdowns to increase sell-off
of Fall merchandise.
Selling, general and administrative expenses increased to 46.3% of net sales in
January 1996 compared to 41.4% in January 1995. This increase in selling,
general and administrative expenses as a percentage of net sales is largely due
to the decrease in average store sales. Selling, general and administrative
expenses on an average store basis, adjusted for the additional week in January
1996 compared to January 1995, increased 1%, primarily due to an increase in
store operations expenses.
Store rent and related expenses decreased to 13.5% of net sales in January 1996
compared to 14.7% of net sales in January 1995. This decrease in store rent and
related expenses as a percentage of net sales is due to recording rent expense
on a monthly basis in 1996 rather than a weekly basis as in the preceding year.
Accordingly, rent expense in January 1996, a five-week operating period,
included one calendar month of rent expense.
Depreciation and amortization expense as a percentage of net sales increased to
2.7% in January 1996 compared to 2.4% in January 1995. This increase in
depreciation and amortization expense was due to the decrease in average store
sales and due to the completion of the expansion of the Company's distribution
center late in the second half of fiscal 1995.
Interest expense increased to 1.2% of net sales in January 1996 compared to 0.3%
in January 1995 due to the increased level of borrowings under the Company's
credit facilities. Borrowing levels increased primarily to fund approximately
$9.3 million in capital expenditures for the period February 1995 through
January 1996.
The Company's effective tax rate for January 1996 was 38.0%. The Company's
effective tax rate for January 1995 was 39.0%.
The Financial Accounting Standards Board ("FASB") issued Statement No. 121 (SFAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." This statement essentially requires that when the
Company commits to closing specific stores and for other stores which may be
impaired, the fixed assets for such stores must be written down to estimated
fair market value. The Company's adoption of SFAS 121, required for years
beginning after December 15, 1995, resulted in a decrease in net fixed assets of
approximately $1,630,000 and a charge of approximately $1,397,000 (net of income
taxes) which is included in the cumulative effect of changes in accounting
principles in the Statement of Operations for the Transition Period.
The Company also elected to change certain methods of accounting for merchandise
inventories beginning in the Transition Period. The Company changed from the
lower of average first-in, first-out (FIFO) cost or market method of accounting
to the lower of cost (computed using the FIFO retail method) or market. The
Company believes that the FIFO retail method provides improved information for
the operation of its business in a manner consistent with the method used widely
in the retail industry. The Company also capitalizes into inventory certain
merchandise acquisition and distribution costs to provide a better matching of
revenues and expenses, particularly in interim periods. The effect of the change
to the FIFO retail method was to reduce merchandise inventories by approximately
$1,207,000, and the effect of capitalizing into inventory certain merchandise
acquisition and distribution costs was to increase merchandise inventories by
approximately $1,698,000. These changes in accounting for merchandise
inventories resulted in a net increase in merchandise inventories of
approximately $491,000 and a benefit of approximately $307,000 (net of income
taxes) which is included in the cumulative effect of changes in accounting
principles in the Statement of Operations for the Transition Period.
FISCAL YEAR ENDED FEBRUARY 1, 1997 (FISCAL 1996) COMPARED TO FISCAL YEAR ENDED
DECEMBER 30, 1995 (FISCAL 1995)
Net sales in fiscal 1996 increased 1% to $299.0 million compared to $294.7
million in fiscal 1995. Total net sales for fiscal 1996 compared to the 52-week
period ended February 3, 1996 ("adjusted fiscal 1995") increased 2%. This
increase in net sales (fiscal 1996 compared to adjusted fiscal 1995) is
primarily due to improvements in the fourth quarter, particularly during the
last six weeks of fiscal 1996. In fiscal 1996, comparable store sales decreased
1% for the year compared to adjusted fiscal 1995.
The Company opened 23 stores and closed 66 underperforming stores in fiscal 1996
compared to opening 83 stores and closing 23 underperforming stores in fiscal
1995. In fiscal 1996, eleven stores were relocated compared to 14 relocations in
fiscal 1995.
Gross margin as a percentage of net sales was 35.3% in fiscal 1996 compared to
33.7% in fiscal 1995. This increase in gross margin as a percentage of net sales
primarily resulted from efficiencies in the Company's distribution center and
lower levels of markdowns taken due to management's efforts to control inventory
levels and flow. Decreases as a percentage of net sales in distribution costs
and markdowns were slightly offset by higher buying costs primarily due to
additions to the merchandising staff at the Company's home office. Distribution
costs in dollars on an average store basis decreased 16% in fiscal 1996 compared
to fiscal 1995. This decrease in distribution costs was the result of
efficiencies associated with the distribution center's first full year of
operation since expansion of the facility and the implementation of a new
warehouse management system.
Selling, general and administrative expenses as a percentage of net sales were
25.3% in fiscal 1996 compared to 24.3% in fiscal 1995. When expressed as a
percentage of net sales, store operating costs decreased while home office and
other expenses increased. Selling, general and administrative expenses in
dollars on an average store basis increased 6%. This increase resulted primarily
from rolling out a direct mail advertising campaign in the fourth quarter, a
one-time charge to record certain post-retirement benefits and recording a
greater loss on fixed assets as a result of closing more underperforming stores
than in fiscal 1995. Average salaries and wages in the Company's stores
increased 1% in fiscal 1996 compared to fiscal 1995. This increase, affecting
primarily part-time associates, is largely due to the increase in the Federal
Minimum Wage which was effective in October 1996.
Store rent expense as a percentage of net sales were 8.6% in fiscal 1996
compared to 8.4% in fiscal 1995. Average store rent expense in dollars increased
3% in fiscal 1996 compared to fiscal 1995 primarily due to the Company's store
expansion strategy of increasing the proportion of higher volume stores, and,
thus entering more costly sites with higher rents, and the closing of older,
underperforming stores which had lower average rent costs.
Depreciation and amortization expense was 1.6% of net sales in fiscal 1996
compared to 1.5% of net sales in fiscal 1995. This increase in depreciation and
amortization expense resulted primarily from the completion of the distribution
center expansion late in the second half of fiscal 1995.
The effective income tax rate for fiscal 1996 was 36.5% compared to 49.7% in
fiscal 1995. This decrease was primarily due to tax benefits generated in fiscal
1995 that did not recur in fiscal 1996. These tax benefits included the
carryback of the Federal Targeted Jobs Tax Credit and the recognition in fiscal
1995 of the deferred income tax asset associated with the remaining net
operating loss carryforward generated by the Company's Puerto Rico subsidiary in
1994.
INFLATION
During its three most recent fiscal years, the Company believes that the impact
of inflation has not been material to its financial condition or results of
operations. Occasionally, the Company may experience slight increases in the
average purchase price per unit of merchandise; however, such increases also
reflect the impact of an increase in the quality of goods purchased in addition
to minimal inflationary factors.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary needs for liquidity and capital have been to
fund its new store expansion, the related growth in merchandise inventories and
the expansion of the Home Office and Distribution Center. Until fiscal 1995,
these needs were met principally through cash provided by operations and the
Company's available line of credit. Beginning in fiscal 1995, additional sources
of financing were necessary to fund the Company's liquidity and capital needs.
As a result, the Company amended its credit agreement to include a term loan
facility. In fiscal 1996, the Company replaced this facility with a two-year
agreement. In fiscal 1997, the Company extended the maturity date of its primary
credit facility and replaced a portion of this facility with a twenty-year
mortgage which, together with cash provided by operations is expected to meet
liquidity and capital needs during the period of the agreement.
In May and June 1997 and February 1998, the Company amended its financing
arrangements with its primary lender. Considered together, the amendments
provide a three-year extension through March 2001 and continue to provide a
revolving credit facility of up to $37,500,000 (including a letter of credit
sub-facility of up to $25,000,000). Under the June 1997 amendment, the Company
was permitted to enter into a mortgage loan agreement with a commercial bank
(discussed further below) and the term loan portion of the agreement with the
primary lender was repaid. Under the May 1997 amendment, the term loan was
increased by approximately $1,450,000 to $7,500,000.
Borrowings under the credit agreement with the primary lender are collateralized
by all assets owned by the Company during the term of the agreement (other than
the land, building, fixtures and improvements collateralizing the mortgage loan
discussed below) and bear interest, at the Company's option (subject to certain
limitations in the agreement), at the Prime Rate plus 0.5% or the Adjusted
Eurodollar Rate, as defined, plus 2.5%. Maximum borrowings under the revolving
credit facility and utilization of the letter of credit facility are based on a
borrowing base formula determined with respect to eligible inventory as defined
in the agreement. The amended agreement provides for a temporary adjustment to
the lending formula to increase the borrowing availability during the period
January 30, 1998 through June 30, 1998. Availability under the revolving credit
facility fluctuates in accordance with the Company's seasonal variations in
inventory levels. At January 31, 1998, the Company had approximately $5.4
million of excess availability under the revised borrowing base formula. The
lending formula may be revised from time to time in response to changes in the
composition of the Company's inventory or other business conditions.
The Company's amended revolving credit agreement contains certain covenants
which, among other things, restrict the ability of the Company to incur
indebtedness, or encumber or dispose of assets, and prohibit the Company from
repurchasing its Common Stock or paying dividends. The Company is required to
maintain a $5,000,000 minimum level of working capital and to maintain a minimum
adjusted net worth (as defined in the agreement). Effective January 30, 1998,
such minimum net worth requirement was reduced from $34,000,000 to $25,000,000.
The Company was in compliance with these covenants at January 31, 1998.
In May 1997, the Company entered into an agreement with a commercial bank to
provide a letter of credit facility of up to $3,000,000. Letters of credit
issued under the agreement are collateralized by inventories purchased using
such letters of credit. In March 1998, the agreement was amended to adjust the
Company's minimum net worth requirement to the same level as that required by
the Company's primary lender under the revolving credit agreement. On April 21,
1998, the agreement was amended to extend the expiration date of the facility to
the earlier of June 1999 or termination of the Company's revolving credit
facility with its primary lender. The agreement, as amended, contains certain
restrictive covenants which are substantially the same as those within the
Company's amended revolving credit facility discussed above.
In June 1997, the Company repaid the term loan portion of its primary credit
facility and entered into a twenty-year mortgage agreement with a commercial
bank. The agreement provides for a mortgage loan of $8,125,000 secured by the
Company's real property located at its corporate offices including land,
buildings, fixtures and improvements. Commencing August 1, 1997, the mortgage
loan is payable in 240 consecutive equal monthly installments (including
interest at the rate of 9.125% per annum). Certain fees may be payable by the
Company if the mortgage loan is repaid prior to June 2014. The mortgage
agreement contains certain nonfinancial covenants with which the Company was in
compliance at January 31, 1998.
The maximum and average amounts outstanding during fiscal 1997 and 1996 and
amounts outstanding at the end of such periods for both the term loan and
revolving credit facility are disclosed in Note B to the Consolidated Financial
Statements in Item 8 of this document.
The Company's weighted average interest rate for all borrowings was 8.4% and
7.9% in fiscal 1997 and fiscal 1996, respectively. The Company had outstanding
letters of credit for the purchase of merchandise inventories totaling
approximately $6,075,000 and $12,490,000 at January 31, 1998 and February 1,
1997, respectively.
At January 31, 1998, total merchandise inventories decreased 27% to $35,508,000
compared to $48,371,000 at February 1, 1997. The decrease in total merchandise
inventories is primarily due to a decrease in merchandise in-transit to the
Company's Distribution Center from its vendors. Most of this year-over-year
in-transit decrease (a 52% decrease compared to last year) related to lower
levels of in-transit imported goods. Presently, the Company is relying more
heavily on sourcing inventory through opportunistic purchases from domestic
vendors. In fiscal 1997, import purchases (including freight and duty) were 24%
of total purchases compared to 31% in fiscal 1996. Merchandise inventories
located in the Company's stores decreased 8% on an average store basis primarily
due to the re-pricing of merchandise during the fourth quarter of fiscal 1997.
The level and source of inventories is subject to fluctuations because of the
Company's opportunistic buying strategy and prevailing business conditions.
Net cash provided by operating activities for fiscal 1997, 1996 and 1995 was
$8,660,000, $2,352,000 and $3,694,000, respectively. The increase in cash
provided by operating activities in fiscal 1997 compared to fiscal 1996 resulted
primarily from the decrease in merchandise inventories and non-cash charges
including depreciation and costs associated with disposal of property and
equipment (due to closing stores as part of the restructuring plan) which more
than offset the Company's net loss.
Net cash used in investing activities for fiscal 1997, 1996 and 1995 was
$7,134,000, $3,033,000 and $11,277,000, respectively, primarily for leasehold
improvements and equipment for new stores opened each year, as well as
expansions to the distribution center including information systems and hardware
in fiscal 1995.
Net cash of $2,256,000 was used in financing activities in fiscal 1997 primarily
as a result of a net repayment on the Company's revolving credit facility which
exceeded the net borrowings on the Company's mortgage loan and term loan
facilities. Net cash of $2,834,000 was provided by financing activities in
fiscal 1996 primarily as a result of net borrowings on the Company's revolving
credit facility and net borrowings on the Company's term loan facilities. Net
cash of $7,889,000 was provided by financing activities in fiscal 1995 primarily
as a result of obtaining a term loan facility.
During the Transition Period, net cash of $10,393,000 provided by financing
activities was used to offset the $10,536,000 used in operating activities which
resulted primarily from the Company's loss during the period.
In fiscal 1998, the Company plans to spend approximately $2.0 million on capital
expenditures, most of which will be used to remodel and relocate existing
stores. While the Company's liquidity requirements in the foreseeable future are
expected to be met principally through cash provided by operations and the use
of its existing credit facilities, a lack of sufficient improvement in operating
results during the third and fourth quarters of fiscal 1998 may require the
Company to seek additional financing. If deemed by management to be in the best
interest of the Company, additional long term debt, capital leases or other
permanent financing may be considered.
YEAR 2000 SYSTEMS READINESS
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue. Based on
the review, the Company's major systems which would be adversely affected by the
year 2000 will be replaced or upgraded through the normal course of business.
Internal resources will be used in a timely manner to evaluate, modify and test
the Company's other systems which are not scheduled to be upgraded or replaced
through the normal course of business. Management believes the combination of
these efforts will prepare the Company's computer systems for the year 2000 on a
timely basis. However, if such modifications and conversions are not completed
timely, the Year 2000 problem may have a material impact on the operations of
the Company. The incremental costs associated with major system upgrades and/or
replacements, as well as internal efforts to evaluate, modify and test the
Company's other systems are not expected to be material to the Company's
consolidated financial statements.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS 130, "Reporting Comprehensive Income," effective for
periods beginning after December 15, 1997. The new standard requires disclosure
of comprehensive income within the basic financial statements for those entities
with items which qualify as components of comprehensive income such as foreign
currency transactions and unrealized gains on securities. If the Company had
applied the principles of SFAS 130 for the fiscal year ended January 31, 1998,
the comprehensive loss would have been the same as the net loss reported for the
period.
The FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," effective for periods beginning after December 15, 1997.
The new standard requires disclosure of revenues, results of operations and
assets of each segment of a public enterprise which qualifies based on
quantifiable and decision-making criteria. The Company is in the process of
reviewing the effect, if any, that SFAS 131 will have on the Company's
consolidated financial statements.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
All statements contained in this Annual Report on Form 10-K as to future
expectations and financial results including, but not limited to, statements
containing the words "believe," "anticipates," "expects," and similar
expressions, should be considered forward-looking statements subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995. The
Company cautions readers of this Annual Report on Form 10-K that a number of
important factors could cause the Company's actual results in fiscal 1998 and
beyond to differ materially from those expressed in such forward-looking
statements. These factors include, but are not limited to, the general economic
conditions and consumer demand; consumer preferences; weather patterns;
competitive factors, including pressure from pricing and promotional activities
of competitors; the impact of excess retail capacity and the availability of
desirable store locations on suitable terms; whether or not the Company's
merchandising strategy to offer alternative categories of merchandise at
alternative price points will increase sales and operating results or increase
and attract new customers; the availability, selection and purchasing of
attractive merchandise on favorable terms; credit availability, including
adequate levels of credit support provided to certain of the Company's vendors
by factors and insurance companies; import risks, including potential
disruptions and duties, tariffs and quotas on imported merchandise; and other
factors that may be described in the Company's filings with the Securities and
Exchange Commission from time to time. The Company does not undertake to
publicly update or revise its forward-looking statements even if experience or
future changes make it clear that any projected results expressed or implied
therein will not be realized.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
One Price Clothing Stores, Inc.
Duncan, South Carolina
We have audited the accompanying consolidated balance sheets of One Price
Clothing Stores, Inc. and subsidiaries (the "Company") as of January 31, 1998
and February 1, 1997, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the fiscal years ended January 31,
1998, February 1, 1997 and December 30, 1995 and for the five-week period ended
February 3, 1996. Our audits also included the financial statement schedule
listed in the Index at Item 14 (d). These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of January 31, 1998
and February 1, 1997, and the results of its operations and its cash flows for
the fiscal years ended January 31, 1998, February 1, 1997 and December 30, 1995
and for the five-week period ended February 3, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note J to the financial statements, in the five-week period
ended February 3, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 and changed its method of accounting for merchandise
inventories.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
March 20, 1998 (April 21, 1998 as to Note B)
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, February 1,
1998 1997
Assets -- Note B
CURRENT ASSETS
Cash and cash equivalents $ 1,827,000 $ 2,557,000
Miscellaneous receivables, net of allowance for
doubtful accounts of $196,000 (1997) and
$144,000 (1996) -- Note G 2,066,000 1,120,000
Merchandise inventories 35,508,000 48,371,000
Federal and state income taxes receivable 4,637,000 4,237,000
Prepaid expenses 4,293,000 3,671,000
Deferred income taxes -- Note D -- 1,935,000
------------ ------------
TOTAL CURRENT ASSETS 48,331,000 61,891,000
PROPERTY AND EQUIPMENT, net -- Note C 36,004,000 36,151,000
OTHER ASSETS -- Note G 3,777,000 2,925,000
------------ ------------
$ 88,112,000 $100,967,000
============ ============
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 25,391,000 $25,908,000
Current portion of long-term debt and revolving credit
facility -- Note B 11,664,000 16,565,000
Accrued salaries and wages 1,789,000 1,504,000
Accrued employee benefits 2,271,000 2,327,000
Other accrued and sundry liabilities -- Note G 2,965,000 2,418,000
------------ ------------
TOTAL CURRENT LIABILITIES 44,080,000 48,722,000
------------ ------------
LONG-TERM DEBT -- Note B 7,915,000 4,868,000
------------ ------------
DEFERRED INCOME TAXES -- Note D -- 718,000
------------ ------------
OTHER NONCURRENT LIABILITIES -- Notes E and G 3,095,000 2,317,000
------------ ------------
COMMITMENTS -- Note E
SHAREHOLDERS' EQUITY -- Notes B, F and H
Preferred Stock, par value $0.01 - authorized
and unissued 500,000 shares
Common Stock, par value $0.01 - authorized 35,000,000
shares; issued and outstanding 10,435,531 shares 104,000 104,000
Additional paid-in capital 11,453,000 11,453,000
Retained earnings 21,465,000 32,785,000
------------ ------------
33,022,000 44,342,000
------------ ------------
$ 88,112,000 $100,967,000
============ ============
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Transition Fiscal
Fiscal Year Ended Period Ended Year Ended
January 31, February 1, February 3, December 30,
1998 1997 1996 1995
--------------- --------------- --------------- ----------------
NET SALES $ 302,285,000 $ 298,986,000 $ 15,022,000 $ 294,692,000
Cost of goods sold, distribution and buying costs 201,901,000 193,318,000 14,545,000 195,304,000
--------------- --------------- --------------- ----------------
GROSS MARGIN 100,384,000 105,668,000 477,000 99,388,000
Selling, general and administrative expenses --
Notes C and G 78,077,000 75,564,000 6,957,000 71,498,000
Restructuring charge - Note L 2,265,000 -- -- --
Store rent and related expenses 26,415,000 25,566,000 2,030,000 24,810,000
Depreciation and amortization expense 5,131,000 4,778,000 411,000 4,394,000
Interest expense 2,078,000 1,897,000 173,000 1,326,000
--------------- --------------- --------------- ----------------
113,966,000 107,805,000 9,571,000 102,028,000
Interest income 89,000 143,000 3,000 45,000
--------------- --------------- --------------- ----------------
NET EXPENSES 113,877,000 107,662,000 9,568,000 101,983,000
--------------- --------------- --------------- ----------------
LOSS BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES (13,493,000) (1,994,000) (9,091,000) (2,595,000)
Benefit from income taxes - Note D (2,173,000) (727,000) (3,457,000) (1,291,000)
--------------- --------------- --------------- ----------------
LOSS BEFORE CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES (11,320,000) (1,267,000) (5,634,000) (1,304,000)
Cumulative effect of changes in accounting
principles, net of income tax benefit of
$706,000 - Note J -- -- (1,090,000) --
--------------- --------------- --------------- ----------------
NET LOSS $ (11,320,000) $ (1,267,000) $ (6,724,000) $ (1,304,000)
=============== =============== =============== ================
PER COMMON SHARE AMOUNTS
Loss before cumulative effect
of changes in accounting principles $ (1.08) $ (0.12) $ (0.55) $ (0.13)
Cumulative effect of changes in accounting
principles, net of income tax benefit -- Note J -- -- (0.10) --
--------------- --------------- --------------- ----------------
NET LOSS PER COMMON SHARE - BASIC $ (1.08) $ (0.12) $ (0.65) $ (0.13)
=============== =============== =============== ================
NET LOSS PER COMMON SHARE - DILUTED $ (1.08) $ (0.12) $ (0.65) $ (0.13)
=============== =============== =============== ================
Weighted average shares outstanding - basic and
diluted 10,435,531 10,400,789 10,335,031 10,313,860
=============== =============== =============== ================
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
Balance at December 31, 1994 10,305,256 $ 103,000 $10,891,000 $42,080,000 $53,074,000
Stock options exercised 29,775 -- 111,000 -- 111,000
Net loss -- -- -- (1,304,000) (1,304,000)
---------- --------- ----------- ------------ ------------
Balance at December 30, 1995 10,335,031 103,000 11,002,000 40,776,000 51,881,000
Net loss -- -- -- (6,724,000) (6,724,000)
---------- --------- ----------- ------------ -------------
Balance at February 3, 1996 10,335,031 103,000 11,002,000 34,052,000 45,157,000
Stock options exercised 100,500 1,000 451,000 -- 452,000
Net loss -- -- -- (1,267,000) (1,267,000)
---------- --------- ----------- ------------ ------------
Balance at February 1, 1997 10,435,531 104,000 11,453,000 32,785,000 44,342,000
Net loss -- -- -- (11,320,000) (11,320,000)
---------- --------- ----------- ------------ ------------
Balance at January 31, 1998 10,435,531 $ 104,000 $11,453,000 $21,465,000 $33,022,000
========== ========= =========== =========== ===========
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Transition Fiscal
Fiscal Year Ended Period Ended Year Ended
January 31, February 1, February 3, December 30,
1998 1997 1996 1995
-------------- ------------- -------------- ---------------
OPERATING ACTIVITIES
Net loss $ (11,320,000) $ (1,267,000) $ (6,724,000) $ (1,304,000)
(6,724,000)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 5,131,000 4,778,000 411,000 4,394,000
Changes in accounting principles -- -- 1,090,000 --
Provision for supplemental post-retirement benefits 128,000 970,000 -- --
Deferred income taxes 1,217,000 246,000 (146,000) (351,000)
Loss (gain) on disposal of property and equipment 2,325,000 1,261,000 (31,000) 789,000
Decrease (increase) in other noncurrent assets 382,000 579,000 (161,000) (522,000)
Increase in other noncurrent liabilities 435,000 151,000 271,000 500,000
Changes in operating assets and liabilities:
(Increase) decrease in miscellaneous
receivables and prepaid expenses (1,460,000) 594,000 (2,520,000) (42,000)
Decrease (increase) in merchandise inventories 12,863,000 (8,598,000) (10,321,000) (2,624,000)
(Increase) decrease in Federal and state
income taxes receivable (400,000) 437,000 (3,311,000) (1,292,000)
(Decrease) increase in accounts payable and other (641,000) 3,201,000 10,906,000 4,146,000
liabilities
-------------- ------------- -------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 8,660,000 2,352,000 (10,536,000) 3,694,000
-------------- ------------- -------------- ---------------
INVESTING ACTIVITIES
Purchases of property and equipment (6,346,000) (2,674,000) (80,000) (10,865,000)
Purchases of other noncurrent assets (564,000) (359,000) (41,000) (412,000)
Loan to related party, net of repayment (224,000) -- -- --
-------------- ------------- -------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (7,134,000) (3,033,000) (121,000) (11,277,000)
-------------- ------------- -------------- ---------------
FINANCING ACTIVITIES
Net (repayment of) borrowings from revolving credit facility (3,469,000) 2,171,000 10,403,000 2,412,000
Proceeds from long term debt borrowings 9,572,000 7,500,000 -- 6,000,000
Repayment of long term debt (7,957,000) (6,553,000) -- (500,000)
Debt financing costs incurred (259,000) (698,000) -- (90,000)
Decrease in amount due to related parties (47,000) (38,000) (10,000) (44,000)
Payment of capital lease obligations (96,000) -- -- --
Proceeds from exercise of Common Stock options -- 452,000 -- 111,000
-------------- ------------- -------------- ---------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (2,256,000) 2,834,000 10,393,000 7,889,000
-------------- ------------- -------------- ---------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (730,000) 2,153,000 (264,000) 306,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 2,557,000 404,000 668,000 362,000
-------------- ------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 1,827,000 $ 2,557,000 $ 404,000 668,000
============== ============= ============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 1,766,000 $ 1,777,000 $ 244,000 $ 1,117,000
Income taxes paid 86,000 68,000 -- 477,000
Noncash financing activities - capital leases 537,000 237,000 -- --
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1998
NOTE A - Operations and Summary of Significant Accounting Policies
Business: One Price Clothing Stores, Inc. and subsidiaries (the "Company")
operates a chain of off-price retail women's and children's specialty stores
offering a wide variety of first quality, contemporary, in-season apparel and
accessories. Prior to fiscal 1997, this merchandise was offered at the uniform
retail price of $7. The Company currently offers most of its merchandise at or
below $7 and offers certain additional categories and styles at prices higher
than $7 when such merchandise is clearly desired by the Company's customers.
Such higher priced merchandise is offered primarily at $10. A limited number of
items will be priced at $12 and $15. This expansion of merchandise categories at
prices higher than $7 is referred to within the Company as its "Expanded Price
Program" or "EPP." At January 31, 1998, the Company operated 660 stores in 27
states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands.
Fiscal Year: Beginning in fiscal 1996, the Company's fiscal year ends on the
Saturday nearest January 31. See Note I. "Fiscal 1997" is the 52-week period
ended January 31, 1998; "fiscal 1996" is the 52-week period ended February 1,
1997; the "Transition Period" is the five-week period ended February 3, 1996;
and "fiscal 1995" is the 52-week period ended December 30, 1995. Certain
disclosures related to the Transition Period were not included in these Notes to
Consolidated Financial Statements due to immateriality.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Accounting Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with an original maturity of three months or less when purchased to be cash
equivalents.
Merchandise Inventories: Beginning in January 1996, merchandise inventories are
stated at the lower of cost (computed using the first-in, first-out (FIFO)
retail method) or market. See Note J.
Depreciation: Depreciation is computed by the straight-line method, based on
estimated useful lives of 10 years for land improvements, 33 to 40 years for
buildings, 5 to 10 years for leasehold improvements and 3 to 15 years for
fixtures and equipment.
Income Taxes:
Deferred income tax assets and liabilities represent the future income tax
effect of temporary differences between the book and tax bases of the Company's
assets and liabilities, assuming they will be realized and settled at the amount
reported in the Company's financial statements.
Purchased Software: Purchased software is included in other assets and is
amortized over its estimated useful life of 5 years using the straight-line
method.
Revenue Recognition: Revenues from retail sales are recognized at the time of
the sale. An estimate for merchandise returns is recorded in the period that the
merchandise is sold.
Store Preopening Costs: Costs associated with the opening of new stores are
expensed as incurred.
Store Closing and Impairment Costs: At the time management commits to close a
store and for other stores which may be impaired as determined using the
principles of SFAS 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of, the fixed assets are written down to
estimated fair market value and, for stores to be closed, a provision is made
for any remaining store lease obligation after closing or penalty, if any, to
cancel the lease obligation. See Note J.
Advertising and Promotional Costs: Advertising and promotional costs are
expensed when incurred. Such expenses were $592,000, $987,000, and $324,000 in
fiscal 1997, 1996 and 1995, respectively.
Net Loss Per Common Share: Basic net loss per common share is computed by
dividing net loss by the weighted average number of shares of Common Stock.
Diluted net loss per common share is computed by dividing net loss by the
weighted average number of shares of Common Stock and dilutive common stock
equivalent shares for stock options outstanding, unless antidilutive, during the
period. See Notes F and J.
Reclassifications: Certain amounts included in prior periods' financial
statements have been reclassified to conform to the fiscal 1997 presentation.
Effect of New Accounting Pronouncements: The FASB issued SFAS 130, "Reporting
Comprehensive Income," effective for periods beginning after December 15, 1997.
The new standard requires disclosure of comprehensive income within the basic
financial statements for those entities with items which qualify as components
of comprehensive income such as foreign currency transactions and unrealized
gains on securities. If the Company had applied the principles of SFAS 130 for
the fiscal year ended January 31, 1998, the comprehensive loss would have been
the same as the net loss reported for the period.
The FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," effective for periods beginning after December 15, 1997.
The new standard requires disclosure of revenues, results of operations and
assets of each segment of a public enterprise which qualifies based on
quantifiable and decision-making criteria. The Company is in the process of
reviewing the effect, if any, that SFAS 131 will have on the Company's
consolidated financial statements.
NOTE B - Credit Facilities
In May and June 1997 and February 1998, the Company amended its financing
arrangements with its primary lender. Considered together, the amendments
provide a three-year extension through March 2001 and continue to provide a
revolving credit facility of up to $37,500,000 (including a letter of credit
sub-facility of up to $25,000,000). Under the June 1997 amendment, the Company
was permitted to enter into a mortgage loan agreement with a commercial bank
(discussed further below) and the term loan portion of the agreement with the
primary lender was repaid. Under the May 1997 amendment, the term loan was
increased by approximately $1,450,000 to $7,500,000.
Borrowings under the credit agreement with the primary lender are collateralized
by all assets owned by the Company during the term of the agreement (other than
the land, building, fixtures and improvements collateralizing the mortgage loan
discussed below) and bear interest, at the Company's option (subject to certain
limitations in the agreement), at the Prime Rate plus 0.5% or the Adjusted
Eurodollar Rate, as defined, plus 2.5%. Maximum borrowings under the revolving
credit facility and utilization of the letter of credit facility are based on a
borrowing base formula determined with respect to eligible inventory as defined
in the agreement. The amended agreement provides for a temporary adjustment to
the lending formula to increase the borrowing availability during the period
January 30, 1998 through June 30, 1998. Availability under the revolving credit
facility fluctuates in accordance with the Company's seasonal variations in
inventory levels. At January 31, 1998, the Company had approximately $5.4
million of excess availability under the revised borrowing base formula. The
lending formula may be revised from time to time in response to changes in the
composition of the Company's inventory or other business conditions.
The Company's amended revolving credit agreement contains certain covenants
which, among other things, restrict the ability of the Company to incur other
indebtedness, or encumber or dispose of assets, and prohibit the Company from
repurchasing its Common Stock or paying dividends. The Company is required to
maintain a $5,000,000 minimum level of working capital and to maintain a minimum
adjusted net worth (both as defined in the agreement). Effective January 30,
1998, such minimum net worth requirement was reduced from $34,000,000 to
$25,000,000. The Company was in compliance with these covenants at January 31,
1998.
In May 1997, the Company entered into an agreement with a commercial bank to
provide a letter of credit facility of up to $3,000,000. Letters of credit
issued under the agreement are collateralized by inventories purchased using
such letters of credit. In March 1998, the agreement was amended to adjust the
Company's minimum net worth requirement to the same level as that required by
the Company's primary lender under the revolving credit agreement. On April 21,
1998, the agreement was amended to extend the expiration date of the facility to
the earlier of June 1999 or termination of the Company's revolving credit
facility with its primary lender. The agreement, as amended, contains certain
restrictive covenants which are substantially the same as those within the
Company's amended revolving credit facility discussed above.
In June 1997, the Company repaid the term loan portion of its primary credit
facility and entered into a twenty-year mortgage agreement with a commercial
bank. The agreement provides for a mortgage loan of $8,125,000 secured by the
Company's real property located at its corporate offices including land,
buildings, fixtures and improvements. Commencing August 1, 1997, the mortgage
loan is payable in 240 consecutive equal monthly installments (including
interest at the rate of 9.125% per annum). Certain fees may be payable by the
Company if the mortgage loan is repaid prior to June 2014. The mortgage
agreement contains certain nonfinancial covenants with which the Company was in
compliance at January 31, 1998.
The maximum and average amounts outstanding during fiscal 1997 and 1996 and
amounts outstanding at the end of such periods for both the term loan and
revolving credit facility are presented as follows:
Fiscal Year Ended
January 31, February 1,
1998 1997
Revolving Credit Facility:
Maximum amounts outstanding $19,525,000 $19,241,000
Average amounts outstanding 10,784,000 10,792,000
Outstanding at period end 11,517,000 14,986,000
Term Loan:
Maximum amounts outstanding $ 8,125,000 $ 7,500,000
Average amounts outstanding 7,517,000 6,889,000
Outstanding at period end 8,062,000 6,447,000
The Company's weighted average interest rate for all borrowings was 8.4% and
7.9% in fiscal 1997 and fiscal 1996, respectively. The Company had outstanding
letters of credit for the purchase of merchandise inventories totaling
approximately $6,075,000 and $12,490,000 at January 31, 1998 and February 1,
1997, respectively.
Annual maturities of the term loan are as follows:
Fiscal Year Amount
1998 $ 147,000
1999 161,000
2000 174,000
2001 193,000
2002 212,000
Later 7,175,000
Total $8,062,000
The fair value of the Company's outstanding debt at January 31, 1998
approximates the carrying value.
NOTE C - Property and Equipment
January 31, February 1,
1998 1997
Land $ 914,000 $ 914,000
Land improvements 494,000 494,000
Building 16,055,000 16,028,000
Leasehold improvements 14,194,000 11,392,000
Fixtures and equipment 29,095,000 28,780,000
------------- ------------
60,752,000 57,608,000
Less accumulated depreciation (24,748,000) (21,457,000)
------------ ------------
$36,004,000 $ 36,151,000
=========== ============
In accordance with the principles of SFAS 121 (which was adopted on December 31,
1995 - See Note J), the Company evaluates whether assets, largely store
leasehold improvements and fixtures and equipment, may be impaired based on
store lease termination and renewal decisions and estimated undiscounted future
cash flows of the individual stores. For stores which are determined to be
impaired, leasehold improvements are written off and fixtures and equipment are
written down based upon management's estimate of recoverability. Such impairment
loss was approximately $425,000 and $600,000 for fiscal 1997 and 1996,
respectively, and is included in selling, general and administrative expenses in
the accompanying Consolidated Statement of Operations.
NOTE D - Income Taxes
The benefit from income taxes consists of the following:
Transition Fiscal
Fiscal Year Ended Period Ended Year Ended
January 31, February 1, February 3, December 30,
1998 1997 1996 1995
---- ---- ----------- -------------
Current
Federal $(3,670,000) $(982,000) $(2,875,000) $(1,001,000)
State and local 280,000 1,000 (436,000) 61,000
Puerto Rico -- 8,000 -- --
Deferred:
Federal 616,000 265,000 (63,000) (5,000)
State and local 447,000 (149,000) (13,000) (144,000)
Puerto Rico 154,000 130,000 (70,000) (202,000)
------------ ---------- ------------ ------------
Total benefit from income taxes $(2,173,000) $(727,000) $(3,457,000) $(1,291,000)
============ ========== ============ ============
Presented below are the elements which comprise deferred income tax assets and
liabilities:
January 31, February 1,
1998 1997
----------- -----------
Gross deferred income tax assets:
Accrued employee benefits deductible
for tax purposes when paid $ 786,000 $ 773,000
Excess of tax over financial statement
basis of inventory 375,000 923,000
Accrued retirement benefits deductible
for tax purposes when paid 530,000 502,000
Accrued store closing cost deductible
for tax purposes when paid 885,000 634,000
State and local net operating loss
carryforwards 999,000 973,000
Puerto Rico net operating loss
carryforwards 1,314,000 154,000
Miscellaneous 295,000 94,000
--------- ---------
Gross deferred income tax assets 5,184,000 4,053,000
Valuation allowance (3,156,000) (354,000)
----------- -----------
2,028,000 3,699,000
----------- -----------
Gross deferred income tax liabilities:
Excess of financial statement over tax
basis of property and equipment (1,999,000) (2,422,000)
Miscellaneous (29,000) (60,000)
----------- -----------
Gross deferred income tax liabilities (2,028,000) (2,482,000)
------------ -----------
Net deferred income tax asset $ -- $1,217,000
============ ===========
The net deferred income tax asset at February 1, 1997 is recognized in the
accompanying balance sheets as follows:
Current assets $1,935,000
Noncurrent liabilities (718,000)
-----------
Net deferred income tax asset $1,217,000
==========
At January 31, 1998 the Company had net operating loss carryforwards for state
income tax purposes aggregating approximately $8,300,000, credit carryforwards
for state income tax purposes aggregating $349,000, Puerto Rico net operating
loss carryforwards aggregating $3,345,000, Virgin Islands net operating loss
carryforwards aggregating $23,000, U.S. Federal alternative minimum tax credit
carryforwards of $87,000, and net cumulative temporary differences for U.S.
Federal and state income tax purposes aggregating $2,139,000. With the exception
of the U.S. Federal alternative minimum tax credit carryforwards (which do not
expire), these net operating loss and credit carryforwards expire at various
times between 2000 and 2012. Management cannot be assured that the deferred
income tax assets related to these carryforwards and temporary differences will
be fully utilized. Accordingly, valuation allowances aggregating $3,156,000 have
been provided at January 31, 1998 for the full amount of these deferred tax
assets.
A reconciliation of the statutory Federal income tax benefit rate to the annual
effective income tax benefit rate follows:
Transition Fiscal
Fiscal Year Ended Period Ended Year Ended
January 31, February 1, February 3, December 30,
1998 1997 1996 1995
--------------- -------------- ----------------- ----------
Federal income tax at statutory rate 35.0 % 35.0 % 35.0 % 35.0 %
State and local income tax, net of Federal
tax benefit 2.7 % 4.6 % 4.2 % 3.2 %
Puerto Rico net operating loss -- -- -- 7.8 %
Tax benefit from carryback of Federal
Targeted Jobs Tax Credits 0.4 % -- -- 5.9 %
Valuation allowances (20.8)% -- -- --
Other, net (1.2)% (3.1)% (1.2)% (2.2)%
------- -------- -------- --------
16.1% 36.5 % 38.0 % 49.7 %
======= ======== ========== =======
NOTE E - Leases
The Company leases its stores under operating leases with initial terms of
typically five years with one to two renewal option periods of five years each.
The leases generally provide for increased payments resulting from increases in
operating costs, common area maintenance costs and property taxes. Substantially
all store leases also provide the Company with an option to terminate the
agreement without penalty if certain conditions are present. Most of the leases
provide for contingent or percentage rentals based upon sales volume and others
are leased on a month-to-month basis.
In addition, the Company has operating leases for automobiles, trucks, trailers
and certain computer and other equipment with one to ten year terms.
Future minimum rental commitments as of January 31, 1998 for noncancellable
leases (including those which may qualify for early termination) are
approximately as follows:
Fiscal Year Stores Other Total
1998 $20,704,000 1,357,000 22,061,000
1999 17,133,000 1,113,000 18,246,000
2000 12,786,000 687,000 13,473,000
2001 9,541,000 42,000 9,583,000
2002 7,164,000 41,000 7,205,000
Later 10,264,000 20,000 10,284,000
------------ ------------ ------------
Total $77,592,000 $3,260,000 $80,852,000
=========== ========== ============
Total rental expense for operating leases was as follows:
Transition Fiscal
Fiscal Year Ended Period Ended Year Ended
January 31, February 1, February 3, December 30,
1998 1997 1996 1995
---------------- ---------------- -------------- -----------
Minimum rentals $23,244,000 $22,061,000 $ 1,792,000 $21,686,000
Contingent rentals 4,932,000 5,103,000 331,000 4,739,000
----------- ------------ ----------- -----------
$28,176,000 $27,164,000 $ 2,123,000 $26,425,000
=========== =========== =========== ===========
The Company's capital leases for certain office equipment and computer software
were calculated using interest rates appropriate at the inception of each lease.
Future minimum lease payments for capitalized lease obligations as of January
31, 1998 were as follows:
Fiscal Year:
1998 $ 275,000
1999 244,000
2000 186,000
2001 35,000
2002 24,000
----------
Total minimum obligations 764,000
Less interest (94,000)
----------
Present value of net minimum obligations 670,000
Less current portion (226,000)
---------
Long-term obligation at January 31, 1998 $ 444,000
=========
NOTE F - Employee Benefits
Stock Option Plans: The Company has three stock option plans (the 1991, 1988,
and 1987 Plans) which provide for grants to certain officers, directors, and key
employees of options to purchase shares of Common Stock of the Company. Options
granted under the plans expire ten years from the date of grant and have been
granted at prices not less than the fair market value at the date of grant.
Effective October 27, 1988, the Board of Directors retired all unissued options
under the Company's 1987 Plan. Options canceled subsequent to October 27, 1988
under the 1987 Plan are retired. Options canceled under the 1991 and 1988 Plans
are available for reissuance. At January 31, 1998, a total of 215,000 shares of
Common Stock were reserved for issuance under the Company's option plans.
Effective April 1995, the Company adopted the 1995 Director Stock Option Plan
which provides for annual grants to non-employee members of the Board of
Directors. Such grants are immediately exercisable on the date of grant and
expire ten years from the date of grant. At January 31, 1998, 35,000 shares of
Common Stock were reserved for issuance under the 1995 Director Stock Option
Plan.
Effective April 1997, the Company's Board of Directors approved a special
stock option grant for 300,000 shares at the exercise price of $4.13 per share
(fair market value at the time of grant) to its Chief Executive Officer.
Twenty-five percent of such grant was immediately exercisable on the date of
grant with the remaining shares vesting ratably over four years. The options
expire ten years from the date of the grant.
A summary of the activity in the Company's stock option plans is presented
below.
Fiscal Fiscal Transition Fiscal
1997 1996 Period 1995
Weighted Weighted Weighted Weighted
Number Average Number Average Number Average Number Average
of Exercise of Exercise Of Exercise Of Exercise
Shares Price Shares Price Shares Price Shares Price
Outstanding at beginning of 555,845 $6.79 588,245 $7.84 561,145 $8.11 550,943 $8.45
period
Options granted 510,250 $3.93 234,250 $3.80 31,500 $3.12 108,000 $6.33
Options exercised -- -- (100,500) $3.92 -- -- (29,775) $3.59
Options cancelled (156,119) $5.13 (166,150) $8.04 (4,400) $8.12 (68,023) $9.99
--------- --------- ------- -------- -----
Outstanding at end of period 909,796 $5.47 555,845 $6.79 588,245 $7.84 561,145 $8.11
======= ======= ======= =======
Exercisable at end of period 370,706 237,015 249,775 247,175
======= ======= ======= =======
Weighted average fair value of
options granted during the
period (see below) $1.94 $1.86 $1.70 $3.54
The following table summarizes information about stock options
outstanding at January 31, 1998:
Options Outstanding Options Exercisable
Weighted
Number Average Weighted Weighted
Range of of Remaining Average Number Average
Exercise Shares Contractual Exercise of Exercise
Prices Outstanding Life (Years) Price Shares Price
$ 1.56 to $ 1.94 8,500 9.9 $ 1.85 -- --
$ 2.75 to $ 4.12 607,250 9.0 $ 3.87 142,950 $ 3.87
$ 4.50 to $ 6.67 136,146 6.0 $ 5.54 104,246 $ 5.40
$ 7.38 to $10.46 66,130 5.8 $ 9.14 50,960 $ 9.25
$ 11.17 to $15.62 72,350 5.1 $ 12.62 60,550 $ 12.35
$ 17.25 to $19.00 19,600 6.1 $ 17.37 12,000 $ 17.39
-------- -------
909,976 8.0 $ 5.47 370,706 $ 6.87
======= =======
The Company applies the principles of APB Opinion 25 in accounting for employee
stock option plans. Accordingly, no compensation cost has been recognized in the
Company's financial statements. Had compensation cost been determined on the
basis of SFAS 123, Accounting for Stock-Based Compensation, compensation expense
would have been recorded based on the estimated fair value of stock options
granted during the fiscal years presented. The total fair value of stock options
granted was estimated at $990,000 and $435,000 for the fiscal years ended
January 31, 1998 and February 1, 1997, respectively, based upon the
Black-Scholes option pricing model. The following assumptions were used in the
Black-Scholes option pricing model for stock options granted: risk-free interest
rates of approximately 6.0% for fiscal 1997 and 1996; an expected life of
approximately one year from the vest date for fiscal 1997 and 1996; and 65%
expected volatility for fiscal 1997 and 1996. The expected life of the stock
options granted and the stock price volatility during the expected life of the
options were estimated based upon historical experience and management's
expectations. Had compensation cost for the Company's stock option plans been
determined based on the estimated fair value at the grant dates for awards under
those plans consistent with the method of SFAS 123, the Company's net loss and
net loss per common share would have been impacted as indicated in the proforma
amounts below.
Fiscal Year Ended
January 31, February 1, December 30,
1998 1997 1995
Net loss Actual $(11,320,000) $(1,267,000) $ (1,304,000)
============= ============ =============
Proforma $(11,805,000) $(1,373,000) $ (1,356,000)
============= ============ =============
Net loss per common share Actual $ (1.08) $ (0.12) $ (0.13)
============= =========== =============
Proforma $ (1.13) $ (0.13) $ (0.13)
============= ============ =============
Retirement Plan: The Company has a 401(k) and profit-sharing plan, the One Price
Clothing Stores, Inc. Retirement Plan (the "Plan"). All employees in the United
States who are 21 years of age or older with at least one year of service are
eligible to participate in the Plan. Effective January 1995, the Company
increased its contribution obligation to 50% of each participant's contribution
with a maximum contribution of 2.5% of the participant's base compensation. In
addition, the Company may make an annual discretionary contribution on behalf of
the participants; no such discretionary contributions have been made by the
Company. Employer contributions (approximately $306,000, $296,000, and $292,000
in fiscal 1997, 1996 and 1995, respectively) vest ratably over five years.
Stock Purchase Plan: The Company adopted a Stock Purchase Plan, effective March
1995, that allows participating employees to purchase, through payroll
deductions, shares of the Company's Common Stock at prevailing market prices.
All full-time associates who are 18 years of age or older with at least six
months of service are eligible to participate in the Stock Purchase Plan. The
Stock Purchase Plan provides that participants may authorize the Company to
withhold from net earnings and deposit such amounts with an independent
custodian. The custodian purchases Common Stock of the Company at prevailing
market prices and distributes the shares purchased to the participants upon
request. The Company pays expenses associated with the purchases of the Common
Stock and administration of the Stock Purchase Plan.
NOTE G - Related Party Transactions
In fiscal 1997, the Company entered into a deferred compensation agreement with
its President and Chief Executive Officer. The agreement provides for 120
consecutive monthly payments of $5,000 (including interest) beginning upon the
date of retirement. Approximately $40,000 of the total present value of the
obligation was charged to selling, general and administrative costs in fiscal
1997 and is included in other noncurrent liabilities at January 31, 1998. The
remaining portion of the total present value of the obligation, approximately
$406,000, will be fully accrued by May 2004, six years after commencement of
employment.
In fiscal 1997, the Company entered into a loan agreement of $225,000 with its
President and Chief Executive Officer. The terms of the loan require that
minimum principal and interest (set at a floating rate equal to the rate the
Company uses under its revolving credit agreement with its primary lender)
payments be made to the Company during the course of the loan, with the full
amount of the loan plus accrued interest due in full by December 2000.
Approximately $107,000 and $117,000 were included in accounts receivable and
noncurrent assets, respectively at January 31, 1998.
The Company also has a deferred compensation agreement with its Chairman of the
Board of Directors. The agreement provides for 120 consecutive monthly payments
of $13,750 (including interest) beginning upon the earlier of the date of
retirement or death. When the Company entered into the agreement in fiscal 1996,
the estimated present value of the obligation, $970,000, was charged to selling,
general and administrative expenses. Approximately $28,000 and $1,002,000 is
included in current liabilities and other noncurrent liabilities, respectively
at January 31, 1998.
The Company also has a deferred compensation agreement with a former executive
officer that is currently a member of the Company's Board of Directors. The
agreement provides for monthly payments aggregating $75,000 annually (including
interest) through July 2002.
The Company paid approximately $76,000, $64,000 and $171,000 in fiscal 1997,
1996 and 1995, respectively, for legal services provided by the law firm of
which a Company Director is a member.
NOTE H - Shareholders' Equity
In March 1994, the Company declared a 3-for-2 stock split effected in the form
of a stock dividend payable April 29, 1994 to shareholders of record as of the
close of business on April 15, 1994. Accordingly, Common Stock outstanding, the
weighted average number of common and common equivalent shares and per share
amounts were retroactively adjusted to give effect to the stock split.
The Company adopted a Shareholders Rights Plan in November 1994. Each
shareholder of record on November 15, 1994 is entitled to one Right for each
share of Common Stock held on such date. Each Right entitles the registered
holder to purchase from the Company one half share of Common Stock at a
specified price. The Rights become exercisable only upon the occurrence of
certain conditions set forth in the Shareholders Rights Plan relating to the
acquisition of 20% or more of the outstanding shares of Common Stock.
NOTE I - Change in Fiscal Year End
Beginning in fiscal 1996, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest January 31. This change was
made to conform the Company's fiscal calendar to the seasonal patterns it
experiences, as well as to enhance comparability of its fiscal quarter and
annual results with other retail companies.
NOTE J - Changes in Accounting Principles
The Financial Accounting Standards Board ("FASB") issued Statement No. 121 (SFAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." This statement essentially requires that when the
Company commits to closing specific stores and for other stores which may be
impaired, the fixed assets for such stores must be written down to estimated
fair market value. The Company's adoption of SFAS 121, required for years
beginning after December 15, 1995, resulted in a decrease in net fixed assets of
approximately $1,630,000 and a charge of approximately $1,397,000 (net of income
taxes) which is included in the cumulative effect of changes in accounting
principles in the Statement of Operations for the Transition Period.
The Company also elected to change certain methods of accounting for merchandise
inventories beginning in the Transition Period. The Company changed from the
lower of average first-in, first-out (FIFO) cost or market method of accounting
to the lower of cost (computed using the FIFO retail method) or market. The
Company believes that the FIFO retail method provides improved information for
the operation of its business in a manner consistent with the method used widely
in the retail industry. The Company is also capitalizing into inventory certain
merchandise acquisition and distribution costs to provide a better matching of
revenues and expenses, particularly in interim periods. The effect of the change
to the FIFO retail method was to reduce merchandise inventories by approximately
$1,207,000, and the effect of capitalizing into inventory certain merchandise
acquisition and distribution costs was to increase merchandise inventories by
approximately $1,698,000. These changes in accounting for merchandise
inventories resulted in a net increase in merchandise inventories of
approximately $491,000 and a net benefit of approximately $307,000 (net of
income taxes) which is included in the cumulative effect of changes in
accounting principles in the Statement of Operations for the Transition Period.
The FASB issued Statement No. 128 (SFAS 128), "Earnings Per Share," which
requires a dual presentation of "basic" and "diluted" EPS on the face of the
income statement. The Company's adoption of SFAS 128, required for fiscal years
ending after December 15, 1997, resulted in weighted average shares for basic
and diluted EPS of 10,435,531, 10,400,789, 10,335,031 and 10,313,860 for fiscal
years 1997 and 1996, the Transition Period and fiscal 1995, respectively. As a
result, basic and diluted EPS for all periods presented are the same as EPS
reported under APB Opinion No. 15, which has been superceded by SFAS 128.
NOTE K - Quarterly Results (Unaudited)
The following is a summary of quarterly (13 weeks) operations for the fiscal
years ended January 31, 1998 and February 1, 1997 (in thousands except per share
data). See below for proforma 1995 quarterly results.
Fiscal 1997 Quarters Ended
May 2, August 2, November 1, January 31,
1997 1997 1997 1998
-----------------------------------------------------------
Net sales $78,899 $86,134 $63,845 $73,407
Gross margin 29,529 31,107 19,565 20,183
Net income (loss) 1,444 2,391 (5,161) (9,994)
Net income (loss) per common share 0.14 0.23 (0.49) (0.96)
Fiscal 1996 Quarters Ended
May 3, August 3, November 2, February 1,
1996 1996 1996 1997
------------------------------------------------------------
Net sales $76,294 $87,450 $63,899 $71,343
Gross margin 28,727 31,220 21,277 24,444
Net income (loss) 1,237 2,940 (2,763) (2,681)
Net income (loss) per common share 0.12 0.28 (0.26) (0.26)
The net loss in the fourth quarter of fiscal 1997 was increased by $2,802,000,
$0.27 per common share, as a result of adjustments to the estimated effective
income tax rate used in previous quarters within fiscal 1997.
Unaudited proforma fiscal 1995 quarterly results (before the cumulative effect
of the changes in accounting principles effective in January 1996) are
presented below (in thousands except per share data) to reflect the change in
fiscal year end. Each quarter consists of 13 weeks except the fourth quarter
of 1995 which consists of 14 weeks.
Fiscal 1995 Quarters Ended - Proforma
April 29, July 29, October 28, February 3,
1995 1995 1995 1996
---------- ---------- ----------- ----------
Net sales $67,722 $86,157 $69,451 $74,211
Gross margin 24,727 31,141 22,712 21,974
Income (loss) before cumulative effect
of changes in accounting principles 667 2,936 (2,276) (3,476)
Net income (loss) per common share
before cumulative effect of changes
in accounting principles 0.06 0.28 (0.22) (0.34)
In the above presentation, certain distribution and buying costs were
reclassified to cost of sales from selling, general and administrative
expenses to enhance comparability to fiscal 1997 and 1996 operating results.
NOTE L - Effect of Restructuring
In response to lower than expected operating results, the Company announced a
restructuring plan during the fourth quarter of fiscal 1997. The plan
includes initiatives which are designed to return the Company to
profitability by lowering operating costs, redeploying assets and curtailing
the number of new store openings until the Company's existing stores are
operating profitably. Under the plan, the Company will close approximately 75
low-volume, underperforming stores and eliminate approximately 300 positions.
The Company recorded a one-time charge of $2,265,000 during the fourth
quarter of fiscal 1997 to cover costs associated with the plan. The total
charge of $2,265,000 includes costs to close stores, such as the noncash
write-off of fixed assets and store supplies of $1,378,000, lease buyouts of
approximately $398,000, and employee severance costs, outplacement costs and
other miscellaneous expenses of approximately $489,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
On April 1, 1997, the Company filed a report on Form 8-K dated April 1, 1997
to report that Henry D. Jacobs, Jr., the Company's Chairman, President and
Chief Executive Officer announced his resignation of his positions as
President and Chief Executive Officer. He has continued as Chairman of the
Board of Directors of the Company. Mr. Larry I. Kelley, formerly President and
Chief Executive Officer of Casual Male Big and Tall, a division of J. Baker,
Inc., was appointed to the position of President and Chief Executive Officer,
effective April 24, 1997.
Effective December 10, 1997, David F. Bellet resigned his position as a member
of the Board of Directors of the Company for personal reasons and without
disagreement with the Company regarding the Company's operations, policies or
procedures.
Effective April 16, 1998, Leonard Snyder was appointed to the Company's Board
of Directors. Pending appointment by the Board, Mr. Snyder will succeed Mr.
Jacobs as Chairman of the Board after the Annual Meeting of Shareholders to be
held June 10, 1998. Mr. Jacobs will not seek reelection to the Board.
The remaining information required under this item is incorporated herein by
reference to the sections entitled "Election of Directors" and "Executive
Officers of the Company" and "Section 16(a) Beneficial Ownership Reporting
Compliance" of the Company's definitive Proxy Statement (the "Proxy
Statement") filed with the Securities and Exchange Commission in connection
with the Annual Meeting of Shareholders to be held June 10, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference
to the sections entitled "Compensation Committee Interlocks and Insider
Participation," "Compensation of Executive Officers," "Employment Contracts
and Deferred Compensation Arrangements," "Compensation Committee Report on
Executive Compensation," "Performance Graph" and "Election of Directors -
Directors' Fees" of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated herein by reference
to the sections entitled "Security Ownership of Certain Beneficial Owners,"
"Election of Directors" and "Security Ownership of Management" of the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in this item is incorporated herein by reference to
the sections entitled "Compensation Committee Interlocks and Insider
Participation" and "Employment Contracts and Deferred Compensation
Arrangements" of the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of One Price Clothing Stores, Inc.
are included in Part II, Item 8:
Independent Auditors' Report
Consolidated Balance Sheets as of January 31, 1998 and
February 1, 1997
Consolidated Statements of Operations for the fiscal years
ended January 31, 1998 and February 1, 1997, the Transition
Period ended February 3, 1996, and the fiscal year ended
December 30, 1995
Consolidated Statements of Shareholders' Equity for the
fiscal years ended January 31, 1998 and February 1, 1997,
the Transition Period ended February 3, 1996 and the fiscal
year ended December 30, 1995
Consolidated Statements of Cash Flows for the fiscal years
ended January 31, 1998 and February 1, 1997, the Transition
Period ended February 3, 1996 and the fiscal years ended
December 30, 1995
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedule
The following financial statement schedule of One Price Clothing
Stores, Inc. is included in Item 14 (d):
Schedule II -- Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because they
are not applicable or the information is included in the
financial statements or notes thereto.
(a) 3. Exhibits including those incorporated by reference:
Exhibit
Number Description
3(a) Certificate of Incorporation of the Registrant, as amended
through April 1987: Incorporated by reference to exhibit of
the same number to Registrant's Registration Statement on Form
S-1, filed April 10, 1987 (File No. 33-13321) ("the S-1").
3(a)(1) Certificate of Amendment of Certificate of Incorporation of
the Registrant: Incorporated by reference to exhibit of the
same number to Registrant's Annual Report on Form 10-K for the
year ended January 1, 1994 (File No. 0-15385)("the 1993 Form
10-K").
3(b) Restated By-Laws of the Registrant, as of July 22, 1992 and
amended as of July 20, 1994 and March 14, 1996. Incorporated
by reference to exhibit of the same number to Registrant's
Annual Report on Form 10-K for the year ended December 30,
1995 (File No. 0-15385)("the 1995 Form 10-K").
4(a) See Exhibits 3(a), 3(a)(1), and 3(b).
4(b) Specimen of Certificate of the Registrant's Common Stock:
Incorporated by reference to Exhibit 1 to the Registrant's
Registration Statement on Form 8-A filed with the Securities
and Exchange Commission on June 23, 1987 (File No. 0-15385).
4(c) Shareholder Rights Agreement by and between the Registrant and
Wachovia Bank of North Carolina, N. A. as Rights Agent dated
November 3, 1994: Incorporated by reference to Exhibit 2 to
the Registrant's Form 8-K filed November 10, 1994 (File No.
0-15385).
4(d) Loan and Security Agreement by and between Congress Financial
Corporation (Southern) as Lender and the Registrant and One
Price Clothing of Puerto Rico, Inc. as Borrowers dated March
25, 1996: Incorporated by reference to exhibit of same number
to the 1995 Form 10-K.
4(e) Amendment Number One to the Loan and Security Agreement by and
between Congress Financial Corporation (Southern) as Lender
and the Registrant, One Price Clothing of Puerto Rico, Inc.
and One Price Clothing - U.S. Virgin Islands, Inc. as
Borrowers dated May 16, 1997: Incorporated by reference to
Exhibit 10(a) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended May 3, 1997 (File No. 0-15385)
("the April 1997 Form 10-Q").
4(f) Continuing Commercial Credit Agreement by and between Carolina
First Bank as Lender and the Registrant, One Price Clothing of
Puerto Rico, Inc. and One Price Clothing - U.S. Virgin
Islands, Inc. as Borrowers dated May 16, 1997: Incorporated by
reference to Exhibit 10(b) to the April 1997 Form 10-Q.
4(g) Amendment Number Two to the Loan and Security Agreement by and
between Congress Financial Corporation (Southern) as Lender
and the Registrant, One Price Clothing of Puerto Rico, Inc.
and One Price Clothing U.S. Virgin Islands, Inc. as Borrowers
dated June 17, 1997: Incorporated by reference to Exhibit
10(c) to the Registrant's Quarterly report on Form 10-Q for
the quarter ended August 2, 1997 (File No. 0-15385) ("the July
1997 Form 10-Q").
4(h) Mortgage and Security Agreement by and between First Union
National Bank, as Mortgagee and One Price Realty, Inc. as
Mortgagor dated June 17, 1997: Incorporated by reference to
Exhibit 10(d) to the July 1997 Form 10-Q.
4(i) Promissory Note by and between First Union National Bank and
One Price Realty, Inc. dated June 17, 1997: Incorporated by
reference to Exhibit 10(e) to the July 1997 Form 10-Q.
4(j) Lease Agreement by and between One Price Clothing Stores, Inc.
as Tenant and One Price Realty, Inc. as Landlord dated June
17, 1997: Incorporated by reference to Exhibit 10(f) to the
July 1997 Form 10-Q.
4(k) Amendment Number Three to the Loan and Security Agreement by
and between Congress Financial Corporation (Southern) as
Lender and the Registrant, One Price Clothing of Puerto Rico,
Inc. and One Price Clothing - U.S.
Virgin Islands, Inc. as Borrowers dated February 19, 1998.
4(l) Amendment Number One to the Continuing Commercial Credit
Agreement by and between Carolina First Bank as Lender and the
Registrant, One Price Clothing of Puerto Rico, Inc. and One
Price Clothing - U.S. Virgin Islands, Inc. as Borrowers dated
March 20, 1998.
4(m) Amendment Number Two to the Continuing Commercial Credit
Agreement by and between Carolina First Bank as Lender and the
Registrant, One Price Clothing of Puerto Rico, Inc. and One
Price Clothing - U.S. Virgin Islands, Inc. as Borrowers
dated April 21, 1998.
4(n) The Company hereby agrees to furnish to the Commission upon
request of the Commission a copy of any instrument with respect
to long-term debt not being registered in a principal amount
less than 10% of the total assets of the Company and its
subsidiaries on a consolidated basis.
Material Contracts -- Executive Compensation Plans and Arrangements:
10(a)* Stock Option Plan of the Registrant dated February 20, 1987 and
related forms of Incentive and Non-qualified Stock Option
Agreements: Incorporated by reference to Exhibit 10(d) to
the S-1.
10(b)* Stock Option Plan of the Registrant dated December 12, 1988
and related forms of Incentive and Non-qualified Stock Option
Agreements: Incorporated by reference to Exhibit 10(a) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988 (File No. 0-15385) ("the 1988 Form 10-K").
10(c)* One Price Clothing Stores, Inc. 1991 Stock Option Plan:
Incorporated by reference to Exhibit 10(b) to the Registrant's
Annual Report on Form 10-K for the year ended December 28, 1991
(File No. 0-15385) ("the 1991 Form 10-K").
10(d)* Summary of Officer Bonus Plan: Incorporated by reference to
Exhibit 10 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 4, 1996 (File No. 0-15385) ("the April
1996 Form 10-Q").
10(e)* Form of Employment Agreement between Registrant and Henry D.
Jacobs, Jr.: Incorporated by reference to Exhibit 10(j) to the
1988 Form 10-K.
10(f)* Key man term insurance policy, issued February 20, 1993, on the
life of Henry D. Jacobs, Jr.: Incorporated by reference to
Exhibit 10(g) to the Registrant's Annual Report on Form 10-K
for the year ended January 2, 1993 (File No. 0-15385)(the 1992
Form 10-K).
10(g)* Employment Agreement dated January 16, 1995 and Amendment to
Employment Agreement dated January 20, 1997 between the
Registrant and Stephen A. Feldman: Incorporated by reference to
Exhibit 10(g) to the Registrant's Annual Report on Form 10-K
for the year ended February 1, 1997 ("the 1996 Form 10-K").
10(h)* Disability Income Policy for the benefit of Henry D. Jacobs,
Jr.: Incorporated by reference to Exhibit 10(i) to the 1992
Form 10-K.
10(i)* Agreement dated June 24, 1992 between the Registrant and
Raymond S. Waters: Incorporated by reference to Exhibit 10(l)
to the 1992 Form 10-K.
10(j)* Directors' Stock Option Plan effective April 19, 1995:
Incorporated by reference to Exhibit 10(m) in to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994
(File No. 0-15385)("the 1994 Form 10-K").
10(k)* Amendment Number One to One Price Clothing Stores, Inc.
Director Stock Option Plan dated March 14, 1996: Incorporated
by Reference to Exhibit 10(a) to the April 1996 Form 10-Q.
10(l)* Employment Agreement dated March 30, 1992 and Amendment to
Employment Agreement dated February 4, 1997 between the
Registrant and Ronald Swedin. Incorporated by reference to
Exhibit of the same number to the 1996 Form 10-K.
10(m)* Agreement dated March 25, 1997 between the Registrant and Henry
D. Jacobs, Jr.: Incorporated by reference to
Exhibit 10(n) to the 1996 Form 10-K.
10(n)* Employment Agreement dated March 26, 1997 between the
Registrant and Larry I. Kelley: Incorporated by
reference to Exhibit 10(o) to the 1996 Form 10-K.
10(o)* Addendum to Employment Agreement dated March 6, 1997 between
the Registrant and Henry D. Jacobs, Jr.: Incorporated by
reference to Exhibit 10(p) to the 1996 Form 10-K.
10(p)* Stock Option Agreement dated March 26, 1997 between Registrant
and Larry I. Kelley: Incorporated by reference
to Exhibit 10(c) to the April 1997 Form 10-Q.
10(q)* Employment Agreement dated November 10, 1997 and Amendment to
Employment Agreement dated April 16, 1998 between the
Registrant and A. J. Nepa.
10(r)* Employment Agreement dated October 21, 1991 and Amendment to
Employment Agreement dated April 16, 1998 between the
Registrant and George V. Zalitis.
10(s)* Letter of Understanding regarding Non-Executive Chairman of the
Board position and Consulting Agreement dated April 16, 1998
between the Registrant and Leonard Snyder.
* Denotes a management contract or compensatory plan or agreement.
Material Contracts -- Other: None
11 Statement regarding computation of per share earnings
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule (electronic filing only)
---------------------------------------
* Denotes a management contract or compensatory plan or agreement.
(b) Reports on Form 8-K.
On January 21, 1998, the Company filed a Report Form 8-K dated
January 20, 1998 to announce that the Company took a one-time
restructuring charge in fiscal 1997 for several initiatives
designed to return the Company to profitability.
No other reports on Form 8-K were required to be filed during the
last quarter of the period covered by this report.
On April 29, 1998, the Company filed a report on Form 8-K dated
April 29, 1998 to announce changes in the composition of the
Company's Board of Directors.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate
section of this report.
SIGNATURES
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 its
behalf by the undersigned, thereunto duly authorized.
ONE PRICE CLOTHING STORES, INC.
Date: April 30, 1998 /s/ Larry I. Kelley
----------------------------
Larry I. Kelley
President and Chief Executive Officer
(principal executive officer)
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.
Date: April 30, 1998 /s/ Henry D. Jacobs, Jr.
----------------------------
Henry D. Jacobs, Jr.
Chairman of the Board of Directors
Date: April 30, 1998 /s/ Larry I. Kelley
----------------------------
Larry I. Kelley
President and Chief Executive Officer
(principal executive officer)
Date: April 30, 1998 /s/ Stephen A. Feldman
----------------------------
Stephen A. Feldman
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
Date: April 30, 1998 /s/ Cynthia R. Cohen
---------------------------
Cynthia R. Cohen
Director
Date: April 30, 1998 /s/ Charles D. Moseley, Jr.
---------------------------
Charles D. Moseley, Jr.
Director
Date: April 30, 1998 /s/ Laurie M. Shahon
---------------------------
Laurie M. Shahon
Director
Date: April 30, 1998 /s/ Malcolm L. Sherman
---------------------------
Malcolm L. Sherman
Director
Date: April 30, 1998 /s/ James M. Shoemaker, Jr.
---------------------------
James M. Shoemaker, Jr.
Director
Date: April 30, 1998 /s/ Raymond S. Waters
---------------------
Raymond S. Waters
Director
ONE PRICE CLOTHING STORES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
----------------------- ---------------------- ------------------------------------------ ------------------- -----------------
COL. A
COL. B COL. C COL. D COL. E
----------------------- ---------------------- ------------------------------------------ ------------------- -----------------
----------------------- ---------------------- ------------------------------------------ ------------------- -----------------
DESCRIPTION ADDITIONS
Balance at Charged to Charged Deduction - Balance
Beginning of Cost & to Other- Describe (1) at End of
Period Expenses Describe Period
----------------------- ---------------------- ------------------------------------------ ------------------- -----------------
FISCAL YEAR ENDED
JANUARY 31, 1998
Allowance for
doubtful accounts $ 144,000 $ 432,000 $380,000 $ 196,000
========== =========== ======== ==========
Valuation allowance for
deferred income taxes $ 354,000 $ 2,802,000 $ -- $3,156,000
========== =========== ========= ==========
FISCAL YEAR ENDED
FEBRUARY 1, 1997
Allowance for
doubtful accounts $ 233,000 $ 685,000 $ 774,000 $ 144,000
======== =========== ========= =========
Valuation allowance for
deferred income taxes $ -- $ 354,000 $ -- $ 354,000
========= =========== ========= =========
TRANSITION
PERIOD ENDED
FEBRUARY 3, 1996
Allowance for
doubtful accounts $ 205,000 $ 108,000 $ 80,000 $ 233,000
========== ========== ======== =========
FISCAL YEAR ENDED
DECEMBER 30, 1995
Allowance for
doubtful accounts $189,000 $ 607,000 $591,000 $ 205,000
======== ========== ======== =========
(1) Write-offs charged against the allowance for returned customer checks
ONE PRICE CLOTHING STORES, INC.
EXHIBIT INDEX
Exhibit
Number Description
3(a) Certificate of Incorporation of the Registrant, as amended through
April 1987: Incorporated by reference to exhibit of the same number
to Registrant's Registration Statement on Form S-1, filed April 10,
1987 (File No. 33-13321) ("the S-1").
3(a)(1) Certificate of Amendment of Certificate of Incorporation of the
Registrant: Incorporated by reference to exhibit of the same number
to Registrant's Annual Report on Form 10-K for the year ended January
1, 1994 (File No. 0-15385)("the 1993 Form 10-K").
3(b) Restated By-Laws of the Registrant, as of July 22, 1992 and amended
as of July 20, 1994 and March 14, 1996. Incorporated by reference to
exhibit of the same number to Registrant's Annual Report on Form 10-K
for the year ended December 30, 1995 (File No. 0-15385)("the 1995
Form 10-K").
4(a) See Exhibits 3(a), 3(a)(1), and 3(b).
4(b) Specimen of Certificate of the Registrant's Common Stock:
Incorporated by reference to Exhibit 1 to the Registrant's
Registration Statement on Form 8-A filed with the Securities and
Exchange Commission on June 23, 1987 (File No.
0-15385).
4(c) Shareholder Rights Agreement by and between the Registrant and
Wachovia Bank of North Carolina, N. A. as Rights Agent dated November
3, 1994: Incorporated by reference to Exhibit 2 to the Registrant's
Form 8-K filed November 10, 1994 (File No. 0-15385).
4(d) Loan and Security Agreement by and between Congress Financial
Corporation (Southern) as Lender and the Registrant and One Price
Clothing of Puerto Rico, Inc. as Borrowers dated March 25, 1996:
Incorporated by reference to exhibit of same number to the 1995 Form
10-K.
4(e) Amendment Number One to the Loan and Security Agreement by and
between Congress Financial Corporation (Southern) as lender and
the Registrant, One Price Clothing of Puerto Rico, Inc. and One
Price Clothing - U.S. Virgin Islands, Inc. as Borrowers dated May
16, 1997: Incorporated by reference to Exhibit 10(a) to the
Registrants Quarterly Report on Form 10-Q for the quarter ended
May 3, 1997 (File No. 0-15385) ("the April 1997 Form 10-Q").
4(f) Continuing Commercial Credit Agreement by and between Carolina
First Bank as Lender and the Registrant, One Price Clothing of
Puerto Rico, Inc. and One Price Clothing - U.S. Virgin Islands,
Inc. as Borrowers dated May 16, 1997: Incorporated by reference to
Exhibit 10(b) to the April 1997 Form 10-Q.
4(g) Amendment Number Two to the Loan and Security Agreement by and
between Congress Financial Corporation (Southern) as Lender and
the Registrant, One Price Clothing of Puerto Rico, Inc. and One
Price Clothing - U.S. Virgin Islands, Inc. as Borrowers dated June
17, 1997: Incorporated by reference to Exhibit 10(c) to the
Registrant's Quarterly report on Form 10-Q for the quarter ended
August 2, 1997 (File No. 0-15385) ("the July 1997 Form 10-Q").
4(h) Mortgage and Security Agreement by and between First Union
National Bank, as Mortgagee and One Price Realty, Inc. as
Mortgagor dated June 17, 1997: Incorporated by reference to
Exhibit 10(d) to the July 1997 Form 10-Q.
4(i) Promissory Note by and between First Union National Bank and One
Price Realty, Inc. dated June 17, 1997: Incorporated by reference
to Exhibit 10(e) to the July 1997 Form 10-Q.
4(j) Lease Agreement by and between One Price Clothing Stores, Inc. as
Tenant and One Price Realty, Inc. as Landlord dated June 17, 1997:
Incorporated by reference to Exhibit 10(f) to the July 1997 Form
10-Q.
4(k) Amendment Number Three to the Loan and Security Agreement by and
between Congress Financial Corporation (Southern) as Lender and
the Registrant, One Price Clothing of Puerto Rico, Inc. and One
Price Clothing - U.S. Virgin Islands, Inc. as Borrowers dated
February 19, 1998.
4(l) Amendment Number One to the Continuing Commercial Credit Agreement
by and between Carolina First Bank as Lender and the Registrant,
One Price Clothing of Puerto Rico, Inc. and One Price Clothing -
U.S. Virgin Islands, Inc. as Borrowers dated March 20, 1998.
4(m) Amendment Number Two to the Continuing Commercial Credit Agreement
by and between Carolina First Bank as Lender and the Registrant,
One Price Clothing of Puerto Rico, Inc. and One Price Clothing -
U.S. Virgin Islands, Inc. as Borrowers dated April 21, 1998.
4(n) The Company hereby agrees to furnish to the Commission upon
request of the Commission a copy of any instrument with respect to
long-term debt not being registered in a principal amount less
than 10% of the total assets of the Company and its subsidiaries
on a consolidated basis.
Material Contracts -- Executive Compensation Plans and Arrangements:
10(a)* Stock Option Plan of the Registrant dated February 20, 1987 and
related forms of Incentive and Non-qualified Stock Option
Agreements: Incorporated by reference to Exhibit 10(d) to the S-1.
10(b)* Stock Option Plan of the Registrant dated December 12, 1988 and
related forms of Incentive and Non-qualified Stock Option
Agreements: Incorporated by reference to Exhibit 10(a) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988 (File No. 0-15385) ("the 1988 Form 10-K").
10(c)* One Price Clothing Stores, Inc. 1991 Stock Option Plan:
Incorporated by reference to Exhibit 10(b) to the Registrant's
Annual Report on Form 10-K for the year ended December 28, 1991
(File No. 0-15385) ("the 1991 Form 10-K").
10(d)* Summary of Officer Bonus Plan: Incorporated by reference to
Exhibit 10 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended May 4, 1996 (File No. 0-15385) ("the April 1996 Form
10-Q").
10(e)* Form of Employment Agreement between Registrant and Henry D.
Jacobs, Jr.: Incorporated by reference to Exhibit 10(j) to the
1988 Form 10-K.
10(f)* Key man term insurance policy, issued February 20, 1993, on the
life of Henry D. Jacobs, Jr.: Incorporated by reference to Exhibit
10(g) to the Registrant's Annual Report on Form 10-K for the year
ended January 2, 1993 (File No. 0-15385)("the 1992 Form 10-K").
10(g)* Employment Agreement dated January 16, 1995 and Amendment to
Employment Agreement dated January 20, 1997 between the Registrant
and Stephen A. Feldman: Incorporated by reference to Exhibit 10(g)
to the Registrant's Annual Report on Form 10-K for the year ended
February 1, 1996 ("the Form 10-K").
10(h)* Disability Income Policy for the benefit of Henry D. Jacobs, Jr.:
Incorporated by reference to Exhibit 10(i) to the 1992 Form 10-K.
10(i)* Agreement dated June 24, 1992 between the Registrant and Raymond
S. Waters: Incorporated by reference to Exhibit
10(l) to the 1992 Form 10-K.
10(j)* Directors' Stock Option Plan effective April 19, 1995:
Incorporated by reference to Exhibit 10(m) in to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994
(File No. 0-15385)("the 1994 Form 10-K").
10(k)* Amendment Number One to One Price Clothing Stores, Inc. Director
Stock Option Plan dated March 14, 1996: Incorporated by Reference
to Exhibit 10(a) to the April 1996 Form 10-Q.
10(l)* Employment Agreement dated March 30, 1992 and Amendment to
Employment Agreement dated February 4, 1997 between the Registrant
and Ronald Swedin. Incorporated by reference to Exhibit of the
same number to the 1996 Form 10-K.
10(m)* Agreement dated March 25, 1997 between the Registrant and Henry D.
Jacobs, Jr.: Incorporated by reference to Exhibit 10(n) to the
1996 Form 10-K.
10(n)* Employment Agreement dated March 26, 1997 between the Registrant
and Larry I. Kelley: Incorporated by reference to Exhibit 10(o) to
the 1996 Form 10-K.
10(o)* Addendum to Employment Agreement dated March 6, 1997 between the
Registrant and Henry D. Jacobs, Jr.: Incorporated by reference to
Exhibit 10(p) to the 1996 Form 10-K.
10(p)* Stock Option Agreement dated March 26, 1997 between Registrant and
Larry I. Kelley: Incorporated by reference to Exhibit 10(c) to the
April 1997 Form 10-Q.
10(q)* Employment Agreement dated November 10, 1997 and Amendment to
Employment Agreement dated April 16, 1998 between
Registrant and A. J. Nepa.
10(r)* Employment Agreement dated October 21, 1991 and Amendment to
Employment Agreement dated April 16, 1998 between the
Registrant and George V. Zalitis.
10(s)* Letter of Understanding regarding Non-Executive Chairman of the
Board position and Consulting Agreement dated April 16, 1998
between the Registrant and Leonard Snyder.
* Denotes a management contract or compensatory plan or agreement.
Material Contracts -- Other: None
11 Statement regarding computation of per share earnings
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule (electronic filing only)
---------------------------------------
* Denotes a management contract or compensatory plan or agreement.
(b) Reports on Form 8-K.
On January 21, 1998, the Company filed a Report Form 8-K dated
January 20, 1998 to announce that the Company took a one-time
restructuring charge in fiscal 1997 for several initiatives
designed to return the Company to profitability.
No other reports on Form 8-K were required to be filed during the
last quarter of the period covered by this report.
On April 29, 1998, the Company filed a report on Form 8-K dated
April 29, 1998 to announce changes in the composition of the
Company's Board of Directors.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate
section of this report.