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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 30, 1999
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 29, 1999: Common Stock, $0.01 Par Value - $39,338,973.
The number of shares outstanding of the issuer's classes of common stock as of
March 29, 1999: Common Stock, $0.01 Par Value - 10,440,331 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement to be filed with respect to the annual
shareholders meeting to be held June 9, 1999 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 cancellations and vendor needs for liquidity. The Company is
able to take advantage of these circumstances because of its willingness to
purchase large quantities and to buy goods later in the season than many other
retailers. This purchasing strategy allows the Company to obtain favorable
prices 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 own
the Company's corporate offices and distribution center facilities in Duncan,
South Carolina. As used herein, unless the context otherwise indicates, the
"Company" refers to (i) One Price Clothing Stores, Inc., a Delaware corporation,
(ii) the immediate predecessor of One Price Clothing Stores, Inc., a South
Carolina corporation of the same name, (iii) the South Carolina corporation's
predecessor, a North Carolina corporation organized in 1984 under the name J. K.
Apparel, Inc., (iv) One Price Clothing of Puerto Rico, Inc., (v) One Price
Clothing - U.S. Virgin Islands, Inc., and (vi) 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 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 1998 and
no export sales. Reference is hereby made to the consolidated 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 a base price of $7 and offers certain additional
categories and styles priced higher than $7 when the Company believes that such
merchandise is clearly desired by the Company's customers. Such higher priced
merchandise -- including denim, dresses, coordinated sets, sweaters and heavier
jackets -- is offered primarily within the $8 to $15 price range. In fiscal
1997, the Company adjusted its base prices in Puerto Rico and the U.S. Virgin
Islands to $8. Also during fiscal 1997, the base price for plus-sized apparel in
the United States was adjusted upward to $8. During the fourth quarter of fiscal
1998, the Company began testing men's apparel in select stores.
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
prior to 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 registered the trademark "OPC Fashions"
with the United States Patent and Trademark Office in January 1999 for a
ten-year period with the option to renew prior to expiration. The Company
considers the "One Price" and "OPC Fashions" trademarks to be valuable and
significant to the conduct of its business. The Company has registered "Ropa de
Ninos a un Precio" in the United States.
The One Price Store. The Company's typical store has approximately 3,300 square
feet, of which approximately 2,500 square feet is devoted to selling space. The
Company's current strategy is to open stores with a somewhat larger selling area
than this average and the Company expects to continue this approach. All of the
Company's stores are located in leased facilities with convenient access to
adequate parking or public transportation. At January 30, 1999, approximately
79% 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 typically located in communities with populations of at
least 40,000 people, 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, with in-store signage and graphics
that promote 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 of the
six regional sales managers is responsible for approximately nine districts.
Each district sales manager is responsible for approximately 11 stores and
visits each store in his or her district on a regular 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 30, 1999, the Company operated 618
stores in 27 states, the District of Columbia, Puerto Rico and the U.S. Virgin
Islands. The Company opened 7 stores, relocated 5 stores and closed 49
underperforming stores in fiscal 1998. The Company anticipates that it will open
approximately 30 new stores in fiscal 1999. The Company will continue to monitor
the individual performance of all stores. Currently, the Company foresees that
it will close approximately 15 underperforming stores in fiscal 1999.
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 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 1998, the Company purchased merchandise from approximately 800
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,
in-season apparel for juniors, misses, plus-sized women and children. In the
fourth quarter of fiscal 1998, the Company began testing men's merchandise in a
select group of stores and the Company plans to continue to do so in fiscal
1999. 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, blouses, shirts,
pants, shorts, skirts, dresses, sweaters and blazers. In fiscal 1997, the
Company began offering additional categories of merchandise such as outerwear,
denim and better dresses. Over the last three fiscal years, the proportions of
categories of merchandise the Company has sold have remained consistent and are
as follows: As a percentage of net sales, women's (juniors and misses) apparel
sales were 59%; plus-sized apparel sales were 21%; accessory sales (such as
scarves, watches, hair accessories, handbags, jewelry, fragrances and specialty
gifts) were 12%; and children's apparel sales were 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
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.
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. The
Company's tax year, however, ends on the Saturday nearest December 31.
Seasonality
Prior to the Company's change in fiscal year, 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 net 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 1998, 1997 and 1996
fiscal years 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 designed to 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, buildings, fixtures and improvements
collateralizing the mortgage loan discussed below). The Company's twenty-year
mortgage agreement with a commercial bank of $8,125,000 is secured by the land,
buildings, fixtures and improvements located at the Company's Duncan, South
Carolina corporate offices and distribution center. The Company`s additional
letter of credit facility with a commercial bank was amended in March 1999 to
increase it to $5,000,000 and to extend its term to the earlier of June 2000 or
termination of the Company's revolving credit facility with its primary lender.
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,
site selection and 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 30, 1999, the Company had approximately 3,900 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 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 "believes," "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 1999 and
beyond to differ materially from those expressed in such forward-looking
statements. These factors include, but are not limited to, general economic
conditions and consumer demand; consumer preferences; weather patterns;
competitive factors, 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;
whether or not offering for sale new categories of merchandise including, but
not limited to, menswear, will increase sales and operating results; 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; regulatory matters, including legislation affecting wage
rates; whether or not the Company and its major suppliers will ready their
computer systems to be "Year 2000 Compliant" in a timely manner; and other
factors 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 30, 1999, the Company
had 618 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 years and with one to two renewal option
periods of five years each. Leases typically contain kickout provisions based on
an individual 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 1999. 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 30, 1999:
NUMBER OF
STATE STORES
----- ------------
Alabama................................................................................................... 13
Arizona................................................................................................... 11
Arkansas.................................................................................................. 5
California................................................................................................ 60
Florida................................................................................................... 63
Georgia................................................................................................... 36
Illinois.................................................................................................. 30
Indiana................................................................................................... 10
Kansas.................................................................................................... 2
Kentucky.................................................................................................. 4
Louisiana................................................................................................. 18
Maryland.................................................................................................. 16
Michigan.................................................................................................. 15
Mississippi............................................................................................... 12
Missouri.................................................................................................. 17
North Carolina............................................................................................ 32
New Jersey................................................................................................ 8
New Mexico................................................................................................ 5
New York.................................................................................................. 12
Ohio...................................................................................................... 17
Oklahoma.................................................................................................. 7
Pennsylvania.............................................................................................. 20
Puerto Rico............................................................................................... 29
South Carolina............................................................................................ 35
Tennessee................................................................................................. 20
Texas..................................................................................................... 92
U.S. Virgin Islands....................................................................................... 2
Virginia.................................................................................................. 20
Washington, DC............................................................................................ 2
Wisconsin................................................................................................. 5
-----
TOTAL STORES.............................................................................................. 618
The Company's corporate offices and distribution center, occupying approximately
500,000 square feet, are located in Duncan, South Carolina on approximately 82
acres which are owned by the Company. The Company's facilities are expected to
be able to support the Company's planned 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, buildings, 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, results of operations or cash flows.
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 March 29, 1999, there were approximately 400
shareholders of record.
Since its inception, the Company has never paid cash dividends. 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 30, 1999 January 31, 1998
----------------------- -----------------------
High Low High Low
First 3 3/16 1 1/8 4 1/2 3 1/8
Second 4 1/2 2 7/16 4 7/8 3 5/16
Third 4 7/16 2 3/8 3 5/8 3
Fourth 5 3/4 3 7/8 3 1/8 1 1/8
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data for the
Company for each of the five fiscal years ended December 31, 1994 through
January 30, 1999, including the 5-week period ended February 3, 1996 ("the
Transition Period"), resulting from the Company's change in fiscal year end. The
selected consolidated financial data as of January 30, 1999 and January 31, 1998
and for the fiscal years ended January 30, 1999, January 31, 1998 and February
1, 1997, are extracted from the Company's audited consolidated financial
statements and should be read in conjunction with the consolidated 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. Selected consolidated
financial data as of and for all other periods were derived from audited
consolidated financial statements not contained within this Form 10-K.
Transition
Fiscal Year Ended Period Fiscal Year Ended
------------------------------------- Ended ---------------------------
January 30, January 31, February 1, February 3, December 30, December 31,
1999 1998 1997 1996 1995 1994
----------- ----------- ------------ ------------- -------------- ------------
Dollars in thousands except per share amounts
1 Net sales $ 328,059 302,285 298,986 15,022 294,692 283,326
2 Restructuring (credit) charge $ (385) 2,265 -- -- -- --
3 Income (loss) before income taxes and
cumulative effect of changes in
accounting principles $ 5,497 (13,493) (1,994) (9,091) (2,595) 7,138
4 Income (loss) before cumulative effect
of changes in accounting principles $ 4,383 (11,320) (1,267) (5,634) (1,304) 4,389
5 Cumulative effect on prior years of
changes in accounting principles $ -- -- -- (1,090) -- --
6 Net income (loss) $ 4,383 (11,320) (1,267) (6,724) (1,304) 4,389
7 Current assets $ 55,387 48,331 61,891 52,517 35,990 31,252
8 Long-term assets $ 37,440 39,781 39,076 41,663 43,374 36,678
9 Total assets $ 92,827 88,112 100,967 94,180 79,364 67,930
10 Current liabilities $ 44,741 44,080 48,722 40,669 18,594 13,035
11 Long-term debt $ 7,755 7,915 4,868 6,447 6,579 --
12 Deferred income tax liability $ -- -- 718 818 1,482 1,449
13 Other noncurrent liabilities $ 2,914 3,095 2,317 1,089 828 372
14 Shareholders' equity $ 37,417 33,022 44,342 45,157 51,881 53,074
15 Stores opened (closed) during the
period, net # (42) 15 (43) (13) 60 101
16 Stores operating at period-end # 618 660 645 688 701 641
17 Number of employees # 3,900 4,269 4,105 4,574 4,841 4,907
18 Weighted average number of common
shares (000) - diluted # 10,494 10,436 10,401 10,335 10,314 10,527
19 Number of common shares outstanding at
period-end (000) # 10,440 10,436 10,436 10,335 10,335 10,305
20 Diluted income (loss) per common share
before cumulative effect of changes
in accounting principles $ 0.42 (1.08) (0.12) (0.55) (0.13) 0.42
21 Cumulative effect on prior years per
common share of changes in accounting $ -- -- -- (0.10) -- --
principles
22 Diluted net income (loss) per common $ 0.42 (1.08) (0.12) (0.65) (0.13) 0.42
share
23 Cash dividends declared per common $ -- -- -- -- -- --
share
Notes to Selected Consolidated Financial Data
Line Definitions
17 Number of employees-- Number of full and part-time employees at
period-end.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL SUMMARY
The following table sets forth, for the three most recent fiscal years, certain
financial statement elements expressed as a percentage of net sales:
Fiscal Year Ended
January 30, 1999 January 31, 1998 February 1, 1997
PERCENTAGE OF NET SALES
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 64.6% 66.8% 64.7%
------ ------- ------
Gross margin 35.4% 33.2% 35.3%
------ ------ -----
Selling, general and administrative expenses 23.5% 25.8% 25.3%
Restructuring (credit) charge (0.1)% 0.7% --
Store rent and related expenses 8.1% 8.7% 8.6%
Depreciation and amortization expense 1.6% 1.7% 1.6%
Interest expense 0.6% 0.7% 0.6%
----- ------ -----
33.7% 37.6% 36.0%
------ ------ -----
Income (loss) before income taxes 1.7% (4.4)% (0.7)%
Provision for (benefit from) income taxes 0.4% (0.7)% (0.3)%
------ ------- ------
Net income (loss) 1.3% (3.7)% (0.4)%
====== ======= ======
Stores in operation at period-end 618 660 645
====== ======= ======
FISCAL YEAR ENDED JANUARY 30, 1999 (FISCAL 1998) COMPARED TO FISCAL YEAR ENDED
JANUARY 31, 1998 (FISCAL 1997)
Net sales in fiscal 1998 increased 8.5% to $328.1 million compared to $302.3
million in fiscal 1997. In fiscal 1998, the Company achieved an increase in net
sales while operating an average of 27 fewer stores than in fiscal 1997. The
increase in net sales is primarily due to merchandising and presentation
strategies implemented during the fourth quarter of fiscal 1997. These
strategies included (i) clarifying price points, (ii) increasing emphasis on
offering highly desirable, in-season fashionable merchandise and (iii) improving
merchandise displays, window graphics and in-store signage. In fiscal 1998,
comparable store sales increased 9.1% for the year compared to fiscal 1997.
Comparable stores are those stores in operation at least 18 months and there
were 571 such stores at January 30, 1999.
In accordance with a decision to limit new store openings under the
restructuring plan announced in the fourth quarter of fiscal 1997, the Company
opened 7 stores during fiscal 1998, relocated 5 stores and closed 49
underperforming stores. The Company opened 64 stores during fiscal 1997,
relocated 13 stores and closed 49 underperforming stores.
During fiscal 1998, the Company continued to improve upon the merchandising and
presentation strategies established in the fourth quarter of fiscal 1997. Under
these strategies, the Company priced most of its merchandise at $7 or less; $8
for plus sizes. The Company also offered select merchandise, such as denim,
better dresses and outerwear, at discernable price points up to $15. The Company
continued to focus on the attractive presentation of merchandise as well as
clear signage in the stores.
Gross margin as a percentage of net sales was 35.4% in fiscal 1998 compared to
33.2% in fiscal 1997. This increase in gross margin as a percentage of net sales
was primarily due to a significant decrease in the amount of markdowns taken in
fiscal 1998 versus fiscal 1997. The decrease in markdowns was the result of
improved sales at competitive original price points and better transition of
merchandise between selling seasons. The Company also lowered its distribution
and merchandising costs as a percentage of net sales when compared to fiscal
1997 through higher levels of sales and efficiencies achieved in its
distribution center.
Selling, general and administrative ("SG&A") expenses decreased in dollars and
as a percentage of net sales in fiscal 1998 versus fiscal 1997. SG&A expenses
were 23.5% of net sales in fiscal 1998 compared to 25.8% of net sales in fiscal
1997. The significant decrease in SG&A expenses is primarily due to achieving
cost-containment goals, including reducing total payroll expense, established in
the Company's restructuring plan announced in the fourth quarter of fiscal 1997.
Although total payroll decreased, average salaries and wages in the Company's
stores increased slightly in fiscal 1998 compared to fiscal 1997. This increase,
affecting primarily part-time associates, was due to an increase in the average
hourly wage rate, which was partially offset by a decrease in average store
hours.
During the fourth quarter of fiscal 1997, the Company announced a restructuring
plan which identified 75 low-volume, underperforming stores for closing. A
substantial number of these stores were closed by January 30, 1999. Certain of
these stores are no longer under consideration for closing due to a significant
improvement in performance since the announcement of the plan. As a result,
during the fourth quarter of fiscal 1998, the Company recorded a favorable
adjustment to pre-tax income of $385,000 to reverse the estimated cost, recorded
in fiscal 1997, of closing these stores.
Store rent and related expenses were 8.1% of net sales in fiscal 1998 compared
to 8.7% in fiscal 1997. Store rent and related expenses for fiscal 1998
decreased as a percentage of net sales due to the leverage provided by higher
year-over-year sales as well as aggressively closing underperforming stores
during fiscal 1998. Average store rent and related expenses increased by 5% in
fiscal 1998 compared to fiscal 1997. The increase in average store rent and
related expenses is primarily due to the Company's store expansion strategy of
opening larger, higher volume stores, and thus leasing more costly sites with
higher rents while closing older, underperforming stores which generally have
lower average rent costs.
Depreciation and amortization expense as a percentage of net sales was 1.6% in
fiscal 1998 compared to 1.7% in fiscal 1997. The decrease in depreciation and
amortization expense is primarily due to the leverage provided by higher
year-over-year sales as well as a decrease in the number of stores open during
fiscal 1998 versus fiscal 1997.
Interest expense was 0.6% of net sales in fiscal 1998 compared to 0.7% of net
sales in fiscal 1997 due to the increase in net sales year over year. Interest
expense in dollars increased in fiscal 1998 when compared to fiscal 1997. This
increase was primarily due to higher average borrowings in fiscal 1998 versus
fiscal 1997 in order to maintain levels of inventory necessary to support the
increased sales.
The effective income tax provision rate for fiscal 1998 was 20.3% compared to
the effective income tax benefit rate of 16.1% in fiscal 1997. The change in the
Company's effective income tax rate is primarily attributable to a favorable
valuation allowance adjustment for fiscal 1998 compared to fiscal 1997. Because
management cannot be assured that certain net operating loss carryforwards,
credit carryforwards and net cumulative temporary differences for U.S. federal
and state income tax purposes will be fully utilized or realized, valuation
allowances have been provided for a portion of the net deferred income tax
asset. Management estimates that the Company's effective income tax rate will be
approximately 40% in fiscal 1999; however, if sufficient levels of profitability
are achieved, the effective income tax rate may decrease because of a possible
favorable adjustment of some or all of the valuation allowance.
OUTLOOK
Sales through the first ten weeks of fiscal 1999 are ahead of planned levels
(through the corresponding time period) due, in part, to favorable trends in the
women's apparel industry as a whole, as well as the Company's merchandise
strategy of offering goods that emphasize quality, value and fashion. Sales
during the corresponding time period in fiscal 1998 were hindered by slow
receipts of key merchandise. During fiscal 1999, the Company intends to focus
its efforts on improving sales in existing stores while maintaining its margin
and cost-containment targets. As part of this strategy, the Company plans to
continue to monitor the merchandise mix and demographic profiles of its stores.
The Company also plans to increase the size of certain highly productive stores
and expand the test of men's apparel sales to approximately 200 stores. The
Company plans to open approximately 30 new stores in existing markets and close
approximately 15 underperforming stores in fiscal 1999.
Average store rent and related expenses are expected to increase in fiscal 1999
due to the location and the increase in the average square footage of stores
planned to open in fiscal 1999 and the closing of older, lower-volume stores.
Management will seek to leverage these increases through improved average store
sales volume. Also, the Company has approximately 80 existing leases that expire
or have initial lease terms containing lessee renewal options which may be
exercised in fiscal 1999. 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.
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 was 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, 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 SG&A expenses as discussed below.
During the fourth quarter of fiscal 1997, the Company adjusted its pricing and
merchandising strategy to increase 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 had been determined to be clearly
desired by its customers and could not be offered for $7, thus focusing its
merchandising strategy on quality, value and selection. Such higher priced items
are offered at discernable price points up to $15.
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 categories downward as part of the Company's strategy to
offer more of its merchandise at $7 or below.
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, corporate
office and store operating costs increased. 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 corporate
offices. 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 response to lower than expected operating results, the Company announced a
restructuring plan during the fourth quarter of fiscal 1997. The plan included
initiatives which were 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 were operating profitably.
Under the restructuring plan the Company planned to 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
included 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.
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.
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
corporate offices.
Interest expense was 0.7% of net sales in fiscal 1997 compared to 0.6% of net
sales in fiscal 1996. This increase in 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.
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 and the related growth in merchandise inventories.
The Company has obtained credit facilities which, together with cash provided by
operations, are expected to meet the liquidity and capital needs during the
period of the agreements.
The Company's credit facilities consist of a revolving credit facility to meet
the Company's short-term liquidity needs, a mortgage loan collateralized by the
Company's corporate offices and distribution center and letter of credit
facilities to accommodate the Company's needs to purchase merchandise
inventories from foreign sources. Collectively, the Company's credit facilities
contain certain financial and non-financial covenants with which the Company was
in compliance at January 30, 1999. A summary of the Company's credit facilities
follows. Please refer to Note B to the Consolidated Financial Statements
contained within this Annual Report on Form 10-K for a more complete description
of the Company's credit facilities.
The Company has a $37,500,000 revolving credit facility (including a $25,000,000
letter of credit sub-facility) with its primary lender through March 2001.
Borrowings under the agreement are collateralized by all assets owned by the
Company during the term of the agreement (other than land, buildings, fixtures
and improvements collateralizing the mortgage loan discussed below). 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. At January 30, 1999, the Company
had approximately $9.4 million of excess availability under the borrowing base
formula.
The maximum and average amounts outstanding during fiscal 1998 and fiscal 1997
and amounts outstanding at the end of such periods for the revolving credit
facility are disclosed in Note B to the Consolidated Financial Statements in
Item 8 of this document.
The Company has a twenty-year, $8,125,000 mortgage loan agreement with a
commercial bank payable in 240 consecutive equal monthly installments through
July 2017. The agreement is secured by the Company's real property located at
its corporate offices including land, buildings, fixtures and improvements.
The Company has a $5,000,000 letter of credit facility with a commercial bank
through the earlier of June 2000 or termination of the revolving credit facility
with the Company's primary lender. Letters of credit issued under the agreement
are collateralized by inventories purchased using such letters of credit.
The Company's weighted average interest rate for all borrowings was 8.6% and
8.4% in fiscal 1998 and fiscal 1997, respectively. The Company had outstanding
letters of credit for the purchase of merchandise inventories totaling
approximately $6,613,000 and $6,075,000 at January 30, 1999 and January 31,
1998, respectively.
Net cash provided by operating activities for fiscal 1998, 1997 and 1996 was
$3,923,000, $8,660,000 and $2,352,000, respectively. The decrease in net cash
provided by operating activities in fiscal 1998 compared to fiscal 1997 is
primarily the result of an increase in merchandise inventories, and a decrease
in noncash charges including deferred income taxes and costs associated with
disposal of property and equipment, and partially offset by an improvement in
the Company's year-over-year results of operations, including a favorable
adjustment in fiscal 1998 to the estimated costs of fiscal 1997's
restructuring plan. The increase in net cash provided by operating activities in
fiscal 1997 compared to fiscal 1996 is primarily the result of a decrease in
merchandise inventories and increases in noncash charges for depreciation and
costs associated with the disposal of property and equipment (due to closing
stores as part of the restructuring plan) which more than offset the Company's
net loss.
Total merchandise inventories were $45,639,000, $35,508,000 and $48,371,000 at
January 30, 1999, January 31, 1998 and February 1, 1997, respectively. Total
merchandise inventories increased 29% at January 30, 1999 compared to January
31, 1998. The increase in total merchandise inventories is attributable to all
portions of merchandise inventories -- including merchandise in-transit to the
Company's distribution center from its vendors, merchandise inventories held in
the distribution center and in-store inventories. Most of this year-over-year
inventory increase was the result of purchasing and distributing spring and
summer merchandise in order to increase inventory to an appropriate level - the
January 31, 1998 inventory level was abnormally low. It is management's intent
to purchase goods in an opportunistic manner, as well as in a timely manner, in
order to make smooth transitions between each season.
Total merchandise inventories decreased 27% at January 31, 1998 compared to
February 1, 1997. The decrease 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 related to lower levels of imported goods.
Since late fiscal 1997, the Company has relied heavily on sourcing inventory
through opportunistic purchases from domestic vendors. In fiscal 1998, import
purchases (including freight and duty) were 13% of total purchases compared to
24% in fiscal 1997 and 31% in fiscal 1996. The level and source of inventories
are subject to fluctuations because of the Company's opportunistic buying
strategy and prevailing business conditions.
Net cash used in investing activities for fiscal 1998, 1997 and 1996 was
$3,151,000, $7,134,000 and $3,033,000, respectively, and was primarily used for
leasehold improvements and equipment for new stores opened each year, as well as
information technology expenditures including software and hardware upgrades.
Net cash of $181,000 was used in financing activities in fiscal 1998 primarily
as a result of the repayment of the Company's mortgage loan facility and the
payment of capital lease obligations which exceeded the net borrowings from the
Company's revolving credit facilities. 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.
In fiscal 1999, the Company plans to spend approximately $5.0 million on capital
expenditures, most of which will be used to open new stores, remodel,
re-fixture, expand and relocate existing stores, and invest in information
technology. 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 credit facilities. If deemed by management to be in the best interest of
the Company, additional long-term debt, equity, capital leases, or other
permanent financing may be considered.
MARKET RISK AND RISK MANAGEMENT POLICIES
The Company is exposed to market risk from changes in interest rates affecting
its credit arrangements, including a variable-rate revolving credit facility and
a fixed-rate mortgage loan agreement, which may adversely affect its results of
operations and cash flows. The Company seeks to minimize its interest rate risk
through its day-to-day operating and financing activities. The Company does not
engage in speculative or derivative financial or trading activities.
A hypothetical 100 basis point adverse change (increase) in interest rates
relating to the Company's revolving credit facility for fiscal 1998 would have
decreased pre-tax income by approximately $132,000 for the same time period. Due
to the fixed-rate nature of the mortgage loan agreement, a hypothetical 100
basis point adverse change (decrease) in interest rates would have increased the
estimated fair value of the Company's mortgage loan agreement by approximately
$627,000 at January 30, 1999, but would have had no effect on the Company's
results of operations or cash flows for fiscal 1998.
YEAR 2000 ISSUES
State of Readiness
The Company began identifying its major systems and software vendors susceptible
to Year 2000 issues during its preparedness evaluation in fiscal 1996. During
fiscal 1997, a formal steering committee was assembled from throughout the
Company to ensure a smooth transition into the Year 2000. The Company has
separated its Year 2000 efforts into five phases ("the Year 2000 Plan"): (i)
awareness and identification of issues relating to the Year 2000; (ii) analysis
of the impact on and risk to the Company's software, hardware and the services
provided by the Company's vendors; (iii) performance of the work necessary to
change or upgrade programs and files including installation of software and/or
hardware; (iv) testing and certification of systems to assure compliance,
including disaster recovery testing; and (v) implementation of systems. Because
the Company uses a variety of internally-developed and third party software,
certain tasks of various phases of the Year 2000 Plan are being performed
simultaneously. The Company anticipates that all five phases will be complete
and its major systems will be Year 2000 compliant by the summer of 1999.
Like other companies, the Company relies upon third parties for its operations
including, but not limited to, suppliers of merchandise, software, telephone
service, electric power, water and financial services. As part of this program,
the Company has a formal vendor Year 2000 compliance program in place. The
Company has identified and assigned various levels of risk to third party
vendors associated with the Company. The Company has received responses from all
the vendors identified as critical to its operations. Each has indicated that it
expects to be Year 2000 compliant in a timely manner. During the course of
fiscal 1999, the Company will continue its vendor compliance efforts focusing on
the remaining, less critical vendors in order of their assigned levels of risk.
Cost
The Company is primarily using internal resources to identify, test, upgrade and
replace its Year 2000-sensitive systems. The Company's major systems, including
its merchandise management system, its point-of-sale system, its inventory and
general ledger system and its payroll system, have been due for upgrades in
order to maintain vendor support. Therefore, the Company would be devoting the
efforts of its internal resources to some or all of these projects through the
normal course of business even if the Year 2000 issues had not existed. The
Company also continues to replace any non-compliant software and hardware as
necessary. During fiscal 1998, the cost of these incidental software and
hardware replacements was considerably less than the expected amount of $25,000.
The cost of these incidental software and hardware replacements is expected to
be less than $50,000 in fiscal 1999.
Risks and Contingency Planning
Management expects that the Company will substantially complete implementation
of the Year 2000 Plan by the summer of 1999 and will continue to monitor its
systems through the remainder of the year, but gives no assurance that
unforeseen difficulties which could alter the date of completion of the Year
2000 Plan will not occur while performing upgrades, installations, testing and
implementation. In addition, as part of a worst case scenario, if the Year 2000
Plan is not successful in a timely manner, the Company's third party vendors are
not Year 2000 compliant in a timely manner, and/or if the Company's supply of
merchandise or ability to distribute its merchandise to its stores is adversely
affected, the Year 2000 issues may have a material adverse impact on the results
of operations, financial condition and cash flows of the Company. Also, possible
interruptions in services such as electric power and telephone could occur in
certain geographic areas, thereby temporarily closing some of the Company's
stores. In addition, any general economic disruption caused by Year 2000 issues
could adversely affect customer demand.
The Company intends to mitigate its Year 2000 risk by completing implementation
of the Year 2000 Plan by the summer of 1999, permitting time to monitor
compliance as well as to conduct disaster recovery tests. The Company intends to
mitigate its risk of temporarily closed stores due to possible interruptions in
service such as electric power and telephone through the use of business
interruption insurance, which it currently carries, and uses from time to time
to protect itself from temporary closings due to weather related interruptions.
The Company plans to continue to develop its contingency plans during the
completion of the remaining phases of its Year 2000 Plan.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," effective for periods beginning after June 15, 1999. This
new standard requires recognition of all derivatives, including certain
derivative instruments embedded in other contracts, as either assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. The Company is in the process of reviewing the
effect, if any, that SFAS 133 will have on the Company's consolidated financial
statements and disclosures.
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 "believes," "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 1999 and
beyond to differ materially from those expressed in such forward-looking
statements. These factors include, but are not limited to, general economic
conditions and consumer demand; consumer preferences; weather patterns;
competitive factors, 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;
whether or not offering for sale new categories of merchandise including, but
not limited to, menswear, will increase sales and operating results; 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; regulatory matters, including legislation affecting wage
rates; whether or not the Company and its major suppliers will ready their
computer systems to be "Year 2000 Compliant" in a timely manner; and other
factors 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
See "Market Risk and Risk Management Policy" in Item 7.
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 30, 1999
and January 31, 1998, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three fiscal years in the
period ended January 30, 1999. 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 30, 1999
and January 31, 1998, and the results of its operations and its cash flows for
each of the three fiscal years in the period ended January 30, 1999, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule listed in the index at Item 14(d), 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.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
March 17, 1999(March 31, 1999 as to Note B)
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 30, January 31,
1999 1998
----------------- -----------------
Assets
CURRENT ASSETS
Cash and cash equivalents $ 2,418,000 $ 1,827,000
Miscellaneous receivables, net of allowance for doubtful accounts
of $80,000 (1998) and $196,000 (1997) 1,526,000 2,066,000
Merchandise inventories 45,639,000 35,508,000
Federal and state income taxes receivable 1,303,000 4,637,000
Prepaid expenses 3,733,000 4,293,000
Deferred income taxes 768,000 --
----------------- --------------
TOTAL CURRENT ASSETS 55,387,000 48,331,000
PROPERTY AND EQUIPMENT, net 33,446,000 36,004,000
OTHER ASSETS 3,994,000 3,777,000
--------------- --------------
$ 92,827,000 $ 88,112,000
=============== ==============
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 24,750,000 $ 25,391,000
Current portion of long-term debt and revolving credit facility 11,998,000 11,664,000
Accrued salaries and wages 3,118,000 1,789,000
Accrued employee benefits 2,338,000 2,271,000
Other accrued and sundry liabilities 2,537,000 2,965,000
---------------- ----------------
TOTAL CURRENT LIABILITIES 44,741,000 44,080,000
LONG-TERM DEBT 7,755,000 7,915,000
OTHER NONCURRENT LIABILITIES 2,914,000 3,095,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
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 10,439,531 (1998) and 10,435,531 (1997) 104,000 104,000
Additional paid-in capital 11,465,000 11,453,000
Retained earnings 25,848,000 21,465,000
--------------- ----------------
37,417,000 33,022,000
---------------- -----------------
$ 92,827,000 $ 88,112,000
================ =================
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Ended
January 30, January 31, February 1,
1999 1998 1997
----------------- ------------------ -----------------
NET SALES $ 328,059,000 $ 302,285,000 $ 298,986,000
Cost of goods sold 211,893,000 201,901,000 193,318,000
----------------- ------------------ -----------------
GROSS MARGIN 116,166,000 100,384,000 105,668,000
Selling, general and administrative expenses 77,158,000 78,077,000 75,564,000
Restructuring (credit) charge (385,000) 2,265,000 --
Store rent and related expenses 26,653,000 26,415,000 25,566,000
Depreciation and amortization expense 5,115,000 5,131,000 4,778,000
Interest expense 2,128,000 1,989,000 1,754,000
----------------- ------------------ -----------------
110,669,000 113,877,000 107,662,000
----------------- ------------------ -----------------
INCOME (LOSS) BEFORE INCOME TAXES 5,497,000 (13,493,000) (1,994,000)
Provision for (benefit from) income taxes 1,114,000 (2,173,000) (727,000)
----------------- ------------------ -----------------
NET INCOME (LOSS) $ 4,383,000 $ (11,320,000) $ (1,267,000)
================= ================== =================
PER COMMON SHARE AMOUNTS:
NET INCOME (LOSS) PER COMMON SHARE -
BASIC AND DILUTED $ 0.42 $ (1.08) $ (0.12)
================= ================== =================
Weighted average number of common shares
outstanding - basic 10,437,102 10,435,531 10,400,789
================= ================== =================
Weighted average number of common shares
outstanding - diluted 10,493,816 10,435,531 10,400,789
================= ================== =================
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 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
Stock options exercised 4,000 -- 12,000 -- 12,000
Net income -- -- -- 4,383,000 4,383,000
---------- -------- ----------- ------------ -----------
Balance at January 30, 1999 10,439,531 $104,000 $11,465,000 $25,848,000 $37,417,000
========== ======== =========== ============ ===========
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
---------------------------------------------------
January 30, January 31, February 1,
1999 1998 1997
---------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,383,000 $ (11,320,000) $ (1,267,000)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 5,115,000 5,131,000 4,778,000
Provision for supplemental post-retirement benefits 113,000 128,000 970,000
Deferred income taxes (768,000) 1,217,000 246,000
Loss on disposal of property and equipment 52,000 2,325,000 1,261,000
Decrease in other noncurrent assets 276,000 382,000 579,000
Increase in other noncurrent liabilities 18,000 435,000 151,000
Changes in operating assets and liabilities:
Decrease (increase) in miscellaneous receivables and
prepaid expenses 1,039,000 (1,460,000) 594,000
(Increase) decrease in merchandise inventories (10,131,000) 12,863,000 (8,598,000)
Decrease (increase) in federal and state income taxes receivable 3,335,000 (400,000) 437,000
Increase (decrease) in accounts payable and other
liabilities 491,000 (641,000) 3,201,000
---------------- -------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,923,000 8,660,000 2,352,000
---------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,438,000) (6,346,000) (2,674,000)
Purchases of other noncurrent assets (782,000) (564,000) (359,000)
Repayment of (issuance of ) related party loan 69,000 (224,000) --
---------------- -------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (3,151,000) (7,134,000) (3,033,000)
---------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayment of) revolving credit facility 321,000 (3,469,000) 2,171,000
Proceeds from long term debt borrowings -- 9,572,000 7,500,000
Repayment of long term debt (147,000) (7,957,000) (6,553,000)
Debt financing costs incurred (42,000) (259,000) (698,000)
Decrease in amount due to related parties (98,000) (47,000) (38,000)
Payment of capital lease obligations (226,000) (96,000) --
Proceeds from exercise of stock options 11,000 -- 452,000
---------------- -------------- --------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (181,000) (2,256,000) 2,834,000
---------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 591,000 (730,000) 2,153,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF FISCAL YEAR 1,827,000 2,557,000 404,000
---------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF FISCAL YEAR $ 2,418,000 1,827,000 2,557,000
================ ============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 2,121,000 $ 1,766,000 $ 1,777,000
Income taxes paid 677,000 86,000 68,000
Noncash financing activities - capital leases 106,000 537,000 237,000
See notes to consolidated financial statements
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999
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. Accordingly, the Company operates in one business segment. 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 a base price of $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 at prices up to $15. At January 30, 1999, the
Company operated 618 stores in 27 states, the District of Columbia, Puerto Rico
and the U.S. Virgin Islands.
Fiscal Year: The Company's fiscal year ends on the Saturday nearest January 31.
All periods presented herein consist of 52 weeks.
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.
Comprehensive Income: The Company is required to disclose within the basic
financial statements items of comprehensive income, such as foreign currency
transactions and unrealized gains and losses on available-for-sale securities,
under the provisions of Statement of Financial Accounting Standards ("SFAS")
130, "Reporting Comprehensive Income." Because the Company has no items which
qualify as comprehensive income, the adoption of SFAS 130 resulted in no
difference between comprehensive income (loss) and net income (loss) for fiscal
1998, 1997 and 1996, respectively.
Segments and Related Information: The Company operates in one industry segment:
retail sales of apparel and accessories to the general public.
Fair Value of Financial Instruments: The estimated fair values of the Company's
financial instruments, including primarily cash and cash equivalents, accounts
receivable, accounts payable and the Company's revolving credit facility,
approximate their carrying values at January 30, 1999 and January 31, 1998, due
to their nature. The fair value of the Company's mortgage loan at January 30,
1999 and January 31, 1998 is calculated based on discounted cash flows using the
estimated currently available borrowing rate.
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: Merchandise inventories are stated at the lower of cost
(computed using the first-in, first-out (FIFO)retail method) or market.
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 and Internally Developed Software: Purchased software is included in
other assets and is amortized over its estimated useful life of 5 years using
the straight-line method. Direct costs of developing software internally are
capitalized using the principles of Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The result of adopting SOP 98-1 was an increase in pre-tax income
of $285,000 in fiscal 1998. Upon placement into service, internally developed
software will be amortized over its estimated useful life of 5 years using the
straight-line method.
Store Closing and Impairment Costs: At the time management commits to close a
store and for other stores which may be impaired, the fixed assets are written
down to estimated fair market value. 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.
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.
Advertising and Promotional Costs: Advertising and promotional costs are
expensed when incurred. Such expenses were $623,000, $592,000 and $987,000 in
fiscal 1998, 1997 and 1996, respectively.
Earnings Per Common Share: Basic earnings per common share are computed by
dividing earnings by the weighted average number of shares of Common Stock.
Diluted earnings per common share are computed by dividing earnings 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 H.
Reclassifications: Certain amounts included in prior periods' financial state-
ments have been reclassified to conform to the fiscal 1998 presentation.
Effect of New Accounting Pronouncements: The Financial Accounting Standards
Board ("FASB") issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities," effective for periods beginning after June 15, 1999. This
new standard requires recognition of all derivatives, including certain
derivative instruments embedded in other contracts, as either assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. The Company is in the process of reviewing the
effect, if any, that SFAS 133 will have on the Company's consolidated financial
statements and disclosures.
NOTE B - Credit Facilities
The Company has a revolving credit facility of up to $37,500,000 (including a
letter of credit sub-facility of up to $25,000,000) with its primary lender
through March 2001. 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, buildings, fixtures and improvements
collateralizing the mortgage loan discussed below). In January 1999, the Company
amended its credit agreement to lower the borrowing rates and other fees
associated with its revolving credit facility. Under the amendment, the
borrowings bear interest, at the Company's option (subject to certain
limitations in the agreement), at the Prime Rate plus 0.25% or the Adjusted
Eurodollar Rate, as defined, plus 2.0%. 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. Availability under the revolving credit facility fluctuates in
accordance with the Company's seasonal variations in inventory levels. At
January 30, 1999, the Company had approximately $9.4 million of excess
availability under the 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 amended revolving credit 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 financial
covenants at January 30, 1999.
The maximum and average amounts outstanding during fiscal 1998 and 1997 and
amounts outstanding at the end of such periods for the revolving credit facility
are presented as follows:
Fiscal Year Ended
---------------------------------
January 30, January 31,
1999 1998
----------- ----------
Revolving Credit Facility:
Maximum amounts outstanding $20,832,000 $19,525,000
Average amounts outstanding 13,152,000 10,784,000
Outstanding at period end 11,838,000 11,517,000
The Company also has an agreement with a commercial bank to provide a separate
letter of credit facility of up to $3,000,000. In November 1998, the agreement
was amended to increase the letter of credit facility to provide up to
$3,500,000. On March 31,1999, the agreement was amended to increase the letter
of credit facility to provide up to $5,000,000. 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 March 31, 1999, the
agreement was further amended to extend the expiration date of the facility by
one year to the earlier of June 2000 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.
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. 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. Such secured real property
had a net book value of $14.2 million at January 30, 1999. The mortgage loan is
payable in 240 consecutive equal monthly installments (including interest at the
rate of 9.125% per annum) through July 2017. 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 30, 1999.
Annual maturities of the mortgage loan are as follows:
Fiscal Year Amount
----------- ------
1999 $ 160,000
2000 173,000
2001 192,000
2002 210,000
2003 231,000
Thereafter 6,949,000
-------------
Total $ 7,915,000
============
The fair value of the Company's outstanding mortgage obligation at January 30,
1999 and January 31, 1998 was $8,458,000 and $8,062,000, respectively. Fair
value is determined based on discounted cash flows using the Company's estimated
currently available borrowing rate.
The Company's weighted average interest rate for all borrowings was 8.6% and
8.4% in fiscal 1998 and fiscal 1997, respectively. The Company had outstanding
letters of credit for the purchase of merchandise inventories totaling
approximately $6,613,000 and $6,075,000 at January 30, 1999 and January 31,
1998, respectively.
NOTE C - Property and Equipment
January 30, January 31,
1999 1998
--------------- ----------------
Land $ 914,000 $ 914,000
Land improvements 494,000 494,000
Buildings 16,061,000 16,055,000
Leasehold improvements 14,682,000 14,194,000
Fixtures and equipment 29,933,000 29,095,000
------------- --------------
62,084,000 60,752,000
Less accumulated depreciation (28,638,000) (24,748,000)
------------ ------------
$ 33,446,000 $ 36,004,000
============ ==============
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
$111,000 and $425,000 for fiscal 1998 and 1997, respectively, and is included in
selling, general and administrative expenses in the accompanying Consolidated
Statements of Operations.
NOTE D - Income Taxes
The provision for (benefit from) income taxes consists of the following:
Fiscal Year Ended
---------------------------------------------------
January 30, January 31, February 1,
1999 1998 1997
--------------- --------------- -----------------
Current:
Federal $ 1,416,000 $(3,670,000) $(982,000)
State and local 371,000 280,000 1,000
Puerto Rico -- -- 8,000
Virgin Islands 95,000 -- --
Deferred:
Federal (684,000) 616,000 265,000
State and local (84,000) 447,000 (149,000)
Puerto Rico -- 154,000 130,000
------------ ----------- ----------
Total provision for (benefit from) income taxes $ 1,114,000 $(2,173,000) $ (727,000)
============= ============ ==========
A reconciliation of the statutory federal income tax rate to the annual
effective income tax rate follows:
Fiscal Year Ended
---------------------------------------------------------
January 30, January 31, February 1,
1999 1998 1997
----------------- ---------------- -----------------
Federal income tax (benefit) at statutory rate 35.0% (35.0)% (35.0)%
State and local income tax (benefit), net of federal tax 4.4 (2.7) (4.6)
Puerto Rico net operating loss (2.3) -- --
Tax benefit from federal jobs credits (3.9) (0.4) --
Valuation allowance (11.1) 20.8 --
Other, net (1.8) 1.2 3.1
-------- --------- -----
Effective income tax (benefit) rate 20.3% (16.1) % (36.5)%
======= ========= ======
Presented below are the elements which comprise deferred income tax assets and
liabilities:
January 30, January 31,
1999 1998
------------ -----------
Gross deferred income tax assets:
Accrued employee benefits deductible for tax
purposes when paid $ 857,000 $786,000
Excess of tax over financial statement basis of
inventory 346,000 375,000
Accrued retirement benefits deductible for tax
purposes when paid 536,000 530,000
Accrued store closing and restructuring costs
deductible for tax purposes when paid 299,000 885,000
State and local net operating loss and credit
carryforwards 779,000 999,000
Puerto Rico/Virgin Islands net operating loss
carryforwards 1,175,000 1,314,000
Other 540,000 295,000
--------- ---------
Gross deferred income tax assets 4,532,000 5,184,000
Valuation allowance (2,188,000) (3,156,000)
----------- -----------
2,344,000 2,028,000
------------ ----------
Gross deferred income tax liabilities:
Excess of financial statement over tax basis of
property and equipment (1,576,000) (1,999,000)
Excess of financial statement over tax basis of
supplies -- (29,000)
------------ -----------
Gross deferred income tax liabilities (1,576,000) (2,028,000)
---------- ----------
Net deferred income tax asset $ 768,000 $ --
============= ============
At January 30, 1999 the Company had net operating loss and credit carryforwards
for state income tax purposes aggregating approximately $779,000 of income tax
and Puerto Rico net operating loss carryforwards aggregating $1,175,000 of
income tax. These carryforwards expire at various times between 2002 and 2012.
Management cannot be assured that certain deferred income tax assets related to
these carryforwards will be fully utilized or realized. Accordingly, a valuation
allowance has been provided for a portion of the net deferred income tax asset.
The net deferred income tax asset at January 30, 1999 is included in current
assets in the accompanying Consolidated Balance Sheet.
NOTE E - Commitments and Contingencies
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, results of operations or cash flows.
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. Certain 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 30, 1999 for noncancellable
leases (including those which may qualify for early termination) are
approximately as follows:
Fiscal Year Stores Other Total
----------- ----------- ---------- -----------
1999 $20,669,000 $1,419,000 $22,088,000
2000 16,865,000 538,000 17,403,000
2001 13,076,000 199,000 13,275,000
2002 10,358,000 98,000 10,456,000
2003 5,675,000 43,000 5,718,000
Thereafter 7,073,000 -- 7,073,000
----------- ---------- ------------
Total $73,716,000 $2,297,000 $76,013,000
=========== ========== ============
Total rental expense for operating leases was as follows:
Fiscal Year Ended
January 30, January 31, February 1,
1999 1998 1997
------------- --------------- ----------------
Minimum rentals $23,060,000 $23,244,000 $22,061,000
Contingent rentals 5,262,000 4,932,000 5,103,000
------------ ------------ -------------
$28,322,000 $28,176,000 $27,164,000
=========== =========== ===========
The Company's capital leases for certain office equipment and computer software
were calculated using interest rates appropriate at the inception of each lease.
Gross amounts of such capital lease assets were $880,000 and $774,000 at January
30, 1999 and January 31, 1998, respectively. Accumulated amortization amounts of
such capital lease assets were $285,000 and $102,000 at January 30, 1999 and
January 31, 1998, respectively. Future minimum lease payments for capitalized
lease obligations as of January 30, 1999 were as follows:
Fiscal Year:
1999 $281,000
2000 226,000
2001 75,000
2002 27,000
------
Total minimum obligations 609,000
Less interest (59,000)
--------
Present value of net minimum obligations 550,000
Less current portion (248,000)
---------
Long-term obligation at January 30, 1999 $302,000
========
NOTE F - Employee Benefits
Stock Option Plans: The Company currently has stock option plans (the 1991 and
1988 Plans) which provide for grants to certain officers 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. Options
canceled under the 1991 Plan are available for reissuance. At January 30, 1999,
a total of 99,000 shares of Common Stock were reserved for issuance under the
1991 Plan.
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 30, 1999, 15,000 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 the grant with
the remaining shares vesting ratably over four years. The options expire ten
years from the date of the grant.
Effective April 1998, the Company's Board of Directors approved a special stock
option grant for 80,000 shares at the exercise price of $1.77 per share (fair
market value at the time of grant) to its present Chairman of the Board of
Directors. One third of such grant was immediately exercisable on the date of
the grant with the remaining shares vesting ratably over two years. The options
expire ten years from the date of the grant.
A summary of the activity in the Company's stock options is presented below:
Fiscal 1998 Fiscal 1997 Fiscal 1996
---------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
Of Exercise of Exercise Of Exercise
Shares Price Shares Price Shares Price
-------- ------- -------- ------- -------- -------
Outstanding at beginning of period 909,796 $5.47 555,845 $6.79 588,245 $7.84
Options granted 408,025 $2.88 510,250 $3.93 234,250 $3.80
Options exercised (4,000) $2.75 -- -- (100,500) $3.92
Options cancelled (198,648) $6.47 (156,119) $5.13 (166,150) $8.04
--------- --------- ---------
Outstanding at end of period 1,115,173 $4.35 909,796 $5.47 555,845 $6.79
========= ======= =======
Exercisable at end of period 458,465 370,706 237,015
======= ======= =======
Weighted average fair value of
options granted during the period
(see below) $1.20 $1.94 $1.86
The following table summarizes information about stock options
outstanding at January 30, 1999:
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 $ 2.75 208,500 9.0 $ 2.20 41,867 $ 2.09
$ 2.78 to $ 3.56 222,700 9.3 $ 3.33 44,500 $ 2.90
$ 3.69 to $ 4.00 84,025 8.8 $ 3.80 44,750 $ 3.73
$ 4.13 410,550 8.1 $ 4.13 164,750 $ 4.13
$ 4.50 to $ 14.92 171,398 5.0 $ 7.73 148,198 $ 7.95
$ 17.25 18,000 5.1 $ 17.25 14,400 $ 17.25
----------- -------
1,115,173 8.0 $ 4.35 458,465 $ 5.43
========= =======
The Company applies the principles of Accounting Principles Board ("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
$490,000, $990,000 and $435,000 for the fiscal years ended January 30, 1999,
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 5.4%, 6.0% and 6.0% for fiscal 1998, 1997 and 1996,
respectively; an expected life of approximately one year from the vest date for
fiscal 1998, 1997 and 1996; and 60%, 65% and 65% expected volatility for fiscal
1998, 1997 and 1996, respectively. 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 income (loss) and net
income (loss) per common share would have been impacted as indicated in the
proforma amounts below:
Fiscal Year Ended
---------------------------------------------
January 30, January 31, February 1,
1999 1998 1997
--------- ------------- ------------
Net income (loss) Actual $4,383,000 $(11,320,000) $(1,267,000)
=========== ============= ============
Proforma $3,973,000 $(11,805,000) $(1,373,000)
========== ============= ============
Net income (loss) per common share - diluted Actual $ 0.42 $ (1.08) $ (0.12)
========== =========== ===========
Proforma $ 0.38 $ (1.13) $ (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. The Company is obligated to contribute 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 $307,000, $306,000 and $296,000 in fiscal 1998, 1997 and 1996,
respectively) vest ratably over five years.
Stock Purchase Plan: The Company has a Stock Purchase Plan 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.
Shareholders' Rights Plan: The Company adopted a Shareholders' Rights Plan in
November 1994. Each shareholder 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, among other things, the
acquisition of 20% or more of the outstanding shares of Common Stock.
NOTE G - Related Party Transactions
The Company has 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, contingent
upon completion of at least six years of employment. Approximately $57,000 and
$40,000 of the total present value of the obligation was charged to selling,
general and administrative expense in fiscal 1998 and fiscal 1997, respectively.
Approximately $97,000 and $40,000 is included in other noncurrent liabilities at
January 30, 1999 and January 31, 1998, respectively. The remaining portion of
the total present value of the obligation, approximately $309,000 at January 30,
1999, will be fully accrued by May 2003, six years after commencement of
employment.
During fiscal 1997, the Company entered into a loan agreement of $225,000 with
its President and Chief Executive Officer. The terms of the loan required that
certain principal and interest payments be made to the Company during the term
of the loan, with the full amount of the loan plus accrued interest due by
December 2000. Approximately $107,000 and $117,000 were included in accounts
receivable and noncurrent assets, respectively, at January 31, 1998 under this
agreement. During fiscal 1998, the remaining repayment requirements of the loan
were waived by the Company's Board of Directors and the remaining balance of
$173,000 was written off.
The Company also has a deferred compensation agreement with its former 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. During fiscal 1998, the former
Chairman of the Board of Directors retired earlier than anticipated.
Accordingly, an additional $55,000 was added to the estimated present value of
the obligation and was charged to selling, general and administrative expenses.
Approximately $74,000 and $965,000 is included in current liabilities and other
noncurrent liabilities, respectively, at January 30, 1999. Approximately $28,000
and $1,002,000 was included in current liabilities and other noncurrent
liabilities, respectively, at January 31, 1998.
In addition, the Company has a deferred compensation agreement with a former
executive officer who is currently a member of the Company's Board of Directors.
The agreement provides for monthly payments of $6,250 (including interest)
through July 2002. Approximately $57,000 and $167,000 is included in current
liabilities and other noncurrent liabilities, respectively, at January 30, 1999.
Approximately $52,000 and $224,000 was included in current liabilities and other
noncurrent liabilities, respectively, at January 31, 1998.
The Company paid approximately $42,000, $76,000 and $64,000 in fiscal 1998, 1997
and 1996, respectively, for legal services provided by the law firm of which a
Company Director is a member.
NOTE H - Earnings per Share
In accordance with the principles of SFAS 128, "Earnings Per Share," the Company
presents "basic" and "diluted" earnings per share on the face of the income
statement. Basic earnings per share are computed based upon the weighted average
number of common shares outstanding. Diluted earnings per share are computed
based upon the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares outstanding consist solely of shares under
option. A reconciliation of basic and diluted weighted average number of common
shares outstanding is presented below:
Fiscal Year Ended
---------------------------------------------------
January 30, January 31, February 1,
1999 1998 1997
--------------- --------------- --------------
Weighted average number of common shares
outstanding - basic 10,437,102 10,435,531 10,400,789
Net effect of dilutive stock options based on
the treasury stock method using
the average market price (anti-dilutive
in fiscal 1997 and 1996)
56,714 -- --
--------------- --------------- --------------
Weighted average number of common shares
outstanding - diluted 10,493,816 10,435,531 10,400,789
=============== =============== ==============
NOTE I - Quarterly Results (Unaudited)
The following is a summary of quarterly (13 weeks) operations for the fiscal
years ended January 30, 1999 and January 31, 1998 (in thousands except per
share data).
Fiscal 1998 Quarters Ended
-------------------------------------------------------------
May 2, August 1, October 31, January 30,
1998 1998 1998 1999
------- -------- ---------- -----------
Net sales $82,513 $95,786 $69,732 $80,028
Gross margin 30,621 34,510 24,236 26,799
Net income (loss) 2,045 3,517 (1,716) 537
Net income (loss) per common share - diluted 0.20 0.33 (0.16) 0.05
Fiscal 1997 Quarters Ended
--------------------------------------------------------------
May 3, 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 - diluted 0.14 0.23 (0.49) (0.96)
Net income in the fourth quarter of fiscal 1998 was increased by $968,000, or
$0.09 per common share, as a result of adjustments to the estimated effective
income tax rate used in previous quarters within fiscal 1998. The net loss in
the fourth quarter of fiscal 1997 was increased by $2,802,000, or $0.27 per
common share, as a result of adjustments to the estimated effective income tax
rate used in previous quarters within fiscal 1997.
NOTE J - 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
included initiatives which were 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 were
operating profitably. Under the plan, the Company estimated that it would
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 included 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.
A substantial number of the stores identified for closing under the
restructuring plan were closed by January 30, 1999. Certain of these stores
are no longer under consideration for closing due to a significant
improvement in performance since the announcement of the plan. As a result,
during the fourth quarter of fiscal 1998, the Company recorded a favorable
adjustment to pre-tax income of $385,000 to reverse the estimated cost,
recorded in fiscal 1997, of closing these stores.
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
Effective February 5, 1999, Cynthia R. Cohen resigned her 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.
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 scheduled to be held June 9, 1999.
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 30, 1999 and
January 31, 1998
Consolidated Statements of Operations for the fiscal years
ended January 30, 1999, January 31, 1998 and February 1,
1997
Consolidated Statements of Shareholders' Equity for the
fiscal years ended January 30, 1999, January 31, 1998 and
February 1, 1997
Consolidated Statements of Cash Flows for the fiscal years
ended January 30, 1999, January 31, 1998 and February 1,
1997
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 the Registrant's Annual Report on Form 10-K for
the year ended January 1, 1994 (File No. 0-15385).
3(b) Restated By-Laws of the Registrant, as of July 22, 1992 and
amended as of July 20, 1994, March 14, 1996 and April 29,
1998: Incorporated by reference to Exhibit 10(h) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended May 2, 1998 (File No. 0-15385)("the April 1998 Form
10-Q").
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 Registrant's Annual Report on Form 10-K for the year
ended December 30, 1995 (File No.0-15385).
4(d)(1) 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(d)(2) 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(d)(3) 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: Incorporated by reference
to exhibit of the same number to the Registrant's Annual
Report on Form 10-K for the year ended January 31, 1998 (File
No. 0-15385)("the 1997 Form 10-K").
4(d)(4)+ Amendment Number Four to the Loan and Security Agreement by and
between Congress Financial Corporation (Southern) as
Lender and the Registrant, One Price Clothing Stores, Inc. of
Puerto Rico and One Price Clothing Stores - U.S. Virgin
Islands, Inc. as Borrowers dated January 31, 1999.
4(e) 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(f) 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(g) 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)(1) 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: Incorporated by reference to exhibit of the
same number to the 1997 Form 10-K.
4(g)(2) 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: Incorporated by reference to exhibit of the
same number to the 1997 Form 10-K.
4(g)(3) Amendment Number Three to the Continuing Commercial Credit
Agreement by and between Carolina First Bank as Lender and the
Registrant, One Price Clothing Stores, Inc., One Price
Clothing of Puerto Rico, Inc.and One Price Clothing - U.S.
Virgin Islands, Inc. as Borrowers dated November 5, 1998:
Incorporated by reference to Exhibit 10(c) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October
31, 1998 (File No.0-15385).
4(g)(4)+ Amendment Number Four to the Continuing Commercial Credit
Agreement by and between Carolina First Bank as Lender and
the Registrant, One Price Clothing Stores, Inc., One Price
Clothing of Puerto Rico, Inc. and One Price Clothing -
U.S. Virgin Islands, Inc. as Borrowers dated March 31, 1999.
4(h) 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).
10(d)*+ Summary of Incentive Compensation Plan.
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)* Agreement dated June 24, 1992 between the Registrant and
Raymond S. Waters: Incorporated by reference to Exhibit 10(l)
to the Registrant's Annual Report on Form 10-K for the year
ended January 2, 1993 (File No. 0-15385).
10(g)* 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).
10(h)* 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 Registrant's Quarterly
Report on Form 10-Q for the quarter ended May 4, 1996
(File No. 0-15385).
10(i)* Agreement dated March 25, 1997 between the Registrant and Henry
D. Jacobs, Jr.: Incorporated by reference to Exhibit
10(n) to the Registrant's Annual Report on Form 10-K for the
year ended February 1, 1997 (File No. 0-15385)("the 1996
Form 10-K").
10(j)* 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(k)* 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(l)*+ Letter of Understanding regarding Non-Executive Chairman of the
Board position and Consulting Agreement dated April 16, 1998
and Amendment to Letter of Understanding and Consulting
Agreement dated December 22, 1998 between the Registrant and
Leonard Snyder.
10(m)* Stock Option Agreement dated April 16, 1998 between the
Registrant and Leonard Snyder: Incorporated by reference to
the April 1998 Form 10-Q.
10(n)*+ Employment Agreement dated March 26, 1997 and Amendment to
Employment Agreement dated December 22, 1998 between the
Registrant and Larry I. Kelley.
10(o)*+ Employment Agreement dated March 30, 1992 and Amendment to
Employment Agreement dated February 4, 1997 and amended
December 28, 1998 between the Registrant and Ronald Swedin.
10(p)*+ Employment Agreement dated October 21, 1991 and Amendments to
Employment Agreement dated April 16, 1998 and December
28, 1998 between the Registrant and George V. Zalitis.
10(q)*+ Employment Agreement dated November 10, 1997 and Amendments to
Employment Agreement dated April 16, 1998 and January
14, 1999 between the Registrant and A. J. Nepa.
10(r)*+ Employment Agreement dated April 12, 1999 between the
Registrant and H. Dane Reynolds.
Material Contracts -- Other:
10(s)* 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.
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.
+ Filed herewith.
(b) Reports on Form 8-K.
On January 12, 1999, the Company filed a report on Form 8-K dated
January 11, 1999 to report strong initial reaction to test sales of
menswear and its comp sales for fiscal November and December 1998.
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 13, 1999, the Company filed a report on Form 8-K dated
April 12, 1999 to announce the appointment of H. Dane Reynolds as
Senior Vice President and Chief Financial Officer.
(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 28, 1999 /s/ Larry I. Kelley
----------------------------------
Larry I. Kelley
President and Chief Executive
Officer (principal executive
officer, principal financial
officer and principal accounting
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 28, 1999 /s/ Leonard Snyder
---------------------------------
Leonard Snyder
Chairman of the Board of Directors
Date: April 28, 1999 /s/ Larry I. Kelley
---------------------------------
Larry I. Kelley
President and Chief Executive Officer
(principal executive officer)
Date: April 28, 1999 /s/ Warren Flick
---------------------------------
Warren Flick
Director
Date: April 28, 1999 /s/ Laurie M. Shahon
---------------------------------
Laurie M. Shahon
Director
Date: April 28, 1999 /s/ Malcolm L. Sherman
---------------------------------
Malcolm L. Sherman
Director
Date: April 28, 1999 /s/ James M. Shoemaker, Jr.
---------------------------------
James M. Shoemaker, Jr.
Director
Date: April 28, 1999 /s/ Allan Tofias
---------------------------------
Allan Tofias
Director
Date: April 28, 1999 /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 30, 1999
Allowance for
doubtful accounts $ 196,000 $ 130,000 $246,000 $ 80,000
=========== ========== ======== ============
FISCAL YEAR ENDED
JANUARY 31, 1998
Allowance for
doubtful accounts $ 144,000 $ 432,000 $380,000 $ 196,000
=========== =========== ======== ===========
FISCAL YEAR ENDED
FEBRUARY 1, 1997
Allowance for
doubtful accounts $ 233,000 $ 685,000 $774,000 $ 144,000
=========== =========== ======== ===========
(1) Deductions pertain to 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 the Registrant's Annual Report on Form 10-K for
the year ended January 1, 1994 (File No. 0-15385).
3(b) Restated By-Laws of the Registrant, as of July 22, 1992 and
amended as of July 20, 1994, March 14, 1996 and April 29,
1998: Incorporated by reference to Exhibit 10(h) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended May 2, 1998 (File No. 0-15385)("the April 1998 Form
10-Q").
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 Registrant's Annual Report on Form 10-K for the year
ended December 30, 1995 (File No.0-15385).
4(d)(1) 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(d)(2) 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(d)(3) 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: Incorporated by reference
to exhibit of the same number to the Registrant's Annual
Report on Form 10-K for the year ended January 31, 1998 (File
No. 0-15385)("the 1997 Form 10-K").
4(d)(4)+ Amendment Number Four to the Loan and Security Agreement by and
between Congress Financial Corporation (Southern) as
Lender and the Registrant, One Price Clothing Stores, Inc. of
Puerto Rico and One Price Clothing Stores - U.S. Virgin
Islands, Inc. as Borrowers dated January 31, 1999.
4(e) 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(f) 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(g) 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)(1) 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: Incorporated by reference to exhibit of the
same number to the 1997 Form 10-K.
4(g)(2) 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: Incorporated by reference to exhibit of the
same number to the 1997 Form 10-K.
4(g)(3) Amendment Number Three to the Continuing Commercial Credit
Agreement by and between Carolina First Bank as Lender and the
Registrant, One Price Clothing Stores, Inc., One Price
Clothing of Puerto Rico, Inc.and One Price Clothing - U.S.
Virgin Islands, Inc. as Borrowers dated November 5, 1998:
Incorporated by reference to Exhibit 10(c) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October
31, 1998 (File No.0-15385).
4(g)(4)+ Amendment Number Four to the Continuing Commercial Credit
Agreement by and between Carolina First Bank as Lender and
the Registrant, One Price Clothing Stores, Inc., One Price
Clothing of Puerto Rico, Inc. and One Price Clothing -
U.S. Virgin Islands, Inc. as Borrowers dated March 31, 1999.
4(h) 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).
10(d)*+ Summary of Incentive Compensation Plan.
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)* Agreement dated June 24, 1992 between the Registrant and
Raymond S. Waters: Incorporated by reference to Exhibit 10(l)
to the Registrant's Annual Report on Form 10-K for the year
ended January 2, 1993 (File No. 0-15385).
10(g)* 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).
10(h)* 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 Registrant's Quarterly
Report on Form 10-Q for the quarter ended May 4, 1996
(File No. 0-15385).
10(i)* Agreement dated March 25, 1997 between the Registrant and Henry
D. Jacobs, Jr.: Incorporated by reference to Exhibit
10(n) to the Registrant's Annual Report on Form 10-K for the
year ended February 1, 1997 (File No. 0-15385)("the 1996
Form 10-K").
10(j)* 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(k)* 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(l)*+ Letter of Understanding regarding Non-Executive Chairman of the
Board position and Consulting Agreement dated April
16, 1998 and Amendment to Letter of Understanding and
Consulting Agreement dated December 22, 1998 between the
Registrant and Leonard Snyder.
10(m)* Stock Option Agreement dated April 16, 1998 between the
Registrant and Leonard Snyder: Incorporated by reference to
the April 1998 Form 10-Q.
10(n)*+ Employment Agreement dated March 26, 1997 and Amendment to
Employment Agreement dated December 22, 1998 between the
Registrant and Larry I. Kelley.
10(o)*+ Employment Agreement dated March 30, 1992 and Amendment to
Employment Agreement dated February 4, 1997 and amended
December 28, 1998 between the Registrant and Ronald Swedin.
10(p)*+ Employment Agreement dated October 21, 1991 and Amendments to
Employment Agreement dated April 16, 1998 and December
28, 1998 between the Registrant and George V. Zalitis.
10(q)*+ Employment Agreement dated November 10, 1997 and Amendments to
Employment Agreement dated April 16, 1998 and January
14, 1999 between the Registrant and A. J. Nepa.
10(r)*+ Employment Agreement dated April 12, 1999 between the
Registrant and H. Dane Reynolds.
Material Contracts -- Other:
10(s)* 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.
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.
+ Filed herewith.
(b) Reports on Form 8-K.
On January 12, 1999, the Company filed a report on Form 8-K dated
January 11, 1999 to report strong initial reaction to test sales of
menswear and its comp sales for fiscal November and December 1998.
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 13, 1999, the Company filed a report on Form 8-K dated
April 12, 1999 to announce the appointment of H. Dane Reynolds as
Senior Vice President and Chief Financial Officer.
(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.