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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE
OCTOBER 7, 1996)
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 0-19526
GOODY'S FAMILY CLOTHING, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-0793974
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
400 GOODY'S LANE, KNOXVILLE, TENNESSEE 37922
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 966-2000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No 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 the 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. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of April 16, 1998: approximately $493,404,000.
Number of shares of Common Stock outstanding as of April 16, 1998:
16,483,690.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Annual Report to Shareholders of Goody's Family
Clothing, Inc. and subsidiaries are incorporated by reference in Part I and Part
II of this Report. Portions of the Company's definitive Proxy Statement for its
Annual Meeting of Shareholders to be held on June 17, 1998 are incorporated by
reference into Part III of this Report. Unless the context otherwise indicates,
all references in this Form 10-K to the "Company" or "Goody's" refer to Goody's
Family Clothing, Inc., a Tennessee corporation, and its subsidiaries. The
Company's fiscal year ends on the Saturday nearest the last day of January. The
terms "fiscal 1998," "fiscal 1997," "fiscal 1996," "fiscal 1995," "fiscal 1994"
and "fiscal 1993" refer to the Company's fiscal years ending or ended on January
30, 1999 (52 weeks), January 31, 1998 (52 weeks), February 1, 1997 (52 weeks),
February 3, 1996 (53 weeks), January 28, 1995 (52 weeks) and January 29, 1994
(52 weeks), respectively.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of the Company. Management has
endeavored in its communications, in its Annual Report and in this Form 10-K to
highlight the trends and factors that might have an impact on the Company and
the industry in which the Company competes. Any "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which generally
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "estimate," "anticipate," "believe," "target," "plan,"
"project" or "continue" or the negatives thereof or other variations thereon or
similar terminology. These statements appear in a number of places in this Form
10-K and include statements regarding the intent, belief or current expectations
of the Company, its directors or its officers with respect to, among other
things: (i) the timely availability of branded and private label merchandise in
sufficient quantities to satisfy customer demand; (ii) customer demand and
trends in the apparel and retail industry and to the acceptance of merchandise
acquired for sale by the Company; (iii) the effectiveness of planned advertising
and promotional events; (iv) the impact of competitors' pricing and store
expansion; (v) the ability to enter into leases for new store locations; (vi)
individual store performance, including new stores; (vii) adverse weather
conditions, employee relations, and the general economic conditions within the
Company's markets; (viii) the timing, magnitude and costs of opening new stores;
(ix) the Company's financing plans; (x) trends affecting the Company's financial
condition or results of operations and (xi) the Company's business and growth
strategies. Readers are cautioned that any such forward-looking statement is not
a guarantee of future performance and involves risks and uncertainties, and that
actual results may differ materially from those projected in the forward-looking
statement as a result of various factors. 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.
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Authentic GFC, Chandler Hill, Feels Like You, GFC, GFC Trading Co.,
GoodKidz, Goody's Family Clothing and OCI -- Quality Clothing are registered
trademarks of the Company. The Company has applied for registration of the
following trademarks: Bobby G by Ivy Crew, Department Store Brands Department
Store Styles Goody's Low Price, Electro Sport, G (stylized G with arch design),
Intimate Classics, Ivy Crew, Montana Blues Jean Company, Mountain Lake,
OCI-Quality Clothing, Old College Inn and Take a Good Look. The following
trademarks and tradenames used in this Form 10-K are owned by (and in certain
cases registered to) third parties: Adidas, Alfred Dunner, Arrow, Body I.D.,
Braetan, Bugle Boy, Burnes of Boston, Byer, California Concepts, Capezio, Cathy
Daniels, Converse, Counterparts, Cradle Togs, Dawn Joy, Dockers, Drummer Boy,
Esprit, Fila, Fundamental Things, Hanes, Herman Kay, Jantzen, Jessica Howard,
Keds, L.A. Gear, LaBlanca/Sassafras, Lee, Leslie Fay, Levi's, Lovable,
Maidenform, Mickey & Co., My Michelle, Nike, Ocean Pacific, Olga, Plaza South,
Positive Attitude, Reebok, Requirements, Rosetti, Russell, Sag Harbor, Scarlett,
Speedo, Stephanie K by Koret, Trends, Union Bay, Warner's, Winlet, Winnie the
Pooh and Wrapper.
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PART I
ITEM 1. BUSINESS
GENERAL
Incorporated in January 1954, Goody's is a retailer of moderately-priced
apparel for women, men and children, operating 223 stores in 15 Southeastern and
Midwestern states as of January 31, 1998. The Company continually develops and
refines its merchandising strategy to meet the tastes and lifestyles of its
customer base. The Company primarily locates its stores in small to midsize
markets that have demographic characteristics consistent with its targeted
value-conscious customer. Its stores, all of which are leased and which are
generally located in strip shopping centers, average approximately 27,200 gross
square feet. The Company manages its core functions, including purchasing,
pricing, marketing and advertising, distribution, finance and information
systems, from its centrally located corporate office and distribution center in
Knoxville, Tennessee.
The Company's objective is to be the leading retailer of brand name apparel
in each of the markets it serves by providing its customers with a broad
selection of current-season, quality branded apparel at value prices. Key brands
offered by the Company include Adidas, Alfred Dunner, Bugle Boy, Dockers, Lee,
Leslie Fay, Levi's, Nike, Reebok, Requirements and Sag Harbor among many others.
These well-known labels, combined with the Company's outstanding private label
collections, Chandler Hill, Electro Sport, GFC Trading Co., Intimate Classics,
Montana Blues Jean Company and Mountain Lake for women; Authentic GFC, Bobby G
by Ivy Crew, GFC, Ivy Crew, Old College Inn and OCI -- Quality Clothing for men;
and GoodKidz for children, enable the Company to compete effectively with other
retailers operating in its markets.
The Company continues to experience significant growth in the number of its
stores as well as in its sales. During the period from fiscal 1993 through
fiscal 1997, the number of stores increased from 146 to 223 and sales increased
from $505.0 million to $971.9 million. During fiscal 1995, the Company began to
implement important strategic initiatives related to merchandise assortment,
inventory levels and customer focus. The Company believes that its financial
results began significantly improving in the third quarter of fiscal 1996 as a
result of the successful implementation of these strategic initiatives. These
improvements have included comparable store sales increases in each subsequent
quarter. This trend has continued into fiscal 1997 when, compared with fiscal
1996, sales increased 18.7% from $819.1 million to $971.9 million (including a
comparable store sales increase of 8.2%), net earnings increased 93.6% from
$17.2 million to $33.3 million and earnings per share increased 88.6% from $1.05
per share to $1.98 per share.
COMPETITIVE STRATEGY
Central elements of the Company's competitive strategy include the
following:
- Appeal to Value-Conscious Customers. Goody's appeals to value-conscious
customers by offering quality brand name merchandise at prices targeted
to be 10% to 30% lower than those of traditional department stores.
- Offer Broad Range of Merchandise for the Entire Family. Unlike specialty
stores, the Company provides a wide selection of merchandise designed to
fully address the apparel needs of women, men and children. The Company
believes that providing one-stop apparel shopping for its customers in
convenient, accessible locations gives it an advantage over many of its
competitors.
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- Emphasize Current-Season, First-Quality Brands. The Company's stores
offer brands that are not generally available to mass market and
off-price retailers. These brands include Levi's, Lee, Bugle Boy, Sag
Harbor and Nike, among others. Unlike off-price retailers, Goody's offers
only current-season, first-quality merchandise.
- Strategically Use Private Label Merchandise. While the Company is
committed to maintaining a strong line-up of nationally recognized brand
name merchandise, private label programs offer important strategic
advantages. These programs offer shoppers designer looks and quality at
value prices, generate higher gross margins and allow the Company to
maintain consistent in-stock positions on basic merchandise.
- Focus on Small to Midsize Markets. The Company generally locates stores
in small to midsize markets that have demographic characteristics
consistent with its targeted value-conscious customer. Having developed a
flexible store format depending on local demographics, the Company
generally seeks locations that range in size from 20,000 to 35,000 gross
square feet. While the Company operates in the selected metropolitan
markets of Atlanta, Georgia; Birmingham, Alabama; and Charlotte, North
Carolina, smaller market areas offer significant strategic advantages,
including increased opportunities for expansion, lower rent and occupancy
costs and fewer competitors.
- Provide Strong Marketing and Advertising. The Company believes that
communicating frequently with customers is key to maintaining traffic
flow in its stores and creating keen awareness among shoppers. The
Company advertises in newspapers at least once each week, 52 weeks a
year. The Company reinforces its print message with television and radio
campaigns running during portions of approximately 39 weeks each year.
EXPANSION STRATEGY
The Company's expansion strategy is to open new stores in small to midsize
markets generally located within 800 miles of its distribution center in
Knoxville, Tennessee. In addition, the Company considers suburban growth areas
of metropolitan markets for expansion from time to time. The Company believes
that opportunities exist to expand its presence within current markets, new
markets such as Texas and anticipates future expansion into the neighboring
states of Louisiana and Oklahoma. The Company would also consider a
complementary acquisition opportunity should it arise, although the Company has
no understandings, arrangements or agreements with respect to any such
opportunity.
In making its decision to open a new store, the Company typically
evaluates, among other factors, market demographics, competition, location,
consumer traffic, rent and occupancy costs, advertising and other expenses
associated with the opening and operation of a new store.
Goody's plans to increase its gross store square footage by at least 10%
per year in each of the next four fiscal years by opening new stores and
relocating existing stores each year. The Company's current plans for fiscal
1998 are to open a total of 28 new stores, including the Company's first three
stores in the state of Texas, relocate or remodel 10 to 12 stores and close two
stores.
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The following table provides information regarding the number of stores in
operation, new stores opened, stores closed and stores relocated or remodeled
during the periods indicated:
FISCAL YEAR
--------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Stores open, beginning of year............................ 203 184 171 146 125
New stores opened during the year......................... 24 20 13 25 23
Stores closed during the year............................. (4) (1) -- -- (2)
--- --- --- --- ---
Stores open, end of year.................................. 223 203 184 171 146
=== === === === ===
Stores relocated or remodeled during the year............. 16 8 7 7 2
=== === === === ===
MERCHANDISING STRATEGY
The Company's merchandising strategy has been developed to appeal to
value-conscious, quality-oriented customers. The Company offers its merchandise
at prices targeted to be 10% to 30% below those of traditional department
stores. The Company competes (i) with department stores by offering quality,
brand name apparel at value prices, (ii) with specialty stores by offering
apparel for the entire family, (iii) with off-price apparel stores by offering a
wide selection of current-season merchandise at competitive prices and (iv) with
discount stores by offering better brand name merchandise generally unavailable
to discount retailers. The Company does not purchase factory seconds,
out-of-season or irregular merchandise. The Company believes that its broad
selection of current-season, first-quality, brand name merchandise, combined
with its private label merchandise, provides a key competitive advantage. While
nationally recognized brand name merchandise remains the cornerstone of its
merchandising strategy, the Company continues to invest in the development of
its private label brands, which offer customers quality basic and designer look
apparel at value prices. For fiscal 1997 and 1996 private label merchandise
sales accounted for approximately 21% and 15%, respectively, of the Company's
sales.
Generally within each store, specific departments are well signed and have
direct aisleways leading to major departments. Visual merchandising and store
presentation are enhanced by fixtures that showcase merchandise in an open,
accessible and customer-friendly shopping environment. Sale items featured in
the Company's advertising campaigns are highlighted in the stores with
easy-to-read signs that help customers quickly locate items of interest. The
overall merchandise presentation is reorganized four times a year to emphasize
the fashion products for the upcoming season.
A typical store has six divisions that include women's (juniors, misses,
intimate apparel, swimwear and outerwear), denim, men's (sportswear, activewear,
young men's and men's furnishings), children's (infants and toddlers, boys and
girls), accessories (jewelry, handbags, belts and gift items) and shoes (in 185
stores). Goody's carries approximately 12,500 different styles of merchandise,
all of which are electronically tracked in order to provide accurate selling
data to the Company.
MERCHANDISING DIVISIONS
Women's. The broadest merchandise selection offered by the Company is in
the women's division, which contributed 42.1% of total sales in fiscal 1997.
Goody's improved its profitability in the women's division in fiscal 1997 by
emphasizing career fashions, casual weekend wear, plus-size merchandise in the
misses department and cross-over fashions targeted at customers whose tastes
fall between those of the traditional junior and misses customers.
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Women's merchandise categories include juniors, misses, intimate apparel,
swimwear and outerwear. Juniors' merchandise lines include brand names such as
Adidas, Byer, California Concepts, Lee, Levi's, My Michelle, Nike, Reebok, Union
Bay and Wrapper. Misses' merchandise lines include popular brand names such as
Alfred Dunner, Cathy Daniels, Counterparts, Fundamental Things, Lee, Leslie Fay,
Levi's, Requirements, Sag Harbor and Stephanie K by Koret, as well as the
Company's private label brand, Mountain Lake. Fashion dresses are also an
important part of Goody's overall women's product lines and feature popular
brand names such as Dawn Joy, Jessica Howard, Leslie Fay, Plaza South, Positive
Attitude and Scarlett. Brand name undergarments include products from Hanes,
Lovable, Maidenform, Olga and Warner's. Swimwear features labels such as Body
I.D., LaBlanca/Sassafras, Ocean Pacific and Speedo. Outerwear product lines
include the Braetan, Herman Kay and Winlet brand name labels and Mountain Lake
and GFC Trading Co., the Company's private label brands.
Denim. The denim merchandise division is important to the Company's
merchandising concept and contributed 22.9% of total sales in fiscal 1997. The
Company believes that its broad selection and competitive pricing of denim
merchandise appeals to value-conscious families and generates customer traffic
for other higher margin merchandise. The Company utilizes automatic
replenishment programs using electronic data interchange ("EDI") with its major
denim suppliers to alleviate out-of-stock positions for popular styles and sizes
and improve inventory turnover. Primary brand names that are carried in the
denim division include Bugle Boy, Lee, Levi's and Union Bay. The Company's
private label brands for denim are Montana Blues Jean Company for women and
Authentic GFC for men.
Men's. The men's division contributed 20.1% of total sales in fiscal 1997
and consists of sportswear, activewear, young men's and men's furnishings
departments. The men's division utilizes a shop concept that features various
brand name merchandise targeted at certain lifestyles. The Company introduced
men's blazers and dress slacks in fiscal 1996 on a limited basis, and this
program was expanded in fiscal 1997. Featured brand names in the men's division
include Adidas, Arrow, Bugle Boy, Dockers, Drummer Boy, Fila, Lee, Levi's, Nike,
Reebok and Russell. The Company's private label brands for men are Authentic
GFC, Bobby G by Ivy Crew, GFC, Ivy Crew, OCI -- Quality Clothing and Old College
Inn.
Children's. The children's division contributed 6.7% of total sales in
fiscal 1997 by offering popular and durable apparel for children of all ages.
Primary brand names carried for children include Adidas, California Concepts,
Cradle Togs, Dockers, Lee, Levi's, Mickey & Co., My Michelle, Nike, Reebok,
Trends, Union Bay and Winnie the Pooh. The Company's private label brand for
children is GoodKidz.
Accessories. The accessories division, which includes items such as
fashion and costume jewelry, handbags, belts, wallets, hair accessories,
sunglasses for women, picture frames, gourmet foods, stationery and gift baskets
contributed 4.4% of total sales in fiscal 1997. Featured brand names include
Burnes of Boston, Capezio, Jantzen and Rosetti.
Shoes. The shoe division contributed 3.4% of total sales in fiscal 1997.
Shoe departments are located in 185 of the Company's stores and are operated by
a third party under an exclusive operating license agreement which expires on
January 29, 2000. In fiscal 1997, 23 of the 24 new stores opened by the Company
included shoe departments. The Company added shoe departments to 25 stores
existing prior to 1997. The shoe departments offer brand names such as Adidas,
Converse, Esprit, Keds and L.A. Gear. During fiscal 1998 the Company plans to
include shoe departments in 25 of the 28 planned new stores and to add shoe
departments to three existing stores operating prior to fiscal 1998.
Tuxedo rentals and service fees. The Company's revenue from tuxedo rentals
and service fees charged on layaways contributed less than 1% of total sales in
each of the last three fiscal years.
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The following table shows a breakdown of the Company's total sales for the
periods indicated (dollars in thousands):
FISCAL 1997 FISCAL 1996 FISCAL 1995
------------------- ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
Women's................. $408,739 42.1% $335,923 41.0% $286,097 41.1%
Denim................... 222,572 22.9 202,263 24.7 175,754 25.2
Men's................... 195,156 20.1 165,438 20.2 144,081 20.7
Children's.............. 64,885 6.7 59,705 7.3 49,229 7.1
Accessories............. 42,467 4.4 24,972 3.0 17,666 2.5
Shoes................... 33,378 3.4 26,827 3.3 21,087 3.0
Tuxedos rentals and
service fees.......... 4,726 0.4 3,928 0.5 2,954 0.4
-------- ----- -------- ----- -------- -----
$971,923 100.0% $819,056 100.0% $696,868 100.0%
======== ===== ======== ===== ======== =====
PURCHASING
The Company's merchandise purchasing function is centralized at its
corporate headquarters. The Company buys its merchandise from approximately 700
vendors and does not have long-term or exclusive contracts with any manufacturer
or vendor. During fiscal 1997, the Company's purchases from Levi Strauss & Co.,
its largest vendor, represented approximately 20% of its total purchases. No
more than 5% of total purchases were attributable to any one of the Company's
other vendors. The Company intends to maintain strong, partner-type
relationships with its vendors. A significant portion of the Company's
merchandise is prepacked and preticketed by the vendors for each store, reducing
the cost and processing time in the distribution center.
Merchandise associated with the Company's private label brands is largely
imported. The Company employs its own designers and product development teams
who work closely with its merchants to track seasonal fashion trends, analyze
customer feedback and determine accurate order quantities. The Company controls
its private label merchandise from the initial concept to the final sale to the
consumer and monitors product quality, freight costs and other expenses in an
effort to maximize gross margins on such merchandise.
PLANNING AND ALLOCATION
The Company's planning and allocation department works closely with its
merchants, distribution center and store operations personnel to establish an
appropriate flow of merchandise on a store-by-store basis. This flow of
merchandise reflects customer preferences in each market in an effort to reduce
the cost of transferring merchandise among its various stores. The Company also
utilizes automatic replenishment programs using EDI with approximately 63
vendors, which accounted for approximately 25% of total sales in fiscal 1997 and
allows for more efficient replenishment of specific items of merchandise in
particular styles, sizes and colors to minimize out-of-stock positions of basic
merchandise and improve inventory turnover. The Company expects to continue to
invest in automatic replenishment programs using EDI with new and existing
vendors and increase the number of participating vendors.
CENTRALIZED DISTRIBUTION
The Company believes that its 344,000-square-foot distribution center,
located in Knoxville, Tennessee, will be sufficient to process and distribute
merchandise to approximately 350 stores. The distribution center is equipped
with automated merchandise handling equipment that facilitates efficient
distribution of merchandise to the Company's stores and provides for efficient
cross docking of prepacked and preticketed merchandise by store. In order to
improve quality control, all incoming merchandise is received at the
distribution center to allow for inspection before being delivered to the
stores.
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Merchandise for individual stores is typically processed through the
distribution center within 48 hours of its receipt from vendors. Furthermore,
because the distribution center is located adjacent to both a main north-south
and a main east-west interstate highway, the Company can negotiate favorable
shipping terms with its vendors for merchandise delivered to its distribution
center.
The Company has also developed an effective computerized system for
tracking merchandise from the time it arrives at its distribution center until
it is delivered to the stores to ensure that shipments are delivered in an
accurate and timely manner. In delivering merchandise to the stores, the Company
utilizes a third party contract carrier.
MARKETING AND ADVERTISING
The Company's marketing and advertising functions are centralized at its
corporate headquarters. The Company's marketing and promotional strategy is
designed to reinforce its image as a value-priced, family apparel retailer. The
Company believes that its advertisements, which emphasize brand name apparel,
low prices and broad selections for the entire family, have enabled the Company
to communicate a unique look that reinforces its niche in the marketplace.
Using a multi-media approach, Goody's develops and prepares its own
advertising materials for newspapers and internally creates television and radio
spots. The Company's media department researches its market to develop profiles
of shoppers in order to effectively plan the Company's advertising. The Company
frequently uses full-color advertising to portray the depth and selection of its
merchandise. In-store merchandise presentation is coordinated with such
advertising to maximize promotional opportunities. While the exact allocation of
advertising dollars differs from market to market, the Company generally
allocates approximately 67% of its advertising budget to print media and the
remainder to television, radio and other promotional activities. Several of the
Company's key vendors share in the costs of mutually beneficial advertising
campaigns through cooperative advertising programs.
PRICING
The Company's pricing strategy is designed to provide value to its
customers by offering merchandise at prices targeted to be 10% to 30% below
those of traditional department stores. Denim, which is a consumer draw, is
priced very competitively and is generally positioned to increase traffic
throughout the store. All pricing decisions are made at the Company's corporate
headquarters. In order to remain competitive and enhance its sales promotion
efforts, Goody's frequently monitors its competitors' prices. In addition, the
Company's management information systems provide daily and weekly sales and
gross margin reports that, among other things, track sales and gross margins by
stock keeping unit ("SKU") and provide management with the flexibility to adjust
prices as appropriate.
CUSTOMER SERVICE
The Company's customer service program, Customer First, was designed to
educate and train store associates how to develop a customer-friendly mind-set
where customers -- not tasks -- come first in the stores. This initiative begins
with pre-employment screenings that measure job applicants' initial customer
service skills and is supported by ongoing training programs and incentives for
associates who demonstrate outstanding customer service performance. The Company
is also making operational enhancements to improve customers' overall shopping
experiences in its stores. The Company's merchandise return and exchange
policies were developed to ensure positive interactions between store associates
and customers. Additionally, the Company continues to invest in new cash
register systems and technologies to simplify the customer checkout process. To
monitor the success of these new Customer First programs, Goody's is encouraging
customer feedback with in-store survey cards.
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STORE OPERATIONS
Management of store operations is the responsibility of the Executive Vice
President -- Stores, who is assisted by a Vice President -- Store Operations, a
Vice President -- Store Development, three Regional Vice Presidents -- Sales and
27 district managers. Each district manager oversees five to 11 stores and
reports to a Regional Vice President -- Sales.
Each store has a manager and between one and three assistant managers,
depending upon the size of the store. Other positions of responsibility within a
store include four to five department managers, a head cashier and a stockroom
manager. The number of sales staff ranges from 12 in smaller stores to 25 in
average stores to 70 in larger stores. The majority of the sales staff are
employed on a full-time basis, although part-time workers are hired during peak
selling seasons. The Company's stores are generally open from 9:00 a.m. to 9:00
p.m. Monday through Thursday; from 9:00 a.m. to 10:00 p.m. Friday and Saturday;
and from 12:00 p.m. to 6:00 p.m. on Sunday. These hours are extended during
various holiday and peak selling seasons.
STORE LOCATIONS
The Company locates stores predominantly in small to midsize markets in the
Southeast and Midwest that typically have populations of 100,000 or fewer and
demographic characteristics consistent with its targeted value-conscious
customer. However, since 1994, the Company has opened multiple locations within
certain metropolitan markets such as Atlanta, Georgia; Birmingham, Alabama and
Charlotte, North Carolina. Goody's typically enters these metropolitan markets
by opening several stores simultaneously, which increases the Company's image
and awareness throughout the market while leveraging advertising costs which are
generally higher than small to midsize markets. Goody's primarily leases store
space in strip centers, where costs are generally lower than mall locations. The
smallest of the Company's stores has 7,600 gross square feet and the largest
store has approximately 52,600 gross square feet; the average store size is
approximately 27,200 gross square feet.
All of the Company's stores are leased, rather than owned, which has
enabled the Company to grow without incurring indebtedness associated with
acquiring and owning real estate. The Company believes that the flexibility of
leasing its stores provides substantial benefits and avoids the inherent risks
of owning real estate. The Company believes that it has established itself as an
anchor tenant due to its operating performance, the size of its stores, its
advertising contributions in local markets, its financial position and its
history of meeting its lease commitments on a timely basis.
INFORMATION SYSTEMS
The Company maintains fully integrated point-of-sale, inventory and
merchandise systems. The Company's information systems provide management,
buyers, planners and distributors with comprehensive data that helps them
identify emerging sales trends and, accordingly, manage inventories. The
information systems include unit and dollar planning, purchase order management,
open order reporting, open-to-buy, receiving, distribution, EDI, basic stock
replenishment, transfer management and inventory and price management. Daily and
weekly sales reports are used by management to enhance the timeliness and
effectiveness of purchasing and markdown decisions. Merchandise purchases are
based on planned sales and inventories and are frequently revised to reflect
changing sales trends. The Company's stores have point-of-sale systems that are
supported by a back-office in-store computer system. The in-store systems
feature bar coded ticket scanning, automatic price look-up, dial-out credit and
check authorization and nightly transmittal of detailed sales data from stores
to the corporate office.
As part of the Company's strategic plan initiated in 1995, several of the
Company's core business systems have been replaced or are in the process of
being replaced. In fiscal 1996 and 1997, the Company implemented new financial
systems and made various enhancements to its store and other core business
systems. During fiscal 1998 and 1999 the Company plans to replace or enhance its
merchandising and distribution systems.
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YEAR 2000
The Year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities.
A favorable by-product of the replacements or enhancements of the Company's
core business systems, associated with the strategic plan initiated by the
Company in 1995, is the assurance that the systems are or will be Year 2000
compliant. A Year 2000 task force, formed by the Company to address the Year
2000 issue, is evaluating all other programs and systems that may need to be
upgraded or replaced to ensure their Year 2000 compliance.
The Company does not believe the future costs relating to the Year 2000
issues will have a material impact on the Company's consolidated financial
position, results of operations or cash flows. The Company is not yet in a
position to assess whether its vendors and other business partners will attain
Year 2000 compliance in a timely manner or the impact of any such
non-compliance.
TRADEMARKS
The United States Patent and Trademark Office (the "USPTO") has issued to
the Company federal registrations for the following trademarks: Authentic GFC,
Chandler Hill, Feels Like You, GFC, GFC Trading Co., GoodKidz, Goody's Family
Clothing and OCI -- Quality Clothing. The Company has also filed applications
with the USPTO seeking federal registrations for the following trademarks: Bobby
G by Ivy Crew, Department Store Brands Department Store Styles Goody's Low
Price, Electro Sport, G (stylized G with arch design), Intimate Classics, Ivy
Crew, Montana Blues Jean Company, Mountain Lake, Old College Inn and Take a Good
Look. The Company's private label programs represented approximately 21% of the
Company's total sales for fiscal 1997.
In April 1994, the Company filed an application with the USPTO to register
the trademark Ivy Crew. Two parties have filed separate notices of opposition to
the registration. The Company believes that it has meritorious defenses to these
oppositions, but does not anticipate a determination by the USPTO on any of the
oppositions until 1999.
The Company filed a trademark application with the USPTO on March 27, 1995,
as supplemented on March 28, 1995, for the trademark Montana Blues Jean Company.
Such application has been refused and suspended by the USPTO pending action on
previously filed trademark applications by others.
The Company received a federal registration to the trademarks GFC Trading
Co., GFC and Authentic GFC on January 23, 1996, August 20, 1996 and July 20,
1997, respectively. In September 1996, the Company filed an action in federal
court in the Eastern District of Tennessee seeking a declaratory judgment
against a third party who had alleged common law trademark rights to the
trademark GFC. In February 1997, such party commenced a separate action against
the Company in federal court in the Southern District of New York seeking
injunctive relief and unspecified monetary damages. In February 1998, the New
York court issued an order transferring this case to the Eastern District of
Tennessee. The Company believes that it has meritorious defenses to the claims
against it.
There can be no assurance that the Company will prevail in any of these
disputes or that the USPTO will register the trademarks for which the Company
has applied. An unfavorable outcome in any one or more of these matters could
require the Company to abandon the applicable trademark, which could adversely
affect the Company's sales. It is also possible that damages could be awarded
against the Company.
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11
ASSOCIATES
As of January 31, 1998, the Company had approximately 8,800 full and
part-time associates. Store managers and assistant store managers are
compensated on a salaried basis and are eligible to receive additional
compensation based on the Company's profitability as well as meeting certain
objective goals at their respective stores such as sales growth, control of
expenses and inventory shrinkage. All other store associates are compensated on
an hourly basis. All of the Company's associates are non-union employees, with
the exception of the associates employed at its distribution center in
Knoxville, Tennessee, who are represented by the Union of Needletrades,
Industrial and Textile Employees. The Company's incentive bonus program for
certain key corporate associates is based on achieving certain profitability
goals and could potentially provide a significant portion of the associates'
total annual compensation.
The Company also grants stock options to certain key corporate and store
associates. These options are designed to align associates' interests with those
of the Company's shareholders and allow the Company to provide long-term
incentives to its associates.
The Company maintained a profit sharing plan through December 31, 1997 for
full-time associates. This plan provided for discretionary contributions by the
Company which were approved by its Board of Directors. The Company's
contributions to the profit sharing plan were $750,000, $525,000 and $350,000
for fiscal 1997, 1996 and 1995, respectively.
On January 1, 1998, the Company amended and restated its profit sharing
plan by adopting the Goody's Family Clothing, Inc. 401(k) Retirement Plan with a
salary deferral feature for all eligible associates. All the assets of the
profit sharing plan were transferred to the 401(k) plan. Under the terms of the
401(k) plan, eligible associates may contribute between 3% and 15% of their
annual compensation on a pretax basis (with certain limitations imposed by the
Internal Revenue Service) to the plan. The Company provides matching
contributions to the 401(k) plan which are discretionary, vest over time
pursuant to a vesting schedule contained in the plan and are based upon a
percent of the associates' elected contributions. These matching contributions
amounted to $35,000 for fiscal 1997.
The Company also has an Employee Payroll Investment Plan that allows
eligible associates to purchase the Company's common stock at fair market value
through regular payroll deductions.
SEASONALITY AND INFLATION
The Company's business is seasonal by nature. The Christmas season
(beginning the Sunday before Thanksgiving and ending on the first Saturday after
Christmas), the back-to-school season (beginning approximately the first week of
August and continuing through the first week of September) and the Easter season
(beginning approximately two weeks before Easter Sunday and ending on the
Saturday preceding Easter) collectively accounted for approximately 34.5% of the
Company's annual sales based on the Company's last three fiscal years ended
January 31, 1998. In general, sales volume varies directly with customer
traffic, which is heaviest during the third and fourth quarters of a fiscal
year. Because of the seasonality of the Company's business, results for any
quarter are not necessarily indicative of the results that may be achieved for
the full year.
Inflation can affect the costs incurred by the Company in the purchase of
its merchandise, the leasing of its stores and certain components of its
selling, general and administrative expenses. During the last three fiscal years
ended January 31, 1998, inflation has not adversely affected the Company's
business, although there can be no assurance that inflation will not have a
material adverse effect in the future.
COMPETITION
The retail apparel business is highly competitive, with price, selection,
fashion, quality, location, store environment and service being the principal
competitive factors. The Company believes that it is well positioned to compete
on the basis of each of these factors. The Company competes primarily with
department stores, specialty stores, off-price apparel stores and discount
stores. Many competitors are large national chains with substantially greater
financial and other resources than those available to the Company; there is no
assurance that the Company will continue to be able to compete successfully with
any of them in the future.
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ITEM 2. PROPERTIES
The Company owns its corporate headquarters and distribution center located
at 400 Goody's Lane, Knoxville, Tennessee. The distribution center is a
one-story, 344,000-square-foot facility with 43 loading docks and a mezzanine
level that has an additional 14,000 square feet currently used as office space.
The corporate headquarters building is adjacent to the distribution center and
comprises approximately 140,000 square feet.
The Company currently leases all of its stores. Lease terms generally
contain renewal options and provide for a fixed minimum rent, an additional rent
based on a percent of sales in excess of stipulated amounts and a share of
taxes, insurance and common area maintenance costs.
As of January 31, 1998 the following table reflects (i) the number of
leases that will expire in each indicated fiscal year if the Company does not
exercise any of its renewal options and (ii) the number of leases that will
expire in each indicated fiscal year if the Company exercises all of its renewal
options. The table does not reflect six leases having month-to-month terms, but
does include 20 leases executed as of January 31, 1998 for stores to be opened
or relocated in fiscal 1998.
NUMBER OF LEASES NUMBER OF LEASES
EXPIRING EACH YEAR IF EXPIRING EACH YEAR IF
NO RENEWALS ALL RENEWALS
FISCAL YEAR EXERCISED EXERCISED
- ----------- --------------------- -------------------------
1998................................................. 30 7
1999................................................. 25 4
2000................................................. 16 2
2001................................................. 11 2
2002................................................. 23 5
2003 and thereafter.................................. 132 217
ITEM 3. LEGAL PROCEEDINGS
Due to the nature of the Company's business, it is from time to time a
party to certain legal proceedings arising in the ordinary course of its
business. The Company is not currently a party to any legal proceeding that, in
the judgment of management, would have a material adverse effect on its
operations or financial condition, if adversely determined.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the
information on page 33 of the Registrant's 1997 Annual Report under the captions
"Common Stock Information" and "Dividend Policy."
ITEM 6. SELECTED FINANCIAL DATA
The information required by this is incorporated by reference to the
information on page 15 of the Registrant's 1997 Annual Report under the caption
"Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information required by this item is incorporated by reference to the
information on pages 16-20 of the Registrant's 1997 Annual Report under the
caption "Management's Discussion and Analysis."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material investments or risks in market risk sensitive
instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to the
information on pages 21-31 of the Registrant's 1997 Annual Report and in the
tables for fiscal 1997 and fiscal 1996 on page 20 under the caption "Selected
Quarterly Data."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
information under the captions "Election of Directors -- Director, Director
Nominee and Executive Officer Information" and "Election of Directors -- Section
16(a) Beneficial Ownership Reporting Compliance" in the Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on June 17, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
information under the caption "Executive Compensation and Other Information" in
the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be
held on June 17, 1998, but does not include the information under the captions
"Compensation Committee Report" and "Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
information under the caption "Voting Rights and Principal Shareholders" in the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
on June 17, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
information under the caption "Certain Transactions" in the Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on June 17, 1998.
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15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
The Registrant's 1997 Annual Report, a copy of which appears as Exhibit 13
to this Annual Report on Form 10-K, contains the following financial statements
and the Registrant's independent auditors' report thereon, which are
incorporated herein by reference.
- Independent Auditors' Report.
- Consolidated Statements of Operations for each of the three fiscal years
in the period ended January 31, 1998.
- Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997.
- Consolidated Statements of Cash Flows for each of the three fiscal years
in the period ended January 31, 1998.
- Consolidated Statements of Shareholders' Equity for each of the three
fiscal years in the period ended January 31, 1998.
- Notes to Consolidated Financial Statements for the three fiscal years in
the period ended January 31, 1998.
2. Financial Statement Schedules
All financial statement schedules are omitted as the required information
is inapplicable.
3. Exhibits
EXHIBIT
NUMBER REF. DESCRIPTION
- ------- ---- -----------
1.1 a -- Form of Underwriting Agreement
3.1 b -- Amended and Restated Charter of the Registrant
3.2 c -- Amended and Restated Bylaws of the Registrant
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Charter and Amended and Restated Bylaws of the
Registrant defining rights of holders of Common Stock of the
Registrant
10.1 d -- Goody's Family Clothing, Inc. Profit Sharing Plan
10.2 e -- Goody's Family Clothing, Inc. 1991 Stock Incentive Plan
10.4 f -- Goody's Family Clothing, Inc. 1993 Stock Option Plan
10.5 g -- Goody's Family Clothing, Inc. Discounted Stock Option Plan
for Directors, as amended
10.18 h -- Settlement agreement dated January 5, 1995
10.29 i -- Benefit Protection Trust Agreement
10.30 j -- Employment agreement between the Registrant and Marcus H.
Smith, Jr.
10.31 j -- Employment agreement between the Registrant and Thomas R.
Kelly, Jr.
10.32 j -- Credit agreement between the Registrant, Lenders as
identified therein and First Tennessee Bank National
Association as Administrative Agent
10.33 k -- Master transport agreement between the Registrant and Star
Transportation, Inc. dated July 10, 1995
10.34 l -- Goody's Family Clothing, Inc. Employee Payroll Investment
Plan
10.35 m -- Employment letter from the Registrant to Jay D. Scussel
10.36 m -- Indemnification agreement between the Registrant and Robert
M. Goodfriend
10.37 m -- Indemnification agreement between the Registrant and Harry
M. Call
10.38 m -- Indemnification agreement between the Registrant and James
L. Clayton
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EXHIBIT
NUMBER REF. DESCRIPTION
- ------- ---- -----------
10.39 m -- Indemnification agreement between the Registrant and Samuel
J. Furrow
10.40 m -- Indemnification agreement between the Registrant and Robert
F. Koppel
10.41 m -- Indemnification agreement between the Registrant and Cheryl
L. Turnbull
10.42 n -- Amended Credit Agreement between the Registrant, Lenders as
identified therein and First Tennessee Bank National
Association as Administrative Agent
10.44 o -- Indemnification agreement between the Registrant and Irwin
L. Lowenstein
10.45 p -- Amended Agreement dated May 16, 1997 between the Registrant,
GOODY'S MS, L.P., and GOODY'S IN, L.P. as borrowers, TREBOR
of TN, Inc., SYDOOG, Inc. and GOFAMCLO, Inc. as guarantors,
Lenders as identified therein and First Tennessee National
Bank Association as Administrative Agent
10.46 q -- Deferred Compensation Agreement between the Registrant and
Robert M. Goodfriend
10.47 q -- Employment letter from the Registrant to Stanley B. Latacha
10.48 a -- Agreement dated August 25, 1997 among the Registrant, Robert
M. Goodfriend, Harry M. Call and Edward R. Carlin
10.50 r -- Amendment to the Goody's Family Clothing, Inc. Employee
Payroll Investment Plan
11 -- Statement re computation of per share earnings
13 -- Registrant's 1997 Annual Report (only those portions
specifically incorporated by reference into this Report are
to be deemed "filed" with the Securities and Exchange
Commission)
21 -- Subsidiaries of the Registrant
23 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule for the fiscal year ended January
31, 1998 (for SEC use only)
27.2 -- Restated Financial Data Schedule for the fiscal year ended
February 1, 1997, which is hereby restated pursuant to SFAS
No. 128, "Earnings per Share" (for SEC use only)
27.3 -- Restated Financial Data Schedule for the thirty-nine weeks
ended November 1, 1997, which is hereby restated pursuant to
SFAS No. 128, "Earnings per Share" (for SEC use only)
27.4 -- Restated Financial Data Schedule for the twenty-six weeks
ended August 2, 1997, which is hereby restated pursuant to
SFAS No. 128, "Earnings per Share" (for SEC use only)
27.5 -- Restated Financial Data Schedule for the thirteen weeks
ended May 3, 1997, which is hereby restated pursuant to SFAS
No. 128, "Earnings per Share" (for SEC use only)
27.6 -- Restated Financial Data Schedule for the thirty-nine weeks
ended November 2, 1996, which is hereby restated pursuant to
SFAS No. 128, "Earnings per Share" (for SEC use only)
27.7 -- Restated Financial Data Schedule for the twenty-six weeks
ended August 3, 1996, which is hereby restated pursuant to
SFAS No. 128, "Earnings per Share" (for SEC use only)
27.8 -- Restated Financial Data Schedule for the thirteen weeks
ended May 4, 1996, which is hereby restated pursuant to SFAS
No. 128, "Earnings per Share" (for SEC use only)
- ---------------
a Incorporated herein by reference to exhibit of the same number in Registrant's
Registration Statement on Form S-3 (Registration No. 333-32409) filed on
August 18, 1997 and amended on August 25, 1997 and September 3, 1997.
b Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 29, 1995 (File No.
019526).
c Incorporated herein by reference exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended January 28, 1995 (File No.
019526).
d Incorporated herein by reference to exhibit of the same number in Registrant's
Registration Statement on Form S-1 (Registration No. 33-42738) originally
filed on September 13, 1991.
e Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended January 30, 1993 (File No.
019526).
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f Incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Shareholders held on June 24, 1993.
g Incorporated herein by reference to exhibit 4.1 in Registrant's Registration
Statement on Form S-8 (Registration No. 333-09595) filed on August 5, 1996.
h Incorporated herein by reference to exhibit 10.1 in Registrant's Current
Report on Form 8-K dated January 5, 1995 (File No. 019526).
i Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended January 28, 1995 (File No.
019526).
j Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended April 29, 1995 (File No.
019526).
k Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 29, 1995 (File No.
019526).
l Incorporated herein by reference to exhibit 4 in Registrant's Registration
Statement on Form S-8 (Registration No. 333-00052) originally filed on January
4, 1996.
m Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended February 3, 1996 (File No.
019526).
n Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended May 4, 1996 (File No.
019526).
o Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended February 1, 1997 (File No.
019526).
p Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended May 3, 1997 (File No.
019526).
q Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 2, 1997 (File No.
019526).
r Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended November 1, 1997 (File No.
019526).
(b) Forms 8-K:
None
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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.
GOODY'S FAMILY CLOTHING, INC.
By: /s/ ROBERT M. GOODFRIEND
------------------------------------
Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer
April 23, 1998
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.
NAME TITLE DATE
---- ----- ----
By: /s/ ROBERT M. GOODFRIEND Chairman of the Board and Chief April 23, 1998
------------------------------------------------ Executive Officer
Robert M. Goodfriend
By: /s/ HARRY M. CALL Director, President and Chief April 23, 1998
------------------------------------------------ Operating officer
Harry M. Call
By: /s/ EDWARD R. CARLIN Executive Vice President, Chief April 23, 1998
------------------------------------------------ Financial Officer and
Edward R. Carlin Secretary (Principal Financial
Officer)
By: /s/ DAVID G. PEEK Vice President, Controller and April 23, 1998
------------------------------------------------ Chief Accounting Officer
David G. Peek (Principal Accounting Officer)
By: /s/ SAMUEL J. FURROW Director April 23, 1998
------------------------------------------------
Samuel J. Furrow
By: /s/ ROBERT F. KOPPEL Director April 23, 1998
------------------------------------------------
Robert F. Koppel
By: /s/ IRWIN L. LOWENSTEIN Director April 23, 1998
------------------------------------------------
Irwin L. Lowenstein
By: /s/ CHERYL L. TURNBULL Director April 23, 1998
------------------------------------------------
Cheryl L. Turnbull
18