UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 1, 1997
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-15385
ONE PRICE CLOTHING STORES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 57-0779028
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
Highway 290, Commerce Park
1875 East Main Street
Duncan, South Carolina 29334
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (864) 433-8888
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares of the Registrant's Common Stock outstanding as of December
5, 1997 was 10,435,531.
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INDEX
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- November 1, 1997, February
1, 1997 and November 2, 1996
Condensed consolidated statements of operations -- Three-month and
nine-month periods ended November 1, 1997 and November 2, 1996
Condensed consolidated statements of cash flows -- Nine-month
periods ended November 1, 1997 and November 2, 1996
Notes to unaudited condensed consolidated financial statements -- November 1, 1997
Independent accountants' report on review of interim financial information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
One Price Clothing Stores, Inc. and Subsidiaries
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November 1, February 1, November 2,
1997 1997 1996
----------------- ------------------ ------------------
(Unaudited) (1) (Unaudited)
Assets
CURRENT ASSETS
Cash and cash equivalents $ 2,436,000 $ 2,557,000 $ 394,000
Merchandise inventories 50,820,000 48,371,000 48,389,000
Federal and state income taxes receivable 2,578,000 4,237,000 2,971,000
Deferred income taxes 2,530,000 1,935,000 2,454,000
Other current assets 5,963,000 4,791,000 5,282,000
----------------- ------------------ ------------------
TOTAL CURRENT ASSETS 64,327,000 61,891,000 59,490,000
----------------- ------------------ ------------------
PROPERTY AND EQUIPMENT, at cost 61,009,000 57,608,000 58,058,000
Less accumulated depreciation 23,982,000 21,457,000 20,653,000
----------------- ------------------ ------------------
37,027,000 36,151,000 37,405,000
----------------- ------------------ ------------------
OTHER ASSETS 3,278,000 2,925,000 2,767,000
----------------- ------------------ ------------------
$ 104,632,000 $ 100,967,000 $ 99,662,000
================= ================== ==================
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 30,438,000 $ 25,908,000 $ 24,955,000
Current portion of long-term debt and note
payable 12,199,000 16,565,000 12,444,000
Sundry liabilities 7,351,000 6,249,000 7,148,000
----------------- ------------------ ------------------
TOTAL CURRENT LIABILITIES 49,988,000 48,722,000 44,547,000
----------------- ------------------ ------------------
LONG-TERM DEBT 7,927,000 4,868,000 5,263,000
----------------- ------------------ ------------------
DEFERRED INCOME TAXES AND OTHER
NONCURRENT LIABILITIES 3,701,000 3,035,000 2,829,000
----------------- ------------------ ------------------
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 10,435,531 shares (all periods) 104,000 104,000 104,000
Additional paid-in capital 11,453,000 11,453,000 11,453,000
Retained earnings 31,459,000 32,785,000 35,466,000
----------------- ------------------ ------------------
43,016,000 44,342,000 47,023,000
----------------- ------------------ ------------------
$ 104,632,000 $ 100,967,000 $ 99,662,000
================= ================== ==================
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(1) Derived from audited financial statements
See notes to unaudited condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
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Three-Month Period Ended Nine-Month Period Ended
----------------------------------- ---------------------------------------
November 1, November 2, November 1, November 2,
1997 1996 1997 1996
---------------- ---------------- ----------------- ----------------
NET SALES $ 63,845,000 63,899,000 $ 228,878,000 $ 227,643,000
Cost of goods sold, distribution and buying costs 44,280,000 42,622,000 148,677,000 146,419,000
---------------- ---------------- ----------------- ----------------
GROSS MARGIN 19,565,000 21,277,000 80,201,000 81,224,000
---------------- ---------------- ----------------- ----------------
Selling, general and administrative expenses 19,779,000 17,943,000 58,063,000 54,888,000
Store rent and related expenses 6,677,000 6,363,000 19,250,000 19,200,000
Depreciation and amortization expense 1,246,000 1,172,000 3,654,000 3,520,000
Interest expense 417,000 390,000 1,488,000 1,388,000
---------------- ---------------- ----------------- ----------------
28,119,000 25,868,000 82,455,000 78,996,000
Interest income 23,000 43,000 63,000 121,000
---------------- ---------------- ----------------- ----------------
NET EXPENSES 28,096,000 25,825,000 82,392,000 78,875,000
---------------- ---------------- ----------------- ----------------
(LOSS) INCOME BEFORE INCOME TAXES (8,531,000) (4,548,000) (2,191,000) 2,349,000
(Benefit from) provision for income taxes (3,370,000) (1,785,000) (865,000) 935,000
---------------- ---------------- ----------------- ----------------
NET (LOSS) INCOME $ (5,161,000) $ (2,763,000) $ (1,326,000) $ 1,414,000
================ ================ ================= ================
Net (loss) income per common share $ (0.49) $ (0.26) $ (0.13) $ 0.14
================ ================ ================= ================
Weighted average common shares outstanding 10,435,531 10,435,531 10,435,531 10,405,422
================ ================ ================= ================
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See notes to unaudited condensed consolidated financial statements
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
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Nine-Month Period Ended
---------------------------------------
November 1, November 2,
1997 1996
------------------ ------------------
OPERATING ACTIVITIES:
Net (loss) income $ (1,326,000) $ 1,414,000
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation and amortization 3,654,000 3,520,000
Decrease in other noncurrent assets 332,000 483,000
Increase in other noncurrent liabilities 479,000 --
Deferred income tax (benefit) provision (419,000) 623,000
Loss on disposal of property and equipment 595,000 672,000
Changes in operating assets and liabilities 3,242,000 (3,479,000)
------------------ ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,557,000 3,233,000
------------------ ------------------
INVESTING ACTIVITIES:
Purchases of property and equipment (4,628,000) (2,113,000)
Purchases of other noncurrent assets (406,000) (231,000)
------------------ ------------------
NET CASH USED IN INVESTING ACTIVITIES (5,034,000) (2,344,000)
------------------ ------------------
FINANCING ACTIVITIES:
Net repayment of revolving credit facility (2,937,000) (1,950,000)
Proceeds from long-term debt borrowings 9,572,000 7,500,000
Repayment of long-term debt (7,942,000) (6,158,000)
Debt financing costs incurred (234,000) (710,000)
Payment of capital lease obligation (67,000) --
Decrease in amount due to related parties (36,000) (33,000)
Proceeds from exercise of Common Stock options -- 452,000
------------------ ------------------
NET CASH USED IN FINANCING ACTIVITIES (1,644,000) (899,000)
------------------ ------------------
DECREASE IN CASH AND CASH EQUIVALENTS (121,000) (10,000)
Cash and cash equivalents at beginning of period 2,557,000 404,000
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,436,000 $ 394,000
================== ==================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,189,000 $ 1,281,000
Income taxes paid 894,000 65,000
Noncash financing activity - capital leases 153,000 --
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See notes to unaudited condensed consolidated financial statements
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
One Price Clothing Stores, Inc. and Subsidiaries
November 1, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited and
include the accounts of One Price Clothing Stores, Inc. and its subsidiaries,
all of which are wholly-owned (the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
For interim reporting, the Company's gross profit is calculated on a current
quarterly basis by its inventory management system. Inventories are stated at
the lower of cost (using the first-in, first-out (FIFO) retail method) or
market.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. Due
to the seasonality of the Company's sales, operating results for the three-month
and nine-month periods ended November 1, 1997 are not necessarily indicative of
the results that may be expected for the year ending January 31, 1998. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended February
1, 1997.
NOTE B -- EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average number of common
and common equivalent shares outstanding. Common equivalent shares consist of
shares under option. See Note D.
NOTE C -- CREDIT FACILITIES
In May 1997, the Company amended its financing arrangements with its primary
lender. The agreement provides for a two-year extension through March 2000 and
continues to provide a revolving credit facility of up to $37,500,000 (including
a letter of credit sub-facility of up to $25,000,000). The amendment also
increased the term loan portion of the agreement by approximately $1,450,000,
thereby bringing the amount of such term loan up to its original $7,500,000. In
June 1997, the Company again amended the credit facility to terminate the term
loan portion and permit the Company to enter into a mortgage loan agreement with
a commercial bank (discussed further below).
Borrowings under the credit agreement are collateralized by all assets owned by
the Company during the term of the agreement (other than the land, building,
fixtures and improvements collateralizing the mortgage loan discussed below) and
bear interest, at the Company's option (subject to certain limitations in the
agreement), at the prime rate plus 0.5% or the Adjusted Eurodollar Rate, as
defined, plus 2.5%. Maximum borrowings under the revolving credit facility and
utilization of the letter of credit facility are based on a borrowing base
formula determined with respect to eligible inventory (as defined in the
agreement). Availability under the revolving credit facility will fluctuate in
accordance with the Company's seasonal variations in inventory levels. At
November 1, 1997, the Company had outstanding borrowings of $12.0 million under
the revolving credit facility and 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
indebtedness, or encumber or dispose of assets, and prohibit the Company from
repurchasing its Common Stock or paying dividends. Additionally, the Company
must maintain a minimum adjusted net worth (as defined in the agreement) of
$34,000,000 and maintain a minimum working capital, exclusive of amounts
outstanding under the revolving credit facility, of $5,000,000. The Company was
in compliance with these covenants at November 1, 1997 and as of the date of
this document.
In May 1997, the Company entered into an agreement with a commercial bank to
provide a letter of credit facility of up to $3,000,000. The facility expires at
the earlier of June 1998 or termination of the Company's revolving credit
facility with its primary lender. Letters of credit issued under the agreement
are collateralized by inventories purchased using such letters of credit. The
agreement contains certain restrictive covenants which are substantially the
same as those within the Company's revolving credit facility discussed above.
In June 1997, the Company repaid the term loan portion of its primary credit
facility and entered into a twenty-year mortgage agreement with a commercial
bank. The agreement provides for a mortgage loan of $8,125,000, secured by the
Company's real property located at its corporate offices including land,
buildings, fixtures and improvements. Commencing August 1, 1997, the mortgage
loan is payable in 240 consecutive equal monthly installments (including
interest at the rate of 9.125% per annum). Certain fees may be payable by the
Company if the mortgage loan is repaid prior to June 2014. The mortgage
agreement contains certain nonfinancial covenants with which the Company was in
compliance at November 1, 1997.
NOTE D - EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement No. 128 (SFAS
128), "Earnings Per Share," effective for periods ending after December 15,
1997. The new standard requires a dual presentation of "basic" and "diluted" EPS
on the face of the income statement. If the Company had applied the principles
of SFAS 128 for the three-month and nine-month periods ended November 1, 1997,
basic and diluted EPS would have been the same as EPS reported under APB Opinion
No. 15, the current EPS accounting standard.
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders of
One Price Clothing Stores, Inc.
Duncan, South Carolina
We have reviewed the accompanying condensed consolidated balance sheets of One
Price Clothing Stores, Inc. and subsidiaries (the "Company") as of November 1,
1997 and November 2, 1996, and the related condensed consolidated statements of
operations for the three-month and nine-month periods then ended and the
condensed consolidated statement of cash flows for the nine-month periods then
ended. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of One Price Clothing Stores, Inc. and
subsidiary as of February 1, 1997, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated March 14, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of February 1, 1997 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
November 20, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Net sales for the quarter ended November 1, 1997 were $63,845,000 compared to
$63,899,000 for the quarter ended November 2, 1996. Comparable store sales for
the quarter decreased 3% while chain-wide average store sales were flat compared
to the same quarter last year. The Company considers stores that have been open
18 months or more to be comparable, and there were 616 such stores at November
1, 1997.
Net sales for the nine-month period ended November 1, 1997 increased 1% to
$228,878,000 compared to $227,643,000 for the nine-month period ended November
2, 1996. Comparable store sales for the nine-month period were flat and
chain-wide average store sales increased 4% compared to the same period last
year.
Twenty-four stores were opened during the third quarter of fiscal 1997, three
stores were relocated and two underperforming stores were closed. At November 1,
1997, the Company operated 674 stores, 13 more than at quarter-end last year, in
27 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands.
Management believes that the comparable store sales decrease for the quarter
ended November 1, 1997 resulted primarily from entering the third quarter with
too much transitional merchandise which was not "fashion-right," necessitating
higher clearance markdowns. The comparable store sales decrease also resulted
from late receipts of key fall merchandise. The increase in chain-wide average
store sales in the nine-month period ended November 1, 1997 was primarily the
result of higher average store sales from stores opened in fiscal 1996 and
fiscal 1997.
In July 1997, the Company completed the implementation of its previously
announced decision to offer certain categories of merchandise at alternative
price points along with its traditional $7 retail price. Sales of alternative
price merchandise comprised approximately 35% of total sales for the third
quarter of fiscal 1997. During the first nine months of fiscal 1997, sales of
these categories of merchandise comprised 15% of total sales.
Gross margin was 30.6% of net sales in the third quarter of fiscal 1997 compared
to 33.3% of net sales in the third quarter of fiscal 1996. The decrease in gross
margin as a percentage of net sales in the third quarter of fiscal 1997 was
principally due to higher markdowns as a result of both the lower than planned
sales and the clearance of transitional merchandise as discussed above, and to a
higher merchandise shrinkage rate compared to the same period last year. For the
first nine months of fiscal 1997, gross margin was 35.0% of net sales compared
to 35.7% of net sales for the same period last year. The decrease in gross
margin as a percentage of net sales in the first nine months of fiscal 1997 was
due to higher merchandise markdown and shrinkage rates compared to the same
period last year.
Selling, general and administrative ("SG&A") expenses were 31.0% of net sales in
the third quarter of fiscal 1997 compared to 28.1% of net sales in the third
quarter of fiscal 1996. SG&A expenses were 25.4% of net sales in the first nine
months of fiscal 1997 compared to 24.1% of net sales for the same period last
year. SG&A expenses per average store increased 10% in the third quarter of
fiscal 1997 and 9% in the first nine months of fiscal 1997 compared to the same
periods last year. These increases were, in part, due to costs associated with
higher average store salaries due to Federal Minimum Wage increases which took
effect in October 1996 and September 1997, marketing costs associated with the
promotion of the Company's alternative price merchandise and replacing open
positions in the Company's field operations and corporate staff.
Store rent and related expenses were 10.5% of net sales in the third quarter of
fiscal 1997 compared to 10.0% of net sales in the third quarter of fiscal 1996.
Store rent and related expenses per average store increased 5% in the third
quarter and increased 3% in the first nine months of fiscal 1997 compared to the
same periods last year. The increase in average store rents was due to entering
into leases in markets with higher volume potential and, therefore, higher base
rent structures, as well as the closing of older, underperforming stores which
generally had lower average rent expense. Store rent and related expenses for
the first nine months of fiscal 1997 and fiscal 1996 were 8.4% of net sales.
Based upon the impact of the above items, the Company reported a loss of
$5,161,000, or ($0.49) per share, in the third quarter of fiscal 1997 compared
to a loss of $2,763,000, or ($0.26) per share in the same quarter in fiscal
1996.
Outlook
Although sales since November 1, 1997 have been marginally higher than the same
period in fiscal 1996, total sales have continued to fall below Management's
expectations. Although Management believes the stores' inventory assortments are
appropriately positioned for the Christmas selling season, improved sales
results will be largely dependent upon increased traffic in the Company's
stores.
On September 1, 1997, the second phase of the Federal Minimum Wage increase took
effect. Management estimates the incremental impact of the Federal Minimum Wage
increase in October 1996 and September 1997 will increase store payroll expense
in fiscal 1997 by approximately $900,000. Average store rent and related
expenses may also increase in fiscal 1998 due to the Company's strategy of
entering into leases in fiscal 1997 in markets with higher volume potential and,
therefore, higher base rent structures.
The Company's sales and operating results are seasonal. The Company's sales and
operating results have been highest in the first quarter (February - April) and
second quarter (May - July) and lowest in the third quarter (August - October)
and fourth quarter (November - January). The alternative price merchandise is
expected to ultimately have a beneficial impact on total sales.
Management is now appropriately reassessing all aspects of its operations in
order to determine the necessary steps to reach its ultimate goal of returning
the Company to profitability. The Company has opened the remaining 18 new stores
for fiscal 1997 and, in light of current trends, will limit the number of new
store openings in the first six months of fiscal 1998 to those for which the
Company is contractually obligated. At the end of the Christmas selling season,
management plans to reevaluate the performance of all its stores with the goal
of aggressively closing underperforming stores. Through more aggressive cost
reductions and through realization of improved sales volumes, management expects
to better leverage SG&A expenses and store rent and related expenses in fiscal
1998.
Liquidity and Capital Resources
During the first nine months of fiscal 1997 and fiscal 1996, net cash provided
by operating activities was used primarily to purchase property and equipment
and to reduce amounts owed by the Company on its revolving credit facility.
Total merchandise inventories at the end of the third quarter of fiscal 1997
increased 5% compared to the end of the third quarter of fiscal 1996. This
increase in merchandise inventories was primarily due to operating more stores
than at quarter-end last year and to increasing inventories in anticipation of
opening 18 stores in the fourth quarter of fiscal 1997 and in anticipation of
higher sales in the Christmas selling season. The level and source of
inventories is subject to fluctuations because of the Company's opportunistic
buying strategy and prevailing business conditions.
Total accounts payable and amounts outstanding under the credit facilities,
including the long-term portions thereof, increased 19% at the end of the third
quarter of fiscal 1997 compared to the third quarter of fiscal 1996. The
increase in accounts payable was principally due to increased purchases of
domestic merchandise. The increase in amounts outstanding under the credit
facilities was due to funding a larger portion of the operational and capital
needs of the business.
Beginning in the second quarter of fiscal 1997, the Company began to decrease
its levels of foreign purchases compared to the same period last year and sought
to increase its opportunistic purchases of merchandise inventory from domestic
sources, particularly for alternative price categories. As a result, the level
of outstanding documentary letters of credit decreased to $8.6 million at
November 1, 1997 compared to $17.6 million at November 2, 1996. Management
expects to continue to pursue opportunistic domestic purchases of merchandise,
but will purchase merchandise from foreign sources when it is deemed in the best
interest of the Company.
During the first nine months of fiscal 1997, $4,628,000 was used to purchase
property and equipment. This consisted principally of costs incurred to open new
stores, and to relocate and remodel stores. Capital expenditures in fiscal 1998
will be principally for new store systems, the limited number of new store
openings, remodeled stores and relocated stores.
The Company's amended financing agreement provides for a revolving credit
facility of up to $37,500,000 (including a letter of credit sub-facility of up
to $25,000,000) through March 2000. Borrowings under the credit agreement are
collateralized by all inventories owned by the Company during the term of the
agreement. 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 will fluctuate in
accordance with the Company's seasonal variations in inventory levels. The
lending formula may be revised from time to time in response to changes in the
composition of the Company's inventory or other business conditions.
The Company's amended revolving credit agreement contains certain covenants
which, among other things, restrict the ability of the Company to incur
indebtedness, or encumber or dispose of assets, and prohibit the Company from
repurchasing its Common Stock or paying dividends. Additionally, the Company
must maintain a minimum adjusted net worth (as defined in the agreements) of
$34,000,000 and maintain a minimum working capital, exclusive of amounts
outstanding under the revolving credit facility, of $5,000,000. The Company was
in compliance with these covenants at November 1, 1997.
Management believes that the Company's liquidity requirements in the foreseeable
future will 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, capital leases or other permanent
financing may be considered.
Effect of New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") issued Statement No. 128 (SFAS
128), "Earnings per Share," effective for periods ending after December 15,
1997. The new standard requires a dual presentation of "basic" and "diluted" EPS
on the face of the income statement. If the Company had applied the principles
of SFAS 128 for the three-month and nine-month periods ended November 1, 1997,
basic and diluted EPS would have been the same as EPS reported under APB Opinion
No. 15, the current EPS accounting standard.
Private Securities Litigation Reform Act of 1995
All statements contained in this document as to future expectations and
financial results, including, but not limited to, statements containing the
words "believe," "anticipates," "expects," and similar expressions, should be
considered forward-looking statements subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. The Company cautions readers
of this Quarterly Report on Form 10-Q that a number of important factors could
cause the Company's actual results in 1997 and beyond to differ materially from
those expressed in such forward-looking statements. These factors include, but
are not limited to, the general economic conditions and consumer demand;
consumer preferences; weather patterns; competitive factors, including pressure
from pricing and promotional activities of competitors; the impact of excess
retail capacity and the availability of desirable store locations on suitable
terms; whether or not the Company's merchandising strategy to offer alternative
categories of merchandise at alternative price points will increase sales and
operating results or increase and attract new customers; the availability,
selection and purchasing of attractive merchandise on favorable terms; credit
availability; import risks, including potential disruptions and duties, tariffs
and quotas on imported merchandise; 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
<PAGE>
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Effective December 10, 1997, David F. Bellet resigned his position
as a member of the Board of Directors of the Company for personal
reasons and without disagreement with the Company regarding the
Company's operations, policies or procedures.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
10 Employment Agreement dated November 10, 1997 between the Registrant and A. J. Nepa
11 Computation of Per Share Earnings
15 Acknowledgment of Deloitte & Touche LLP, Independent Accountants
27 Financial Data Schedule (electronic filing only)
(b) The Company was not required to file any report on Form 8-K
for the three-month period ended November 1, 1997.
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<PAGE>
SIGNATURES: Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ONE PRICE CLOTHING STORES, INC. (Registrant)
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Date: December 12, 1997 /s/ Larry I. Kelley
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Larry I. Kelley
President and Chief Executive Officer
(principal executive officer)
Date: December 12, 1997 /s/ Stephen A. Feldman
----------------------
Stephen A. Feldman
Executive Vice President and
Chief Financial Officer
(principal financial officer)
</TABLE>
ONE PRICE CLOTHING STORES INC. AND SUBSIDIARIES
EXHIBIT 10-- Employment Agreement dated November 10, 1997 between the Registrant
and A. J. Nepa
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into this 10th day of November, 1997,
by and between One Price Clothing Stores, Inc., a Delaware corporation with its
principal place of business in Spartanburg County, South Carolina, hereinafter
referred to as "Employer," and Alphonse J. Nepa, currently a resident of
Charlotte,State of North Carolina, hereinafter referred to as "Employee."
W I T N E S S E T H :
For and in consideration of the mutual covenants and promises of the
parties hereto and the benefits inuring to the parties hereto, Employer and
Employee agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions of this Agreement,
employer employs Employee as its Senior Vice President, Merchandising, and
Employee accepts such employment with Employer. The employment hereunder shall
commence on the date Employee reports for full time work, and shall continue
until terminated, as hereinafter provided.
2. TERMINATION. The employment hereunder shall terminate at the will of
either party at any time, with or without cause, or upon the mutual agreement of
the parties hereto.
3. DUTIES OF EMPLOYEE. Employee shall serve Employer faithfully and to
the best of his ability. Employee shall devote his full time and efforts to his
duties as an employee of Employer.
4. COMPENSATION AND BENEFITS.
(a) Salary. For all services rendered to Employer under this
Agreement, Employer shall pay Employee an annual base salary of not less than
$215,000, subject to annual review, payable in bi-weekly installments in
accordance with the usual payroll practice of Employer, less all legally
required deductions.
(b) Bonus. In addition to the above salary, the Board of Directors
of Employer, in its sole discretion, may award to Employee an annual bonus in
accordance with a bonus plan that has been adopted by the Board of Directors.
(c) Special Stock Option. Employee shall be granted an option for
20,000 shares of Employer's common stock at the market price on the day of
grant, exercisable twenty (20%) percent annually commencing twelve (12) months
from the day of grant. This option shall be granted on the day Employee reports
for full-time work.
(d) Other Benefits.
(i) During the term of his employment, Employee shall be
entitled to participate in all employee benefits as are customarily provided to
its officers by Employer, and to participate in such other employee benefits as
may from time to time be instituted by Employer's Board of Directors.
(ii) Employee shall also be entitled to reimbursement of
all reasonable hotel,
travel, entertainment and other business expenses actually incurred by Employee
in the course of Employee's employment upon submission to Employer of
satisfactory documentation thereof.
(e) Moving Expenses. Employer shall reimburse Employee for moving
expenses and interim living and travel expenses as set forth in the attachment
hereto, entitled "OFFER OF EMPLOYMENT";
(f) Employer shall pay Employee up to a total of $(20,000) for: (i)
documented expenses for brokerage fees (up to 6%),and any similar expenses
related to the sale of Employee's current home and (ii) loan origination fees
(up to 1%) for the purchase of a new one. This payment will be made upon
presentation of documentation on or after the first day of employment.
(g) Payments Upon Termination.
(i)In the event Employee is terminated by Employer, with or without
cause, except for fraud, theft, dishonesty or criminal intent, Employer shall
continue Employee's salary following Employee's termination for six (6) months
at the annual base salary in effect at the date of Employee's termination,
payable in accordance with Employer's usual payroll practices.
(ii)In the event Employee voluntarily terminates his employment with
Employer, he shall be entitled to no additional payment upon such termination
other than any then accrued but unpaid salary, vacation pay, or other normal
reimbursement items.
5. CONFIDENTIAL INFORMATION. Employee acknowledges that during his
employment he will have access to confidential information belonging to the
Employer. Such confidential information shall consist of all information
disclosed to Employee as a result of employment by Employer not generally known
in the retail business in which Employer is engaged including information
concerning Employer's suppliers, including the costs, quantities and types of
goods supplied, and the identity of such suppliers; information concerning the
Employer's marketing and/or sales strategy or plans; real estate strategy and
expansion plans; all pricing information relating to merchandise offered for
sale by Employer; customers' list and all information dealing with customers'
needs or preferences; all data processing information; all financial information
including financial statements, financing plans and forecasts, and any and all
information designated or marked as confidential. Employee will not use or
disclose, or otherwise make available, such confidential information to any
other person or entity without prior express written consent of Employer, either
during or following the termination of Employee's employment. Upon termination
of employment, Employee shall turn over to Employer all property then in his
possession or custody belonging to Employer and shall not retain any copies or
reproductions of correspondence, memoranda, reports, notebooks, drawings,
photographs, or other documents relating in any way to the affairs of Employer.
6. NON-COMPETITION.
(a) Upon termination of Employee's employment with Employer,
whether voluntary or involuntary, and whether with or without cause, Employee
will not, for a period of one (1) year from date of such termination, conduct or
engage in, directly or indirectly, alone or jointly, with any other person or
corporation as agent, consultant, employee, manager, purchaser, proprietor,
stockholder, co-partner, or otherwise, any type of "Off-price" retail apparel
business whose price points and/or customer base could reasonably be considered
in competition with the business of Employer, either now or at the time of such
termination. Ceiling price points and single price point concepts shall be
included. This restriction applies to the continental United States.
(b) Employee agrees not to employ or cause to be employed any other
employee of Employer for a period of three (3) years after Employee's
termination of employment. This restriction applies to any type of business
which Employee may enter.
7. NOTICES. All notices, consents, changes of address and other
communications (hereinafter referred to as "Notice(s)") required or permitted to
be made under the terms of this Agreement shall be in writing and shall be (I)
personally delivered by an agent of the relevant Party, or (ii) transmitted by
postage prepaid, certified or registered mail:
To Employer: One Price Clothing Stores, Inc.
Post Office Box 2487
Spartanburg, SC 29304
To Employee: Alphonse John Nepa
4630 Montibello Drive
Charlotte, NC 28226
8. WAIVER OF BREACH. The waiver of Employer of a breach by Employee of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach by Employee. No waiver shall be valid unless in writing
and signed by any authorized officer of Employer.
9. ASSIGNMENT. Employee acknowledges that the services to be rendered
by Employee are unique and personal. Accordingly, Employee may not assign any of
Employee's rights or delegate any of Employee's duties or obligations under this
Agreement. The rights and obligations of Employer under this Agreement shall
inure to the benefit of and all be binding upon the Employer, and its successors
and assigns.
10. REPRESENTATIONS AND WARRANTIES. Employee expressly confirms, represents
and warrants to Employer that he is under no obligation to, or bound by any
contract with, any person, corporation or other entity which would prohibit or
in any way interfere with the performance of his duties and obligations to
Employer under this Agreement. Employee further represents and warrants that, to
his knowledge, no litigation is pending or has been threatened against Employee
or Employer as a result of Employee accepting a position with Employer. Employee
agrees to defend and indemnify Employer against any and all claims by third
parties against Employer arising out of Employee's prior employment.
11. Release.In the event of termination, and in consideration for Employer's
agreements hereunder, Employee agrees to execute a release in favor of Employer
in form and substance reasonably satisfactory to Employer.
12. SEVERABILITY. If any provision of this Agreement as applied to either
party or to any circumstance shall be adjudged by a court to be invalid or
unenforceable, the same shall in no way affect any other provision of this
Agreement, or the application of each provision to any other fact or
circumstances.
13. ENTIRE AGREEMENT, MODIFICATION OR AMENDMENT. This Agreement constitutes
the entire agreement of the parties with respect to its subject matter and
supersedes all prior oral or written agreements. This Agreement may be modified
or amended from time to time by the mutual agreement of the parties hereto. No
modification or amendment of this Agreement shall be binding upon either party
unless it is in writing and executed by the party sought to be charged.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument.
15. CAPTIONS. The captions contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina, without giving effect
to South Carolina's rules of conflicts of law, and regardless of the place or
places of its physical execution and performance.
17. ENFORCEMENT. This Agreement may only be enforced in a court of competent
jurisdiction in Spartanburg County, South Carolina. Employee agrees to submit to
the jurisdiction of a court of competent jurisdiction in Spartanburg County,
South Carolina, whether or not then residing in South Carolina. The prevailing
party shall be entitled to recover from the other party the cost of any court
action, including reasonable attorneys fees.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
<TABLE>
<S> <C> <C>
Witnesses: One Price Clothing Stores, Inc.
/s/ Diane O'Bryant /s/ By: Larry I. Kelley (SEAL)
Larry I. Kelley
__________________________ President & CEO
As to Employer
"EMPLOYER"
/s/ Jill DuVze Nepa /s/ Alphonse John Nepa (SEAL)
Alphonse John Nepa
Senior Vice President,
Merchandising
- --------------------------
As to Employee "EMPLOYEE"
</TABLE>
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
EXHIBIT 11 -- Computation of Per Share Earnings
<TABLE>
<S> <C> <C> <C> <C>
Three-Month Period Ended Nine-Month Period Ended
November 1, November 2, November 1, November 2,
1997 1996 1997 1996
------------ ------------ ----------- -----------
PRIMARY (LOSS) INCOME PER
COMMON SHARE
Weighted average number
of common shares outstanding 10,435,531 10,435,531 10,435,531 10,389,209
Net effect of dilutive stock
options - based on the treasury stock
method using the average market price -- -- -- 16,213
-------------- -------------- ------------- -----------
TOTAL 10,435,531 10,435,531 10,435,531 10,405,422
============== ============== ============= ===========
Net (loss) income $(5,161,000) $ (2,763,000) $(1,326,000) $ 1,414,000
============== ============== ============= ===========
Net (loss) income per common share $ (0.49) $ (0.26) $ (0.13) $ 0.14
=============== ============== ================ ==============
FULLY DILUTED (LOSS) INCOME PER
COMMON SHARE
Weighted average number
of common shares outstanding 10,435,531 10,435,531 10,435,531 10,389,209
Net effect of dilutive stock options - based
on the treasury stock-method using the
greater of ending or average market price -- -- -- 26,592
--------------- -------------- ---------------- -------------
TOTAL 10,435,531 10,435,531 10,435,531 10,415,801
=============== ============== ============= ===========
Net (loss) income $ (5,161,000) $ (2,763,000) $ (1,326,000) $ 1,414,000
=============== ============== ============= ============
Net (loss) income per common share $ (0.49) $ (0.26) $ (0.13) $ 0.14
=============== ============= ============= ============
</TABLE>
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
EXHIBIT 15 -- ACKNOWLEDGMENT OF DELOITTE & TOUCHE LLP
INDEPENDENT ACCOUNTANTS
One Price Clothing Stores, Inc. and Subsidiaries
Duncan, South Carolina
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim condensed
consolidated financial information of One Price Clothing Stores, Inc. and
subsidiaries for the three-month and nine-month periods ended November 1, 1997
and November 2, 1996, as indicated in our report dated November 20, 1997;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended November 1, 1997, is
incorporated by reference in Registration Statements No. 33-20529, 33-31623,
33-48091, and 33-61803 on Form S-8 pertaining to the 1987 Stock Option Plan, the
1988 Stock Option Plan, the 1991 Stock Option Plan, and the Director Stock
Option Plan, respectively, of One Price Clothing Stores, Inc.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
December 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> NOV-01-1997
<CASH> 2436
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 50820
<CURRENT-ASSETS> 64327
<PP&E> 61009
<DEPRECIATION> 23982
<TOTAL-ASSETS> 104632
<CURRENT-LIABILITIES> 49988
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 42912
<TOTAL-LIABILITY-AND-EQUITY> 104632
<SALES> 228878
<TOTAL-REVENUES> 228878
<CGS> 148677
<TOTAL-COSTS> 148677
<OTHER-EXPENSES> 22904
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1488
<INCOME-PRETAX> (2191)
<INCOME-TAX> (865)
<INCOME-CONTINUING> (1326)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1326)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
