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 August 1, 1998
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 Identification No.)
incorporated or organization)
Highway 290, Commerce Park
1875 East Main Street
Duncan, South Carolina 29334
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 433-8888
-----------------------
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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 for the Registrant's Common Stock outstanding as of
September 1, 1998 was 10,435,531.
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 - August 1, 1998,
January 31, 1998 and August 2, 1997
Condensed consolidated statements of income - Three-month and
six-month periods ended August 1, 1998 and August 2, 1997
Condensed consolidated statements of cash flows - Six-month
periods ended August 1, 1998 and August 2, 1997
Notes to unaudited condensed consolidated financial statements
- August 1, 1998
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
SIGNATURES
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PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
One Price Clothing Stores, Inc. and Subsidiaries
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August 1, January 31, August 2,
1998 1998 (1) 1997
----------------- ---------------- -----------------
(Unaudited) (Unaudited)
Assets
CURRENT ASSETS
Cash and cash equivalents $ 2,243,000 $ 1,827,000 $ 2,691,000
Merchandise inventories 45,861,000 35,508,000 43,925,000
Federal and state income taxes receivable -- 4,637,000 --
Deferred income taxes -- -- 2,094,000
Other current assets 7,487,000 6,359,000 5,989,000
----------------- ---------------- -----------------
TOTAL CURRENT ASSETS 55,591,000 48,331,000 54,699,000
----------------- ---------------- -----------------
PROPERTY AND EQUIPMENT, at cost 60,465,000 60,752,000 58,935,000
Less accumulated depreciation 26,611,000 24,748,000 22,873,000
----------------- ---------------- -----------------
33,854,000 36,004,000 36,062,000
----------------- ---------------- -----------------
OTHER ASSETS 3,867,000 3,777,000 3,032,000
----------------- ---------------- -----------------
$ 93,312,000 $ 88,112,000 $ 93,793,000
================= ================ =================
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 23,631,000 $ 25,391,000 $ 25,232,000
Current portion of long-term debt and note payable 10,692,000 11,664,000 658,000
Sundry liabilities 9,719,000 7,025,000 8,488,000
----------------- ---------------- -----------------
TOTAL CURRENT LIABILITIES 44,042,000 44,080,000 34,378,000
----------------- ---------------- -----------------
LONG-TERM DEBT 7,834,000 7,915,000 7,963,000
----------------- ---------------- -----------------
DEFERRED INCOME TAXES AND OTHER
NONCURRENT LIABILITIES 2,852,000 3,095,000 3,275,000
----------------- ---------------- -----------------
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 27,027,000 21,465,000 36,620,000
----------------- ---------------- -----------------
38,584,000 33,022,000 48,177,000
----------------- ---------------- -----------------
$ 93,312,000 $ 88,112,000 $ 93,793,000
================= ================ =================
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(1) Derived from audited financial statements.
See notes to unaudited condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
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Three-Month Period Ended Six-Month Period Ended
--------------------------------------- -----------------------------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
------------------- ----------------- -------------------- ------------------
NET SALES $ 95,786,000 $ 86,134,000 $ 178,299,000 $ 165,033,000
Cost of goods sold, distribution
and buying costs 61,276,000 55,027,000 113,168,000 104,397,000
------------------- ----------------- -------------------- ------------------
GROSS MARGIN 34,510,000 31,107,000 65,131,000 60,636,000
------------------- ----------------- -------------------- ------------------
Selling, general and administrative
expenses 19,671,000 19,252,000 37,666,000 38,284,000
Store rent and related expenses 6,735,000 6,276,000 13,618,000 12,573,000
Depreciation and amortization
expense 1,338,000 1,185,000 2,660,000 2,408,000
Interest expense 581,000 485,000 1,230,000 1,071,000
------------------- ----------------- -------------------- ------------------
28,325,000 27,198,000 55,174,000 54,336,000
Interest income 42,000 26,000 72,000 40,000
------------------- ----------------- -------------------- ------------------
NET EXPENSES 28,283,000 27,172,000 55,102,000 54,296,000
------------------- ----------------- -------------------- ------------------
INCOME BEFORE INCOME TAXES 6,227,000 3,935,000 10,029,000 6,340,000
Provision for income taxes 2,710,000 1,544,000 4,467,000 2,505,000
------------------- ----------------- -------------------- ------------------
NET INCOME $ 3,517,000 $ 2,391,000 $ 5,562,000 $ 3,835,000
=================== ================= ==================== ==================
Net income per common share -
Basic - Note B $ 0.34 $ 0.23 $ 0.53 $ 0.37
=================== ================= ==================== ==================
Net income per common share -
Diluted - Note B $ 0.33 $ 0.23 $ 0.53 $ 0.37
=================== ================= ==================== ==================
Weighted average number of
common shares outstanding --
basic - Note B 10,435,531 10,435,531 10,435,531 10,435,531
=================== ================= ==================== ==================
Weighted average number of
common shares outstanding --
diluted - Note B 10,537,735 10,468,554 10,508,028 10,466,351
=================== ================= ==================== ==================
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See notes to unaudited condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
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Six-Month Period Ended
------------------------------------------
August 1, August 2,
1998 1997
--------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,562,000 $ 3,835,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,660,000 2,408,000
Decrease in other noncurrent assets 37,000 255,000
(Decrease) increase in other noncurrent liabilities (51,000) 330,000
Deferred income tax benefit -- (181,000)
Loss on disposal of property and equipment 272,000 367,000
Changes in operating assets and liabilities (5,818,000) 8,735,000
--------------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,662,000 15,749,000
--------------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (646,000) (2,336,000)
Purchases of other noncurrent assets (372,000) (198,000)
Decrease in amount due from related party 13,000 --
--------------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (1,005,000) (2,534,000)
--------------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment of revolving credit facility (978,000) (14,478,000)
Proceeds from long-term debt borrowings -- 9,572,000
Repayment of long-term debt (76,000) (7,906,000)
Debt financing costs incurred (40,000) (201,000)
Payment of capital lease obligation (110,000) (44,000)
Decrease in amount due to related parties (37,000) (24,000)
--------------------- -----------------
NET CASH USED IN FINANCING ACTIVITIES (1,241,000) (13,081,000)
--------------------- -----------------
INCREASE IN CASH AND CASH EQUIVALENTS 416,000 134,000
Cash and cash equivalents at beginning of period 1,827,000 2,557,000
--------------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,243,000 $ 2,691,000
===================== =================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,163,000 $ 818,000
Income taxes paid 49,000 54,000
Noncash financing activity - capital leases -- 10,000
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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
August 1, 1998
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 six-month periods ended August 1, 1998 are not necessarily indicative of the
results that may be expected for the year ending January 30, 1999. 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 January 31, 1998.
NOTE B - EARNINGS PER SHARE
Basic earnings per share are computed based upon the weighted average number of
common shares outstanding. Diluted earnings per share are computed based upon
the weighted average number of common and common equivalent shares outstanding.
Common equivalent shares consist of shares under option.
NOTE C - CREDIT FACILITIES
In May and June 1997 and February 1998, the Company amended its financing
arrangements with its primary lender. Considered together, the amendments
provide a three-year extension through March 2001 and continue to provide a
revolving credit facility of up to $37,500,000 (including a letter of credit
sub-facility of up to $25,000,000). Under the June 1997 amendment, the Company
was permitted to enter into a mortgage loan agreement with a commercial bank
(discussed further below) and the term loan portion of the agreement with the
primary lender was repaid. Under the May 1997 amendment, the term loan was
increased by approximately $1,450,000 to $7,500,000.
Borrowings under the credit agreement with the primary lender are collateralized
by all assets owned by the Company during the term of the agreement (other than
the land, building, fixtures and improvements collateralizing the mortgage loan
discussed below). The borrowings bear interest, at the Company's option (subject
to certain limitations in the agreement), at the Prime Rate plus 0.5% or the
Adjusted Eurodollar Rate, as defined, plus 2.5%. Maximum borrowings under the
revolving credit facility and utilization of the letter of credit facility are
based on a borrowing base formula determined with respect to eligible inventory
as defined in the agreement. The amended agreement provided for a one-time
temporary adjustment to the lending formula to increase the borrowing
availability during the period January 30, 1998 through June 30, 1998.
Availability under the revolving credit facility fluctuates in accordance with
the Company's seasonal variations in inventory levels. At August 1, 1998, the
Company had approximately $10.7 million in excess availability. The lending
formula may be revised from time to time in response to changes in the
composition of the Company's inventory or other business conditions.
The Company's amended revolving credit agreement contains certain covenants
which, among other things, restrict the ability of the Company to incur
indebtedness, or encumber or dispose of assets, and prohibit the Company from
repurchasing its Common Stock or paying dividends. The Company is required to
maintain a $5,000,000 minimum level of working capital and to maintain a minimum
adjusted net worth (both as defined in the agreement). Effective January 30,
1998, such minimum net worth requirement was reduced from $34,000,000 to
$25,000,000. The Company was in compliance with these covenants at August 1,
1998.
In May 1997, the Company entered into an agreement with a commercial bank to
provide a letter of credit facility of up to $3,000,000. Letters of credit
issued under the agreement are collateralized by inventories purchased using
such letters of credit. In March 1998, the agreement was amended to adjust the
Company's minimum net worth requirement to the same level as that required by
the Company's primary lender under the revolving credit agreement. In April
1998, the agreement was amended to extend the expiration date of the facility to
the earlier of June 1999 or termination of the Company's revolving credit
facility with its primary lender. The agreement, as amended, contains certain
restrictive covenants, which are substantially the same as those in the
Company's amended revolving credit facility discussed above.
In June 1997, the Company repaid the term loan portion of its primary credit
facility and entered into a twenty-year mortgage agreement with a commercial
bank. The agreement provides for a mortgage 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 August 1, 1998.
NOTE D - EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS 130, "Reporting Comprehensive Income," which requires
disclosure of comprehensive income within the basic financial statements for
those entities with items which qualify as components of comprehensive income
such as foreign currency transactions and unrealized gains or losses on
available-for-sale securities. Because the Company has no items which qualify as
components of comprehensive income, the Company's adoption of SFAS 130, required
for fiscal periods beginning after December 15, 1997, resulted in comprehensive
income equal to net income reported for the three-month and six-month periods
ended August 1, 1998.
The FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," effective for periods beginning after December 15, 1997.
This new standard requires disclosure of revenues, results of operations and
assets of each segment of a public enterprise which qualifies based on
quantifiable and decision-making criteria. The Company is in the process of
reviewing the effect, if any, that SFAS 131 will have on the Company's
consolidated financial statements.
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 August 1,
1998 and August 2, 1997, and the related condensed consolidated statements of
income for the three-month and six-month periods then ended and the condensed
consolidated statement of cash flows for the six-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 the Company as of January 31, 1998,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the year then ended (not present herein); and in our report dated
March 20, 1998 (April 21, 1998 as to Note B), 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 January 31, 1998 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
August 21, 1998
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the quarter ended August 1, 1998 increased 11.2% to $95,786,000
compared to $86,134,000 for the quarter ended August 2, 1997. Net sales for the
six-month period ended August 1, 1998 increased 8.0% to $178,299,000 compared to
$165,033,000 for the same time period in 1997. Comparable store sales for the
second quarter of fiscal 1998 increased 10.1% compared to the same quarter last
year. Comparable store sales for the six-month period ended August 1, 1998
increased 5.2% compared to the same time period in 1997. We consider stores that
have been open 18 months or more to be comparable, and there were 557 such
stores at August 1, 1998. We believe these sales results reflect the favorable
sales environment in the retail apparel industry and show customer acceptance of
our current merchandise mix and renewed focus on value.
Pursuant to our previously announced restructuring plan, we closed 39
under-performing stores during the first six months of fiscal 1998. In addition,
we relocated three stores and expanded two of our top-performing stores while
limiting new store openings to three through August 1, 1998. At August 1, 1998,
we operated 624 stores, 28 fewer than at quarter end last year. The stores are
located in 27 states, the District of Columbia, Puerto Rico and the U.S. Virgin
Islands.
Gross margin was 36.0% of net sales in the second quarter of fiscal 1998
compared to 36.1% of net sales in the second quarter of fiscal 1997. For the
first six months of fiscal 1998, gross margin was 36.5% of net sales versus
36.7% of net sales for the same time period in 1997. In both periods, the slight
decrease in gross margin as a percentage of net sales was primarily due to our
renewed core pricing strategy and to an increase in the provision for shrinkage,
and was offset, in part, by a decrease in merchandise markdowns compared to the
same time periods in 1997.
Selling, general and administrative ("SG&A") expenses were 20.5% of net sales
for the second quarter of fiscal 1998 compared to 22.4% of net sales in the
second quarter of fiscal 1997. SG&A expenses were 21.1% of net sales in the
first six months of fiscal 1998 compared to 23.2% of net sales for the same time
period last year. These decreases in SG&A expenses as a percentage of net sales
are primarily due to the initial results of the cost reductions due to store
closings and to effective cost strategies in the Company's stores and Home
Office as part of our restructuring plan announced in January 1998.
Store rent and related expenses per average store increased 9% in both the
second quarter of fiscal 1998 and the first six months of fiscal 1998 compared
to the same periods last year. However, due to significantly higher
year-over-year sales during the second quarter of fiscal 1998, store rent and
related expenses expressed as a percentage of net sales decreased to 7.0% in the
second quarter of fiscal 1998 compared to 7.3% during the same period last year.
During the first six months of fiscal 1998, the year-over-year increase in sales
caused store rent and related expenses expressed as a percentage of net sales to
be flat to the same period last year at 7.6%. The increase in average store
rents was due to the Company's store expansion strategy of increasing the
proportion of larger, high volume stores, and thus entering more costly sites
with higher rent, and closing older, under-performing stores which had lower
average rent costs. We anticipate that this trend of increasing average store
rents will continue.
Interest expense was 0.6% of net sales in both the second quarter of fiscal 1998
and fiscal 1997. Interest expense increased to 0.7% of net sales for the first
six months of fiscal 1998 from 0.6% of net sales for the same time period in
1997 due to slightly higher interest rates and increased average levels of
borrowing.
The effective income tax benefit rate for fiscal 1997 was 16.1%. We estimate
that the Company's effective income tax rate will be approximately 42% in fiscal
1998; however, if sufficient levels of profitability are not achieved, the
effective income tax rate may vary significantly.
Outlook
Sales thus far in the third quarter of fiscal 1998 have continued ahead of
planned levels, and comparable store sales comparisons to the same period in
fiscal 1997 are also positive. We believe that the early improvements thus far
in third quarter sales compared to the same time period last year are primarily
due to the favorable customer reaction towards the current value-priced fall
merchandise assortment -- particularly items targeted for the back-to-school
season -- and the favorable sales trends in the retail apparel industry.
The Company's sales and operating results are seasonal. The Company's sales and
operating results have been the 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). Continued favorable customer
reaction to the Company's merchandise assortment, and the continuation or not of
the favorable trends in the women's and children's retail apparel industry will
largely determine the profitability of the third and fourth quarters of fiscal
1998. During the remainder of fiscal 1998, the Company intends to continue to
focus its efforts on improving sales in its existing stores, while also
attempting to achieve its margin and cost-containment targets.
As part of our strategy to focus on improving sales in existing stores, we will
continue to limit the number of new store openings in fiscal 1998. In our
previously announced restructuring plan, we identified 75 under-performing
stores that would be closed during fiscal 1998. As of August 1, 1998, 59 of
those under-performing stores were closed, including those closed during January
1998. Also, during the first six months of fiscal 1998, we closed 11 additional
stores due to lack of performance or circumstances that had not been identified
prior to the announcement of the restructuring plan. We will continue to
evaluate each of the remaining stores identified for closing in the
restructuring plan to determine if it is still in the Company's best interests
to close them, given the significant improvement in performance demonstrated by
many of these stores thus far in fiscal 1998.
Liquidity and Capital Resources
Net income for the first six months of fiscal 1998 increased 45% compared to the
same time period in fiscal 1997. Net cash provided by operating activities
during the first six months of fiscal 1998 was $2,662,000 compared to
$15,749,000 during the first six months of fiscal 1997. Net cash provided by
operating activities decreased in the first six months of fiscal 1998 primarily
due to the addition of $10,353,000 in inventory compared with a decrease in
inventory of $4,446,000 during the same period last year. During the first six
months of fiscal 1998 and fiscal 1997, net cash provided by operating activities
was primarily used to reduce the revolving credit balance and to purchase
property, equipment and software.
Total merchandise inventories at the end of the second quarter of fiscal 1998
increased by 4% compared to the end of the second quarter of fiscal 1997,
despite operating 28 fewer stores than at quarter-end last year. This increase
in inventory levels was due to positioning our stores for the fall selling
season earlier in fiscal 1998 than fiscal 1997 and to supporting the
significantly higher year-over-year sales levels experienced thus far in fiscal
1998. This increase in in-store inventories was partially offset by a decrease
of merchandise in-transit to the Company's Distribution Center, which was a
result of reducing the amount of imported merchandise from foreign sources. As a
result, the level of outstanding documentary letters of credit decreased to $6.4
million on August 1, 1998 compared to $7.2 million on August 2, 1997. The
company's inventory levels at August 1, 1998 include fall merchandise in stores
and in the Distribution Center and were higher than at January 31, 1998 when
inventory levels are typically lower. Management expects to continue to pursue
opportunistic domestic purchases of merchandise, but will purchase merchandise
from foreign sources when it is deemed to be in the best interests of the
Company.
Total accounts payable and amounts outstanding under the credit facilities,
including long-term portions thereof, increased 25% at the end of second quarter
of fiscal 1998 compared to the second quarter of fiscal 1997. The level of
accounts payable and amounts outstanding under the credit facilities is subject
to fluctuations because of the Company's seasonal operations, opportunistic
buying strategy, rate of capital expenditures and prevailing business
conditions.
During the first six months of fiscal 1998, $646,000 was used to purchase
property and equipment compared to $2,336,000 in the first six months of fiscal
1997. The decrease in amounts used to purchase property and equipment was due to
the Company's strategy to limit the number of new store openings in fiscal 1998.
In May and June 1997, and February 1998, the Company amended its financing
arrangements with its primary lender. Considered together, the amendments
provide a three-year extension through March 2001 and continue to provide a
revolving credit facility of up to $37,500,000 (including a letter of credit
sub-facility of up to $25,000,000). Under the June 1997 amendment, the Company
was permitted to enter into a mortgage loan agreement with a commercial bank
(discussed further below) and the term loan portion of the agreement with the
primary lender was repaid. Under the May 1997 amendment, the term loan was
increased by approximately $1,450,000 to $7,500,000.
Borrowings under the credit agreement with the primary lender are collateralized
by all assets owned by the Company during the term of the agreement (other than
the land, building, fixtures and improvements collateralizing the mortgage loan
discussed below). The borrowings bear interest, at the Company's option (subject
to certain limitations in the agreement), at the Prime Rate plus 0.5% or the
Adjusted Eurodollar Rate, as defined, plus 2.5%. Maximum borrowings under the
revolving credit facility and utilization of the letter of credit facility are
based on a borrowing base formula determined with respect to eligible inventory
as defined in the agreement. The amended agreement provided for a one-time
temporary adjustment to the lending formula to increase the borrowing
availability during the period January 30, 1998 through June 30, 1998.
Availability under the revolving credit facility fluctuates in accordance with
the Company's seasonal variations in inventory levels. At August 1, 1998, the
Company had approximately $10.7 million in excess availability. The lending
formula may be revised from time to time in response to changes in the
composition of the Company's inventory or other business conditions.
The Company's amended revolving credit agreement contains certain covenants
which, among other things, restrict the ability of the Company to incur
indebtedness, or encumber or dispose of assets, and prohibit the Company from
repurchasing its Common Stock or paying dividends. The Company is required to
maintain a $5,000,000 minimum level of working capital and to maintain a minimum
adjusted net worth (both as defined in the agreement). Effective January 30,
1998, such minimum net worth requirement was reduced from $34,000,000 to
$25,000,000. The Company was in compliance with these covenants at August 1,
1998.
In May 1997, the Company entered into an agreement with a commercial bank to
provide a letter of credit facility of up to $3,000,000. Letters of credit
issued under the agreement are collateralized by inventories purchased using
such letters of credit. In March 1998, the agreement was amended to adjust the
Company's minimum net worth requirement to the same level as that required by
the Company's primary lender under the revolving credit agreement. In April
1998, the agreement was amended to extend the expiration date of the facility to
the earlier of June 1999 or termination of the Company's revolving credit
facility with its primary lender. The agreement, as amended, contains certain
restrictive covenants, which are substantially the same as those in the
Company's amended revolving credit facility discussed above.
In June 1997, the Company repaid the term loan portion of its primary credit
facility and entered into a twenty-year mortgage agreement with a commercial
bank. The agreement provides for a mortgage 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 August 1, 1998.
In fiscal 1998, the Company plans to spend approximately $2.5 million on capital
expenditures, most of which will be used to remodel, refixture, expand, and
relocate existing stores. 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
interests of the Company, additional long-term debt, capital leases, or other
permanent financing may be considered.
Year 2000 Systems Readiness
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue. Based on
the review, the Company's major systems which would be adversely affected by the
year 2000 are being replaced or upgraded through the normal course of business.
Internal resources are being used to evaluate, modify and test the Company's
other systems which are not scheduled to be upgraded or replaced through the
normal course of business. Management believes the combination of these efforts
will prepare the Company's computer systems for the year 2000 on a timely basis.
However, if such modifications and conversions are not completed timely, the
year 2000 problem may have a material impact on the operations of the Company.
The incremental cost associated with major system upgrades and/or replacements,
as well as internal efforts to evaluate, modify and test the Company's other
systems, are not expected to be material to the Company's consolidated financial
statements.
Effect of New Accounting Pronouncements
The FASB issued SFAS 130, "Reporting Comprehensive Income," which requires
disclosure of comprehensive income within the basic financial statements for
those entities with items which qualify as components of comprehensive income
such as foreign currency transactions and unrealized gains or losses on
available-for-sale securities. Because the Company has no items which qualify as
components of comprehensive income, the Company's adoption of SFAS 130, required
for fiscal periods beginning after December 15, 1997, resulted in comprehensive
income equal to net income reported for the three-month and six-month periods
ended August 1, 1998.
The FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," effective for periods beginning after December 15, 1997.
This new standard requires disclosure of revenues, results of operations and
assets of each segment of a public enterprise which qualifies based on
quantifiable and decision-making criteria. The Company is in the process of
reviewing the effect, if any, that SFAS 131 will have on the Company's
consolidated financial statements.
Private Securities Litigation Reform Act of 1995
All statements contained in this document as to future expectations and
financial results, including, but not limited to, statements containing the
words "believes," "anticipates," "expects," and similar expressions, should be
considered forward-looking statements subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. The Company cautions readers
of this Quarterly Report on Form 10-Q that a number of important factors could
cause the Company's actual results in fiscal 1998 and beyond to differ
materially from those expressed in such forward-looking statements. These
factors include, but are not limited to, the general economic conditions and
consumer demand; consumer preferences; weather patterns; competitive factors,
including pressure from store expansion, pricing and promotional activities of
competitors; the impact of excess retail capacity and the availability of
desirable store locations on suitable terms; whether or not the Company's
merchandising strategy to offer alternative categories of merchandise at
alternative price points will increase sales and operating results or increase
and attract new customers; the availability, selection and purchasing of
attractive merchandise on favorable terms; credit availability, including
adequate levels of credit support provided to certain of the Company's vendors
by factors and insurance companies; import risks, including potential
disruptions and duties, tariffs and quotas on imported merchandise; whether or
not the Company and/or its major suppliers will ready their computer systems to
be "Year 2000 Compliant" in a timely manner; and other factors described in the
Company's filings with the Securities and Exchange Commission from time to time.
The Company does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes make it clear that any projected
results expressed or implied therein will not be realized.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
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
</TABLE>
The Company received proxies representing 92.8% of the 10,435,531 shares
outstanding and eligible to vote at the Annual meeting of the Company's
shareholders held on June 10, 1998. The following summarizes the votes thereat:
<TABLE>
<S> <C> <C> <C> <C>
Matter For Against Abstentions Non-Votes
Election of Directors:
Leonard M. Snyder 9,608,989 0 72,975 0
Larry I. Kelley 9,626,139 0 55,825 0
Cynthia R. Cohen 9,615,689 0 66,275 0
Warren Flick 9,620,806 0 61,158 0
Laurie M. Shahon 9,625,689 0 56,275 0
Malcolm L. Sherman 9,478,141 0 203,823 0
James M. Shoemaker, Jr. 9,616,139 0 65,825 0
Raymond S. Waters 9,619,439 0 62,525 0
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
11 Computation of Per Share Earnings
15 Acknowledgment of Deloitte & Touche LLP, independent
accountants
27 Financial Data Schedule (electronic filing only)
(b) On June 19, 1998, the Company filed a report on Form 8-K dated
June 10, 1998 to announce a 12.5% comparable store sales increase
for May and to announce the resignation of its Executive Vice
President and Chief Financial Officer.
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)
Date: September 8, 1998 /s/ Larry I. Kelley
-------------------
Larry I. Kelley
President and Chief Executive
Officer (principal executive
officer, principal financial
officer and principal
accounting officer)
<PAGE>
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
EXHIBIT 11 - Computation of Per Share Earnings
<TABLE>
<S> <C> <C> <C> <C>
Three-Month Period Ended Six-Month Period Ended
---------------------------------- ----------------------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
--------------- ---------------- --------------- ---------------
BASIC INCOME PER COMMON SHARE
Weighted average number of common
shares outstanding 10,435,531 10,435,531 10,435,531 10,435,531
=============== ================ =============== ===============
Net income $ 3,517,000 $ 2,391,000 $ 5,562,000 $ 3,835,000
=============== ================ =============== ===============
Basic net income per common share $ 0.34 $ 0.23 $ 0.53 $ 0.37
=============== ================ =============== ===============
DILUTED INCOME PER COMMON SHARE
Weighted average number of common
shares outstanding 10,435,531 10,435,531 10,435,531 10,435,531
Net effect of dilutive stock options - based
on the treasury stock method using the
greater of ending or average market price 102,204 33,023 72,497 30,820
--------------- ---------------- --------------- ---------------
10,508,028 10,466,351
TOTAL 10,537,735 10,468,554
=============== ================ =============== ===============
Net income $ 3,517,000 $ 2,391,000 $ 5,562,000 $ 3,835,000
=============== ================ =============== ===============
Diluted net income per common share $ 0.33 $ 0.23 $ 0.53 $ 0.37
=============== ================ =============== ===============
</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 six-month periods ended August 1, 1998 and
August 2, 1997, as indicated in our report dated August 21, 1998; 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 August 1, 1998, 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, and 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
Greenville, South Carolina
September 8, 1998
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> AUG-01-1998
<CASH> 2243
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<RECEIVABLES> 3358
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<INVENTORY> 45861
<CURRENT-ASSETS> 55591
<PP&E> 60465
<DEPRECIATION> 26611
<TOTAL-ASSETS> 93312
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0
0
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<OTHER-SE> 38480
<TOTAL-LIABILITY-AND-EQUITY> 93312
<SALES> 178299
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<CGS> 113168
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</TABLE>
