UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 1999
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.)
incorporation 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 of the registrant's common stock outstanding as of June 3,
1999 was 10,444,131.
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INDEX
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - May 1, 1999, January
30, 1999 and May 2, 1998
Condensed consolidated statements of operations - Three-month
periods ended May 1, 1999 and May 2, 1998
Condensed consolidated statements of cash flows - Three-month
periods ended May 1, 1999 and May 2, 1998
Notes to unaudited condensed consolidated financial statements - May 1, 1999
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 and Use of Proceeds
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
PART I. FINANCIAL INFORMATION
Item I. Financial Statements (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
One Price Clothing Stores, Inc. and Subsidiaries
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May 1, January 30, May 2,
1999 1999 1998
------------------ ------------------ ----------------
(1)
Assets
CURRENT ASSETS
Cash and cash equivalents $ 3,643,000 $ 2,418,000 $ 2,695,000
Merchandise inventories 58,267,000 45,639,000 45,540,000
Deferred income taxes 1,188,000 768,000 --
Other current assets 6,003,000 6,562,000 10,676,000
------------------ ------------------ ----------------
TOTAL CURRENT ASSETS 69,101,000 55,387,000 58,911,000
------------------ ------------------ ----------------
PROPERTY AND EQUIPMENT, at cost 62,392,000 62,084,000 60,858,000
Less accumulated depreciation 29,812,000 28,638,000 25,886,000
------------------ ------------------ ----------------
32,580,000 33,446,000 34,972,000
------------------ ------------------ ----------------
OTHER ASSETS 4,146,000 3,994,000 3,844,000
------------------ ------------------ ----------------
$ 105,827,000 $ 92,827,000 $ 97,727,000
================== ================== ================
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 29,764,000 $ 24,750,000 $ 25,909,000
Current portion of long-term debt and revolving credit
facility 15,453,000 11,998,000 17,331,000
Sundry liabilities 9,496,000 7,993,000 8,601,000
------------------ ------------------ ----------------
TOTAL CURRENT LIABILITIES 54,713,000 44,741,000 51,841,000
------------------ ------------------ ----------------
LONG-TERM DEBT 7,712,000 7,755,000 7,863,000
------------------ ------------------ ----------------
OTHER NONCURRENT LIABILITIES 2,877,000 2,914,000 2,956,000
------------------ ------------------ ----------------
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
10,444,131, 10,439,531, and 10,435,531, respectively 104,000 104,000 104,000
Additional paid-in capital 11,474,000 11,465,000 11,453,000
Retained earnings 28,947,000 25,848,000 23,510,000
------------------ ------------------ ----------------
40,525,000 37,417,000 35,067,000
------------------ ------------------ ----------------
$ 105,827,000 $ 92,827,000 $ 97,727,000
================== ================== ================
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(1) Derived from audited financial statements
See notes to unaudited condensed consolidated financial statements
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
One Price Clothing Stores Inc. and Subsidiaries
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Three-Month Period Ended
-------------------------------------
May 1, May 2,
1999 1998
------------------ ----------------
NET SALES $ 87,113,000 $ 82,513,000
Cost of goods sold 54,663,000 51,892,000
------------------ ----------------
GROSS MARGIN 32,450,000 30,621,000
------------------ ----------------
Selling, general and administrative expenses 19,285,000 17,995,000
Store rent and related expenses 6,655,000 6,883,000
Depreciation and amortization expense 1,325,000 1,322,000
Interest expense 512,000 619,000
------------------ ----------------
27,777,000 26,819,000
------------------ ----------------
INCOME BEFORE INCOME TAXES 4,673,000 3,802,000
Provision for income taxes 1,574,000 1,757,000
------------------ ----------------
NET INCOME $ 3,099,000 $ 2,045,000
================== ================
Net income per common share - basic $ 0.30 $ 0.20
================== ================
Net income per common share - diluted $ 0.29 $ 0.20
================== ================
Weighted average number of common shares outstanding - basic 10,440,890 10,435,531
================== ================
Weighted average number of common shares outstanding - diluted 10,639,389 10,439,380
================== ===============
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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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Three-Month Period Ended
-------------------------------------
May 1, May 2,
1999 1998
------------------ ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,099,000 $ 2,045,000
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 1,325,000 1,322,000
Provision for supplemental post-retirement benefits 15,000 -
(Increase) decrease in other noncurrent assets (12,000) 102,000
Increase (decrease) in other noncurrent liabilities 18,000 (70,000)
Deferred income taxes (420,000) -
Loss on disposal of property and equipment 116,000 114,000
Changes in operating assets and liabilities (5,460,000) (7,601,000)
------------------ ----------------
NET CASH USED IN OPERATING ACTIVITIES (1,319,000) (4,088,000)
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (540,000) (318,000)
Purchases of other noncurrent assets (207,000) (246,000)
Repayment of related party loan - 13,000
------------------ ----------------
NET CASH USED IN INVESTING ACTIVITIES (747,000) (551,000)
------------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from revolving credit facility 3,454,000 5,667,000
Repayment of long-term debt (41,000) (52,000)
Debt financing costs incurred (50,000) (40,000)
Payment of capital lease obligations (69,000) (55,000)
Decrease in amount due to related parties (12,000) (13,000)
Proceeds from exercise of common stock options 9,000 -
------------------ ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,291,000 5,507,000
------------------ ----------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,225,000 868,000
Cash and cash equivalents at beginning of period 2,418,000 1,827,000
------------------ ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,643,000 $ 2,695,000
================== ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 475,000 $ 660,000
Income taxes paid 88,000 14,000
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See notes to unaudited condensed consolidated financial statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
One Price Clothing Stores, Inc. and Subsidiaries
May 1, 1999
NOTE A - BASIS OF PRESENTATION AND CERTAIN ACCOUNTING POLICIES
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
period ended May 1, 1999 are not necessarily indicative of the results that may
be expected for the year ending January 29, 2000. 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 30, 1999.
Comprehensive Income
The Company is required to disclose within the basic financial statements items
of comprehensive income, such as foreign currency transactions and unrealized
gains and losses on available-for-sale securities. Because the Company has no
items which qualify as comprehensive income, there was no difference between
comprehensive income and net income for the three-month periods ended May 1,
1999 and May 2, 1998.
Segments and Related Information
The Company operates in only one industry segment: Retail sales of apparel and
accessories to the general public.
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 solely of shares under option. A reconciliation
of basic and diluted weighted average shares outstanding is presented below:
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Three-Month Period Ended
May 1, May 2,
1999 1998
------------------- ---------- -------------------
Weighted average number of common shares
outstanding-basic 10,440,890 10,435,531
Net effect of dilutive stock options based upon
the treasury stock method using the average
market price 198,499 3,849
----------------- -----------------
Weighted average number of common shares
outstanding-diluted 10,639,389 10,439,380
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NOTE C - CREDIT FACILITIES
The Company has a revolving credit facility of up to $37,500,000 (including a
letter of credit sub-facility of up to $25,000,000) with its primary lender
through March 2001. Borrowings under the credit agreement with the primary
lender are collateralized by all assets owned by the Company during the term of
the agreement (other than the land, buildings, fixtures and improvements
collateralizing the mortgage loan discussed below). Under the agreement, the
borrowings bear interest, at the Company's option (subject to certain
limitations in the agreement), at the Prime Rate plus 0.25% or the Adjusted
Eurodollar Rate, as defined, plus 2.0%. Maximum borrowings under the revolving
credit facility and utilization of the letter of credit facility are based on a
borrowing base formula determined with respect to eligible inventory as defined
in the agreement. Availability under the revolving credit facility fluctuates in
accordance with the Company's seasonal variations in inventory levels. At May 1,
1999, the Company had approximately $14.1 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 revolving credit agreement contains certain covenants which, among
other things, restrict the ability of the Company to incur other indebtedness,
or encumber or dispose of assets and prohibit the Company from repurchasing its
Common Stock or paying dividends. The Company is required to maintain a
$5,000,000 minimum level of working capital and to maintain a minimum adjusted
net worth of $25,000,000 (both as defined in the revolving credit agreement).
The Company was in compliance with these financial covenants at May 1, 1999.
The Company also has an agreement with a commercial bank to provide a separate
letter of credit facility of up to $5,000,000 (as amended). Letters of credit
issued under the agreement are collateralized by inventories purchased using
such letters of credit. The agreement contains a minimum net worth requirement
of the same level as that required by the Company's primary lender under the
revolving credit agreement. In March 1999, the letter of credit agreement was
amended to extend the expiration date of the facility by one year to the earlier
of June 2000 or termination of the Company's revolving credit facility with its
primary lender. The letter of credit agreement, as amended, contains certain
restrictive covenants which are substantially the same as those within the
Company's revolving credit facility discussed above.
The Company also has 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. The mortgage loan is payable in 240
consecutive equal monthly installments (including interest at the rate of 9.125%
per annum) through July 2017. Certain fees may be payable by the Company if the
mortgage loan is repaid prior to June 2014. The mortgage agreement contains
certain nonfinancial covenants with which the Company was in compliance at May
1, 1999.
NOTE D - EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," effective for periods beginning after June 15, 2000. This
new standard requires recognition of all derivatives, including certain
derivative instruments embedded in other contracts, as either assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. The Company is in the process of reviewing the
effect, if any, that SFAS 133 will have on the Company's consolidated financial
statements and disclosures.
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 May 1, 1999
and May 2, 1998, and the related condensed consolidated statements of operations
and cash flows for the three-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 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 30, 1999,
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 17, 1999 (March 31, 1999 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 30, 1999 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
May 17, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the quarter ended May 1, 1999 increased 5.6% to $87,113,000
compared to $82,513,000 for the quarter ended May 2, 1998. Comparable store
sales for the first quarter of fiscal 1999 increased 8.6% compared to the same
quarter last year. We consider stores that are open 18 months or more to be
comparable, and there were 589 such stores at May 1, 1999. We believe that these
sales results were generated by having more fashion at our core price points and
better execution of our micro-merchandising strategy, based upon improved
demographic profiling of our stores.
During the first quarter of fiscal 1999, we opened four stores and expanded two
of our top-performing stores. In addition, we relocated two stores and closed
four under-performing stores. At May 1, 1999, we operated 618 stores, 29 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 37.3% of net sales in the first quarter for fiscal 1999
compared to 37.1% of net sales in the first quarter of fiscal 1998. Increases in
gross margin as a percentage of net sales were realized by improvements in
maintained mark-up which were offset, in part, by slight increases in buying and
other costs.
Selling, general and administrative ("SG&A") expenses were 22.1% of net sales in
the first quarter of fiscal 1999 compared to 21.8% of net sales in the first
quarter of fiscal 1998. The increase in SG&A expenses as a percentage of net
sales was primarily due to increased payroll expense in the corporate offices
due to higher incentive compensation accruals in 1999 than during the same
period last year. Payroll expense in the stores increased slightly as a
percentage of net sales due to year-over-year increases in both the average
hourly wage rate and average store hours.
Store rent and related expenses were 7.6% of net sales in the first quarter of
fiscal 1999 compared to 8.3% of net sales in the first quarter of fiscal 1998.
Store rent and related expenses for the first quarter of fiscal 1999 decreased
as a percentage of net sales primarily due to the leverage provided by higher
year-over-year sales as well as the closing of under-performing stores. Store
rent and related expenses per average store increased 3% in the first quarter of
fiscal 1999 compared to the same period last year. The increase in average store
rent and related expenses is primarily due to the Company's store expansion
strategy of opening larger, higher volume stores and thus leasing more costly
sites with higher rents while closing older stores with lower average rent
costs.
Depreciation and amortization expense as a percentage of net sales was 1.5% in
the first quarter of fiscal 1999 compared to 1.6% in the first quarter of fiscal
1998. The decrease in depreciation and amortization expense as a percentage of
net sales is due to the leverage provided by higher year-over-year sales.
Interest expense decreased to 0.6% of net sales in the first quarter of fiscal
1999 compared to 0.8% of net sales in the first quarter of fiscal 1998. Interest
expense in dollars also decreased in the first quarter of fiscal 1999 compared
to the first quarter of fiscal 1998. These decreases in interest expense were
due to lower average interest rates realized by a combination of obtaining more
favorable pricing on the Company's working capital facility and lower average
levels of borrowings.
The effective income tax provision rate for fiscal 1998 was 20.3%, primarily
attributable to a favorable valuation allowance adjustment. The Company's
effective income tax rate was approximately 34% in the first quarter of fiscal
1999 due to achieving levels of profitability in Puerto Rico sufficient to
permit a favorable adjustment of some of the valuation allowance.
Outlook
Sales thus far in the second quarter of fiscal 1999 are slightly ahead of
planned levels (through the corresponding time period), due in part to favorable
trends in the women's apparel industry as a whole, as well as our merchandising
strategy of offering goods that emphasize quality, value and fashion. During the
remaining portion of fiscal 1999, we intend to focus our efforts on improving
sales in existing stores while maintaining our margin and cost-containment
targets. As part of this strategy, we plan to continue to monitor the
merchandise mix and demographic profiles of our stores. We also plan to increase
the size of certain highly productive stores and have expanded the test of men's
apparel sales to approximately 200 stores. During the remaining portion of
fiscal 1999, we plan to open approximately 25 new stores in existing markets and
close approximately 11 under-performing stores.
The Company's sales and operating results are seasonal. 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). We continue to develop strategies that
should increase sales volume in the third and fourth quarters of the fiscal
year.
Average store rent and related expenses are expected to increase in fiscal 1999
due to the location and the increase in average store square footage of stores
planned to open in fiscal 1999 and the closing of older, lower-volume stores. We
will seek to leverage these increases through improved average store sales
volume.
Liquidity and Capital Resources
Increased sales and gross margin, combined with lower total expenses, resulted
in a 52% increase in net income in the first quarter of fiscal 1999 compared to
the first quarter of fiscal 1998. In the first quarter of fiscal 1999 and 1998,
cash provided by net income and net borrowings from our revolving credit
facility were primarily used to fund the increase in inventory necessary to
support the spring selling season. In addition, cash provided by net income and
net borrowings from our revolving credit facility were used to open new stores,
expand and remodel certain other top-performing stores and purchase software.
Total merchandise inventories at the end of the first quarter of fiscal 1999
increased by 28% compared to the end of the first quarter of fiscal 1998. Most
of this year-over-year inventory increase was the result of higher levels of
opportunistic purchases of merchandise as well as increased inventory in stores
to support the current levels of sales. Moreover, the year-over-year comparison
of inventory levels is impacted by circumstances that reduced last year's
inventory to historically low levels (such as a significant reduction in the
level of imported merchandise (thereby reducing the levels of inventory
in-transit to the Company's distribution center) and other merchandise flow
difficulties that were being experienced at that time). As expected, total
merchandise inventories at the end of first quarter of fiscal 1999 were also
higher than at January 30, 1999 when inventory levels are typically lower. The
level and source of inventories are subject to fluctuations because of our
opportunistic buying strategy and prevailing business conditions.
As a result of our recent emphasis on purchasing from domestic sources, the
level of outstanding documentary letters of credit decreased to $4.3 million on
May 1, 1999 compared to $5.9 million on May 2, 1998. We currently expect to
continue to pursue opportunistic purchases of merchandise from primarily
domestic sources, 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 4% at the end of the first
quarter of fiscal 1999 compared to the first quarter of fiscal 1998, primarily
as a result of the year-over-year increase in inventory levels. The level of
accounts payable and amounts outstanding under the credit facilities are subject
to fluctuations because of our seasonal operations, opportunistic buying
strategy, rate of capital expenditures and prevailing business conditions.
Our credit facilities consist of a revolving credit facility to meet short-term
liquidity needs, a mortgage loan collateralized by the Company's corporate
offices and distribution center and letter of credit facilities to accommodate
the Company's needs to purchase merchandise inventories from foreign sources.
Collectively, the credit facilities contain certain financial and non-financial
covenants with which the Company was in compliance at May 1, 1999. A summary of
our credit facilities follows. Please refer to Note C of the unaudited financial
statements contained within this Form 10-Q for a more complete description of
the credit facilities.
We have a $37,500,000 revolving credit facility (including a $25,000,000 letter
of credit sub-facility) with our primary lender through March 2001. Borrowings
under the agreement are collateralized by all assets owned by the Company during
the term of the agreement (other than land, buildings, fixtures and improvements
collateralizing the mortgage loan discussed below). Maximum borrowings under the
revolving credit facility and utilization of the letter of credit facility are
based upon a borrowing base formula determined with respect to eligible
inventory as defined in the agreement. At May 1, 1999, we had approximately
$14.1 million in excess availability under the borrowing base formula.
We have a twenty-year, $8,125,000 mortgage loan agreement with a commercial bank
payable in 240 consecutive equal monthly installments through July 2017. The
agreement is secured by the Company's real property located at its corporate
offices including land, buildings, fixtures and improvements.
We have a $5,000,000 letter of credit facility with a commercial bank through
the earlier of June 2000 or termination of the revolving credit facility with
the Company's primary lender. Letters of credit issued under the agreement are
collateralized by inventories purchased using such letters of credit.
During fiscal 1999, we expect to spend approximately $5.0 million on capital
expenditures, most of which will be used to open new stores, remodel,
re-fixture, expand and relocate existing stores and invest in information
technology. Our liquidity requirements in the foreseeable future are expected to
be met principally through cash provided by operations and the use of our credit
facilities. If we believe it to be in the best interest of the Company,
additional long-term debt, equity, capital leases, or other permanent financing
may be considered.
Market Risk and Risk Management Policies
We are exposed to market risk from changes in interest rates affecting our
credit arrangements, including a variable-rate revolving credit facility and a
fixed-rate mortgage loan agreement, which may adversely affect our results of
operations and cash flows. We seek to minimize our interest rate risk through
our day-to-day operating and financing activities. We do not engage in
speculative or derivative financial or trading activities.
A hypothetical 100 basis point adverse change (increase) in interest rates
relating to our revolving credit facility would have decreased pre-tax income
for the three months ended May 1, 1999 and May 2, 1998 by approximately $273,000
and $339,000, respectively.
Year 2000 Issues
State of Readiness
The Company began identifying its major systems and software vendors susceptible
to Year 2000 issues during its preparedness evaluation in fiscal 1996. During
fiscal 1997, a formal steering committee was assembled from throughout the
Company to ensure a smooth transition into the Year 2000. The Company has
separated its Year 2000 efforts into five phases ("the Year 2000 Plan"): (i)
awareness and identification of issues relating to the Year 2000; (ii) analysis
of the impact on and risk to the Company's software, hardware and the services
provided by the Company's vendors; (iii) performance of the work necessary to
change or upgrade programs and files including installation of software and/or
hardware; (iv) testing and certification of systems to assure compliance,
including disaster recovery testing; and (v) implementation of systems. Because
the Company uses a variety of internally-developed and third party software,
certain tasks of various phases of the Year 2000 Plan are being performed
simultaneously. The Company successfully completed the upgrade of its major
systems in the first quarter of fiscal 1999. The Company anticipates that all
five phases, including the testing of major systems, will be substantially
complete by the summer of 1999.
Like other companies, the Company relies upon third parties for its operations
including, but not limited to, suppliers of merchandise, software, telephone
service, electric power, water and financial services. As part of this program,
the Company has a formal vendor Year 2000 compliance program in place. The
Company has identified and assigned various levels of risk to third party
vendors associated with the Company. The Company has received responses from all
the vendors identified as critical to its operations. Each has indicated that it
expects to be Year 2000 compliant in a timely manner. During the course of
fiscal 1999, the Company will continue its vendor compliance efforts focusing on
the remaining, less critical vendors in order of their assigned levels of risk.
Cost
The Company is primarily using internal resources to identify, test, upgrade and
replace its Year 2000-sensitive systems. The Company's major systems, including
its merchandise management system, its point-of-sale system, its inventory and
general ledger system and its payroll system, have been due for upgrades in
order to maintain vendor support. Therefore, the Company would be devoting the
efforts of its internal resources to some or all of these projects through the
normal course of business even if the Year 2000 issues had not existed. The
Company also continues to replace any non-compliant software and hardware as
necessary. During fiscal 1999, the cost of these incidental software and
hardware replacements is expected to be less than $50,000.
Risk and Contingency Planning
Management currently expects that the Company will complete implementation of
the Year 2000 Plan as planned and will continue to monitor its systems through
the remainder of the year, but gives no assurance that unforeseen difficulties
which could alter the date of completion of the Year 2000 plan will not occur
while performing upgrades, installations, testing and implementation. In
addition, as part of the worst case scenario, if the Year 2000 Plan is not
successful in a timely manner, the Company's third party vendors are not Year
2000 compliant in a timely manner and/or if the Company's supply of merchandise
or ability to distribute its merchandise to its stores is adversely affected,
the Year 2000 issues may have a material adverse impact on the results of
operations, financial condition and cash flows of the Company. Also, possible
interruptions in services such as electric power and telephone could occur in
certain geographic areas, thereby temporarily closing some of the Company's
stores. In addition, any general economic disruption caused by Year 2000 issues
could adversely affect customer demand.
The Company intends to mitigate its Year 2000 risk by completing implementation
of the Year 2000 Plan by the summer of 1999, permitting time to monitor
compliance as well as conduct disaster recovery tests. The Company intends to
mitigate its risk of temporarily closed stores due to possible interruptions in
service such as electric power and telephone through the use of business
interruption insurance, which it currently carries and uses from time to time to
protect itself from temporary closings due to weather related interruptions. The
Company plans to continue to develop its contingency plans during the completion
of the remaining phases of its Year 2000 Plan.
Effect of New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," effective for periods beginning after June 15, 2000. This
new standard requires recognition of all derivatives, including certain
derivative instruments embedded in other contracts, as either assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. The Company is in the process of reviewing the
effect, if any, that SFAS 133 will have on the Company's consolidated financial
statements and disclosures.
Private Securities Litigation Reform Act of 1995
All statements contained in this 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 1999 and beyond to differ
materially from those expressed in such forward-looking statements. These
factors include, but are not limited to, general economic conditions and
consumer demand; consumer preferences; weather patterns; competitive factors;
pricing and promotional activities of competitors; the impact of excess retail
capacity and the availability of desirable store locations on suitable terms;
whether or not the Company's merchandising strategy to offer alternative
categories of merchandise at alternative price points will continue to increase
sales and operating results or increase and attract new customers; whether or
not offering for sale new categories of merchandise including, but not limited
to, menswear, will increase sales and operating results; the availability,
selection and purchasing of attractive merchandise on favorable terms; credit
availability, including adequate levels of credit support provided to certain of
the Company's vendors by factors and insurance companies; import risks,
including potential disruptions and duties, tariffs and quotas on imported
merchandise; regulatory matters, including legislation affecting wage rates;
whether or not the Company and its major suppliers will ready their computer
systems to be "Year 2000 Compliant" in a timely manner; and other factors
described in the Company's filings with the Securities and Exchange Commission
from time to time. The Company does not undertake to publicly update or revise
its forward-looking statements even if experience or future changes make it
clear that any projected results expressed or implied therein will not be
realized.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
See required information contained within Item 2 of this Form
10-Q.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
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 February 5, 1999, Cynthia R. Cohen resigned her
position as a member of the Board of Directors of the Company
for personal reasons and without disagreement with the Company
regarding the Company's operations, policies or procedures.
On April 15, 1999, Allan Tofias was appointed to the Company's
Board of Directors.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
10(a) Amendment Number Four to the Loan and Security
Agreement by and between Congress Financial Corporation
(Southern) as Lender and the Registrant, One Price
Clothing of Puerto Rico, Inc. and One Price Clothing -
U.S. Virgin Islands, Inc. as borrowers dated January 31,
1999: Incorporated by reference to Exhibit 4(d)(4) to the
Registrant's Annual Report on Form 10-K for the year ended
January 30, 1999 (File No. 0-15385)("the 1998 Form 10-K").
10(b) Amendment Number Four to the Continuing Commercial
Credit Agreement by and between Carolina First Bank as
Lender and the Registrant, One Price Clothing of Puerto
Rico, Inc. and One Price Clothing - U.S. Virgin Islands,
Inc. as Borrowers dated March 31, 1999: Incorporated by
reference to Exhibit 4(g)(4) to the 1998 Form 10-K.
10(c)* Employment Agreement dated April 12, 1999 between
the Registrant and H. Dane Reynolds: Incorporated by
reference to Exhibit 10(r) to the 1998 Form 10-K.
11 Computation of Per Share Earnings
15 Acknowledgement of Deloitte & Touche LLP, independent accountants
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
On April 13, 1999, the Company filed a report on Form 8-K
dated April 12, 1999 to announce the appointment of H. Dane
Reynolds as Senior Vice President and Chief Financial Officer.
--------------------------------
*Denotes a management contract or compensatory plan or agreement.
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)
<TABLE>
<S> <C>
Date: June 8, 1999 /s/ Larry I. Kelley
--------------------------------------------------------------
Larry I. Kelley
President and Chief Executive Officer
(principal executive officer)
Date: June 8, 1999 /s/ H. Dane Reynolds
--------------------------------------------------------------
Senior Vice President and Chief Financial Officer
(principal financial officer and principal
accounting officer)
</TABLE>
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
Exhibit 11 - Computation of Per Share Earnings
<TABLE>
<S> <C> <C>
Three-Month Period Ended
------------------------------------
May 1, May 2,
1999 1998
--------------- ------------
BASIC INCOME PER COMMON SHARE
Weighted average number of common
shares outstanding 10,440,890 10,435,531
============= ============
Net income $ 3,099,000 $ 2,045,000
============= =============
Basic net income per common share $ 0.30 $ 0.20
============= =============
DILUTED INCOME PER COMMON SHARE
Weighted average number of common
shares outstanding 10,440,890 10,435,531
Net effect of dilutive stock options - based
on the treasury stock method using the
average market price 198,499 3,849
------------- -------------
TOTAL 10,639,389 10,439,380
============= =============
Net income $ 3,099,000 $ 2,045,000
============= =============
Diluted net income per common share $ 0.29 $ 0.20
============= =============
</TABLE>
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
EXHIBIT 15 - ACKNOWLEDGEMENT 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 periods ended May 1, 1999 and May 2, 1998, as
indicated in our report dated May 17, 1999; 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 May 1, 1999, 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
June 8, 1999
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> MAY-01-1999
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<INVENTORY> 58267
<CURRENT-ASSETS> 69101
<PP&E> 62392
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 105827
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<TOTAL-REVENUES> 87113
<CGS> 54663
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<OTHER-EXPENSES> 7980
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</TABLE>
