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 October 28, 2000
-----------------
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.
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(Exact name of registrant as specified in its charter)
Delaware 57-0779028
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(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
------------------
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
1, 2000 was 10,308,191.
<PAGE>
INDEX
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - October 28, 2000,
January 29, 2000 and October 30, 1999
Condensed consolidated statements of operations - Three-month
and nine-month periods ended October 28, 2000 and October 30,
1999
Condensed consolidated statements of cash flows - Nine-month
periods ended October 28, 2000 and October 30, 1999
Notes to unaudited condensed consolidated financial statements
- For the nine months ended October 28, 2000 and October 30,
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
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements (Unaudited)
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
<S> <C> <C> <C>
October 28, January 29, October 30,
2000 2000 1999
------------------ ------------------ ----------------
Assets (1)
CURRENT ASSETS
Cash and cash equivalents $ 2,421,000 $ 2,538,000 $ 4,321,000
Merchandise inventories 53,158,000 44,125,000 55,197,000
Deferred income taxes 1,458,000 1,626,000 1,745,000
Income tax receivable 3,610,000 2,164,000 555,000
Other current assets 7,974,000 6,611,000 6,929,000
------------------ ------------------ ----------------
TOTAL CURRENT ASSETS 68,621,000 57,064,000 68,747,000
------------------ ------------------ ----------------
PROPERTY AND EQUIPMENT, at cost 67,017,000 67,009,000 64,903,000
Less accumulated depreciation 30,998,000 32,854,000 31,794,000
------------------ ------------------ ----------------
36,019,000 34,155,000 33,109,000
------------------ ------------------ ----------------
OTHER ASSETS 7,244,000 4,736,000 4,698,000
------------------ ------------------ ----------------
$ 111,884,000 $ 95,955,000 $ 106,554,000
================== ================== ================
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 24,038,000 $ 23,390,000 $ 33,109,000
Current portion of long-term debt and revolving credit facility 27,634,000 11,352,000 11,191,000
Sundry liabilities 6,765,000 6,179,000 7,880,000
------------------ ------------------ ----------------
TOTAL CURRENT LIABILITIES 58,437,000 40,921,000 52,180,000
------------------ ------------------ ----------------
LONG-TERM DEBT 7,274,000 7,582,000 7,626,000
------------------ ------------------ ----------------
OTHER NONCURRENT LIABILITIES 4,350,000 2,851,000 2,907,000
------------------ ------------------ ----------------
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 10,514,091,
10,489,091, and 10,474,091, respectively and outstanding
10,308,191, 10,489,091, and 10,474,091, respectively 105,000 105,000 105,000
Additional paid-in capital 11,692,000 11,625,000 11,560,000
Retained earnings 30,456,000 32,922,000 32,176,000
Less: treasury stock -- 205,900 shares, at cost (369,000) -- --
Less: unearned compensation - restricted stock awards (61,000) (51,000) --
------------------ ------------------ ----------------
41,823,000 44,601,000 43,841,000
------------------ ------------------ ----------------
$ 111,884,000 $ 95,955,000 $ 106,554,000
================== ================== ================
</TABLE>
(1) Derived from audited financial statements.
See notes to unaudited condensed consolidated financial statements
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
<S> <C> <C> <C> <C>
Three-Month Period Ended Nine-Month Period Ended
------------------------------- --------------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
-------------- -------------- --------------- ---------------
NET SALES $ 73,986,000 $ 70,428,000 $ 265,037,000 $ 255,446,000
Cost of goods sold 52,989,000 45,301,000 174,000,000 162,425,000
-------------- -------------- --------------- ---------------
GROSS MARGIN 20,997,000 25,127,000 91,037,000 93,021,000
-------------- -------------- --------------- ---------------
Selling, general and administrative expenses 22,472,000 19,766,000 65,136,000 58,798,000
Store rent and related expenses 8,301,000 6,811,000 23,892,000 20,388,000
Depreciation and amortization expense 1,492,000 1,289,000 4,510,000 3,972,000
Interest expense 715,000 412,000 1,839,000 1,374,000
-------------- -------------- --------------- ---------------
32,980,000 28,278,000 95,377,000 84,532,000
-------------- -------------- --------------- ---------------
(LOSS) INCOME BEFORE INCOME TAXES (11,983,000) (3,151,000) (4,340,000) 8,489,000
(Benefit from) provision for income taxes (4,792,000) (1,983,000) (1,874,000) 2,161,000
-------------- -------------- --------------- ---------------
NET (LOSS) INCOME $ (7,191,000) $ (1,168,000) $ (2,466,000) $ 6,328,000
============== ============== =============== ===============
Net (loss) income per common share -- basic $ (0.69) $ (0.11) $ (0.24) $ 0.61
============== ============== =============== ===============
Net (loss) income per common share -- diluted $ (0.69) $ (0.11) $ (0.24) $ 0.60
============== ============== =============== ===============
Weighted average number of common shares
outstanding -- basic 10,390,994 10,469,272 10,465,275 10,454,518
============== ============== =============== ===============
Weighted average number of common shares
outstanding -- diluted 10,390,994 10,469,272 10,465,275 10,626,242
============== ============== =============== ===============
</TABLE>
See notes to unaudited condensed consolidated financial statements
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
<S> <C> <C>
Nine-Month Period Ended
----------------------------------------
October 28, October 30,
2000 1999
------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (2,466,000) $ 6,328,000
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Depreciation and amortization 4,510,000 3,972,000
Provision for supplemental post-retirement benefits 51,000 70,000
Provision for compensation - restricted stock awards 45,000 --
(Increase) decrease in other noncurrent assets (235,000) 54,000
Increase (decrease) in other noncurrent liabilities 211,000 (47,000)
Deferred income taxes (282,000) (977,000)
Loss on disposal and provision for impairment of property
and equipment 756,000 353,000
Changes in operating assets and liabilities (11,221,000) (2,284,000)
------------------ ------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (8,631,000) 7,469,000
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,287,000) (3,599,000)
Proceeds from sale of property and equipment 252,000 --
Purchases of other noncurrent assets (361,000) (653,000)
------------------ ------------------
NET CASH USED IN INVESTING ACTIVITIES (6,396,000) (4,252,000)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayment of) revolving credit facility 16,254,000 (816,000)
Repayment of long-term debt (281,000) (120,000)
Debt financing costs incurred (118,000) (69,000)
Payment of capital lease obligations (481,000) (289,000)
Decrease in amount due to related parties (107,000) (101,000)
Purchase of treasury stock (369,000) --
Proceeds from exercise of common stock options 12,000 81,000
------------------ ------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 14,910,000 (1,314,000)
------------------ ------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (117,000) 1,903,000
Cash and cash equivalents at beginning of period 2,538,000 2,418,000
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,421,000 $ 4,321,000
================== ==================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,685,000 $ 1,193,000
Income taxes paid 334,000 2,370,000
Noncash financing activity - capital leases 2,291,000 505,000
Issuance of restricted stock awards 57,000 --
</TABLE>
See notes to unaudited condensed consolidated financial statements
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
One Price Clothing Stores, Inc. and Subsidiaries
For the nine months ended October 28, 2000 and October 30, 1999 (Unaudited)
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 accounting
principles generally accepted in the United States of America for interim
financial information and the instructions of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. 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 29, 2000.
Due to the seasonality of the Company's sales, operating results for the
three-month and nine-month periods ended October 28, 2000 are not necessarily
indicative of the results that may be expected for the year ending February 3,
2001. 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).
Stock Repurchase Program
On August 2, 2000, the Board of Directors authorized the Company to repurchase
up to one million shares of the outstanding common stock at market prices. The
repurchase program authorizes purchases from time to time in the open market or
privately negotiated block transactions and contains no expiration date. The
authorization represents approximately 9.5% of the outstanding common stock of
the Company. As of October 28, 2000, the Company had repurchased 205,900 shares
of its outstanding common stock for an aggregate purchase price of $369,000
(average of $1.79 per share).
<PAGE>
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:
<TABLE>
<S> <C> <C> <C> <C>
Three-Month Period Ended Nine-Month Period Ended
---------------------------------- ----------------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
Weighted average number of common
shares outstanding - basic 10,390,994 10,469,272 10,465,275 10,454,518
Net effect of dilutive stock options - based
on the treasury stock method using the
average market price -- -- -- 171,724
---------------- ---------------- ---------------- ----------------
Weighted average number of common
shares outstanding - diluted 10,390,994 10,469,272 10,465,275 10,626,242
================ ================ ================ ================
</TABLE>
NOTE C - CREDIT FACILITIES
In June 2000, the Company amended its revolving credit facility to increase
borrowing availability, lower borrowing rates and other fees, extend the term of
the agreement, and amend certain prohibitive covenants associated with the
facility. As amended, 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 July 2003. Borrowings under the amended 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 amended agreement, the borrowings bear interest, at the Company's
option (subject to certain limitations in the agreement), at the Prime Rate or
the Adjusted Eurodollar Rate, as defined, plus 1.5%, provided that the Company
meets certain minimum net worth requirements as set forth in 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. As a result,
availability under the revolving credit facility fluctuates in accordance with
the Company's seasonal variations in inventory levels. At October 28, 2000, the
Company had approximately $7.5 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, prohibit the Company from paying dividends, restrict
the ability of the Company to incur other indebtedness or encumber or dispose of
assets, and limit the amount of its own stock the Company can repurchase. The
Company is required to maintain a $5,000,000 minimum level of working capital
and to maintain a $25,000,000 minimum adjusted net worth (both as defined in the
revolving credit agreement).
The Company also has an agreement with a commercial bank to provide a separate
letter of credit facility of up to $8,000,000. This agreement was amended in
June 2000 to extend the term of the agreement through the earlier of June 2001
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 requires that
the Company's working capital and minimum net worth requirements be at the same
level as that required by the Company's primary lender under the revolving
credit agreement. The agreement contains certain restrictive covenants which are
substantially the same as those within the Company's revolving credit facility
discussed above.
The Company entered into a twenty-year mortgage agreement with a commercial bank
in June 1997. The agreement, which had an original balance of $8,125,000, is
secured by the Company's real property located at its corporate offices,
including land, buildings, fixtures and improvements. The mortgage loan, which
had a balance of $7,474,000 at October 28, 2000, 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.
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," which, as amended, is effective for the Company's fiscal
year beginning February 4, 2001. 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's
review of its contracts and agreements has not revealed any significant effect
that the adoption of SFAS 133 will have on the Company's consolidated financial
statements and disclosures.
<PAGE>
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 October 28,
2000 and October 30, 1999, and the related condensed consolidated statements of
operations for the three-month and nine-month periods then ended and the
condensed consolidated statements 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 making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, 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 accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of January 29, 2000, 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 7, 2000, 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 29, 2000 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
November 13, 2000
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the quarter ended October 28, 2000 increased 5.0% to $73,986,000
compared with $70,428,000 for the quarter ended October 30, 1999. Net sales for
the nine-month period ended October 28, 2000 increased 3.8% to $265,037,000
compared with $255,446,000 for the same time period in 1999. Comparable store
sales for the third quarter of fiscal 2000 decreased 4.1% compared with a 0.3%
decrease for the same quarter last year. Comparable store sales for the
nine-month period ended October 28, 2000 decreased 3.9% compared with a 3.8%
increase for the same time period in 1999. We consider stores that have been
open 18 months or more to be comparable; there were 595 such stores at October
28, 2000. The decrease in comparable store sales for the third quarter and the
first nine months of fiscal 2000 was principally due to decreased sales in our
junior, misses and plus-size separates categories.
During the third quarter of fiscal 2000, we opened seven stores and expanded the
size of two stores. In addition, we relocated five stores and closed four
under-performing stores. At October 28, 2000, we operated 661 stores, 33 more
than at the comparable quarter-end last year. Stores are located in 30 states,
the District of Columbia, Puerto Rico and the U.S. Virgin Islands.
Gross margin as a percentage of net sales decreased to 28.4% in the third
quarter of fiscal 2000 compared with 35.7% of net sales in the third quarter of
fiscal 1999. For the first nine months of fiscal 2000 gross margin as a
percentage of net sales decreased to 34.3% compared with 36.4% in fiscal 1999.
In both the three- and nine-month periods presented, gross margin decreased due
to an increase in markdowns in the third quarter of fiscal 2000.
Selling, general and administrative ("SG&A") expenses were 30.4% of net sales in
the third quarter of fiscal 2000 compared with 28.1% of net sales in the third
quarter of fiscal 1999. SG&A expenses were 24.6% of net sales in the first nine
months of fiscal 2000 compared with 23.0% of net sales during the same time
period in fiscal 1999. SG&A expenses in both periods increased as a percentage
of net sales due to an increase in SG&A expense dollars combined with a decrease
in comparable store sales during the corresponding periods. In both the three-
and nine-month periods presented for fiscal 2000, SG&A expenses increased in
dollars compared with the same time periods in fiscal 1999 primarily due to
increased payroll expense in the stores and other store expenses associated with
operating, on average, 38 and 34 more stores, respectively, year-over-year.
Payroll expense in the stores increased due to a year-over-year increase in the
average hourly wage rate which was slightly offset by a decrease in average
store hours.
Store rent and related expenses per average store increased 14.9% in the third
quarter of fiscal 2000 and 11.1% in the first nine months of fiscal 2000
compared with the same time periods last year. The increase in average store
rent and related expenses in both the three- and nine-month periods presented is
primarily due to the Company's store expansion strategy of opening larger,
potentially higher volume stores and thus entering more costly sites with higher
rents while closing older stores with lower average rent costs. Due to the
increase in average store rent and the decrease in average store sales, store
rent and related expenses were 11.2% of net sales in the third quarter of fiscal
2000 compared with 9.7% of net sales in the third quarter of fiscal 1999. Store
rent and related expenses for the first nine months of fiscal 2000 increased to
9.0% of net sales compared with 8.0% of net sales during the same time period in
fiscal 1999.
Depreciation and amortization expense was 2.0% of net sales in the third quarter
of fiscal 2000 compared with 1.8% in the third quarter of fiscal 1999.
Depreciation and amortization expense was 1.7% of net sales in the first nine
months of fiscal 2000 compared with 1.6% of net sales during the same time
period in fiscal 1999. In both the three- and nine-month periods presented for
fiscal 2000, depreciation and amortization expense increased in dollars compared
with the same time periods in fiscal 1999 primarily due to investments in new
stores and software.
Interest expense was 1.0% of net sales in the third quarter of fiscal 2000
compared with 0.6% in the third quarter of fiscal 1999. In the first nine months
of fiscal 2000, interest expense increased to 0.7% compared with 0.5% of net
sales for the same time period in fiscal 1999. In both the three- and nine-month
periods presented for fiscal 2000, interest expense increased in dollars
compared with the same time periods in fiscal 1999 due to higher average
interest rates resulting from the year-over-year increase in the Prime Rate and
higher average levels of borrowings by the Company.
The Company's effective income tax benefit rate was approximately 43.2% in the
first nine months of fiscal 2000. The effective income tax rate for the year
ended January 29, 2000 was 9.4%, which was significantly less than the statutory
rate due to the favorable adjustment of the remaining deferred tax asset
valuation allowance in fiscal 1999.
Outlook
During the fourth quarter of fiscal 2000, we currently expect to open 6 new
stores and expand or relocate 3 existing stores. The Company also plans to limit
the number of new store openings in fiscal 2001 to no more than 10 new
locations, while continuing its strategy of increasing the size of certain
highly productive stores and closing unproductive stores. In an effort to
address the decrease in comparable store sales, the Company has hired an
experienced general merchandise manager and has repositioned its inventory with
the goal of maximizing its strong-performing product categories during the
fourth quarter. Nevertheless, the Company remains cautious in its sales and
earnings expectations for the fourth quarter of 2000. In addition, in view of
this year's disappointing operating results and indications of a potential
softening of the economy, the Company is undergoing a careful review of its
expense structure and the performance of its store portfolio.
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).
Average store rent and related expenses are expected to continue to increase in
fiscal 2000 and beyond due to the location and the increase in average store
square footage of stores that opened in fiscal 2000 and planned future openings,
as well as the closing of older, lower-volume stores. We will seek to leverage
these increases through improved average store sales volume.
Liquidity and Capital Resources
In the first nine months of fiscal 2000, net borrowings from our revolving
credit facility were primarily used to purchase inventory and to open new
stores, expand and remodel certain other stores and to invest in information
technology. In the first nine months of fiscal 2000, the Company opened 16 more
stores than during the same period in fiscal 1999.
In the first nine months of fiscal 1999, net cash provided by operating
activities was primarily used to reduce the balance of the revolving credit
facility and to open new stores, expand and remodel certain other stores and to
purchase software.
Merchandise inventories at the end of the third quarter of fiscal 2000 decreased
3.7% in total and decreased 8.5% on an average store basis compared with the end
of the third quarter of fiscal 1999 due to the Company's plan to better control
inventory levels. In preparation for the holiday selling season, total
merchandise inventories at the end of the third quarter of fiscal 2000 were
15.9% higher on an average store basis than at January 29, 2000, when inventory
levels are typically lower. The level and source of inventories are subject to
fluctuations because of our seasonal operations, opportunistic buying strategy
and prevailing business conditions.
As a result of increased foreign purchases to strengthen strong-performing
categories of merchandise for the holiday selling season, the level of
outstanding documentary letters of credit increased to $7.6 million on October
28, 2000 compared with $4.1 million on October 30, 1999. We currently expect to
continue to pursue opportunistic purchases of merchandise primarily from
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 Company's credit
facilities, including long-term portions thereof, increased 13.5% at the end of
the third quarter of fiscal 2000 compared with the third quarter of fiscal 1999.
This increase was primarily the result of the year-over-year increase in amounts
outstanding under the revolving credit facility which was primarily used to
sustain merchandise inventory levels and for increased capital expenditures. The
level of accounts payable and amounts outstanding under the credit facilities
are subject to fluctuations based on our changes in inventory levels and rate of
capital expenditures.
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 October 28, 2000.
We have a $37,500,000 revolving credit facility (including a $25,000,000 letter
of credit sub-facility) with our primary lender through July 2003. 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 and
letters of credit under the revolving credit facility are based upon a borrowing
base formula determined with respect to eligible inventory as defined in the
agreement. At October 28, 2000, we had approximately $7.5 million in excess
availability under the borrowing base formula.
We have an additional $8,000,000 letter of credit facility with a commercial
bank through the earlier of June 2001 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.
We have a twenty-year mortgage loan agreement with a commercial bank payable in
consecutive equal monthly installments through July 2017. At October 28, 2000,
the mortgage loan had an unpaid balance of $7,474,000. The agreement is secured
by the Company's real property located at its corporate offices including land,
buildings, fixtures and improvements.
On August 2, 2000, the Board of Directors authorized the Company to repurchase
up to one million shares of the outstanding common stock at market prices. The
repurchase program authorizes purchases from time to time in the open market or
privately negotiated block transactions and contains no expiration date. The
authorization represents approximately 9.5% of the outstanding common stock of
the Company. As of December 1, 2000, the Company had repurchased 205,900 shares
of its outstanding common stock for an aggregate purchase price of $369,000
(average of $1.79 per share).
During fiscal 2000, we currently expect to spend approximately $9.0 million on
capital expenditures, most of which will be used to open new stores, expand and
relocate existing stores and invest in information technology. Our liquidity
requirements in the foreseeable future are expected to be met through net cash
provided by operations and the use of our credit facilities. If we believe it to
be in the best interests 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 increased pre-tax loss for
the nine months ended October 28, 2000 by approximately $119,000 and decreased
pre-tax income for the nine months ended October 30, 1999 by approximately
$67,000.
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," which, as amended, is effective for the Company's fiscal
year beginning February 4, 2001. 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's
review of its contracts and agreements has not revealed any significant effect
that the adoption of 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," "should," "will" 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 2000 and
beyond to differ materially from those expressed in such forward-looking
statements. These factors include, but are not limited to, general economic
conditions, including the possibility of a slowdown in consumer demand arising
from an increase in interest rates and other economic factors; 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
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; 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.
<PAGE>
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
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
10(a)* Employment Agreement dated October 30, 2000 between
the Registrant and Thomas R. Kelly.
10(b) Amended and Restated Shareholder Rights Agreement by
and between the Registrant and Continental Stock
Transfer and Trust Company as rights agent dated as
of October 25, 2000.
15 Acknowledgement of Deloitte & Touche LLP, independent
accountants
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
The Company was not required to, and did not, file any report
on Form 8-K for the three-month period ended October 28, 2000.
*Denotes a management contract or compensatory plan or
agreement.
<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)
Date: December 11, 2000 /s/ Larry I. Kelley
--------------------
Larry I. Kelley
President and Chief Executive Officer
(principal executive officer)
Date: December 11, 2000 /s/ H. Dane Reynolds
---------------------
H. Dane Reynolds
Senior Vice President and Chief Financial Officer
(principal financial officer and principal
accounting officer)
