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 31, 1997
OR
[ ] TRANSITION REPORT
-------------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
(No Fee Required)
For the transition period from __________________ to ___________________
Commission file number 0-21869
dELiA*s Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3914035
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
435 Hudson Street, New York, New York 10014
(Address of principal executive offices)
(Zip Code)
(212) 807-9060
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
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
Number of shares of Common Stock outstanding as of December 3, 1997:
13,002,977
<PAGE>
Certain statements contained herein, including, without limitation,
information appearing under Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," are forward-looking statements
(within the meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")). Forward-looking statements involve a number of
risks and uncertainties including, but not limited to, general economic
conditions, increases in materials, printing, paper, postage, shipping and labor
costs, timing of catalog mailings, customer response rates, levels of
competition and other factors outside the control of the Company. These factors,
and other factors that appear with the forward-looking statements, or in the
Company's other Securities and Exchange Commission filings, including its
Registration Statement on Form S-1 filed on May 20, 1997, could affect the
Company's actual results and could cause the Company's actual results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company herein.
All references in this Report to a particular fiscal year refer to the
year ended January 31 following the particular year (e.g., "fiscal 1996" refers
to the fiscal year ending January 31, 1997). As used in this Report, references
to "dELiA*s" or the "Company" prior to the 1996 Reorganization (described in
"Item 1--Consolidated Financial Statements") mean dELiA*s LLC and its
predecessor and, thereafter, dELiA*s Inc. and its subsidiaries.
PART I
FINANCIAL INFORMATION (Unaudited)
Item 1. Consolidated Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the requirements of Form 10-Q and therefore do not
include all information and footnotes required by generally accepted accounting
principles. However, in the opinion of management, all adjustments (which
consist only of normal recurring accruals) necessary for a fair presentation of
the results of operations for the relevant periods have been made. Results for
the interim periods are not necessarily indicative of the results to be expected
for the year.
2
<PAGE>
dELiA*s Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
January 31, 1997 October 31, 1997
---------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................. $21,316 $8,888
Short-term investments..................................................... -- 12,692
Receivables from related parties .......................................... 61 --
Merchandise inventories ................................................... 4,072 9,823
Prepaid expenses and other current assets ................................. 310 5,543
Deferred taxes ............................................................ 536 --
-------- --------
Total current assets .................................................. 26,295 36,946
-------- --------
PROPERTY AND EQUIPMENT--Net .................................................... 1,021 4,551
LONG-TERM INVESTMENTS .......................................................... -- 15,077
OTHER ASSETS .................................................................. 98 182
-------- --------
TOTAL ASSETS .................................................................. $27,414 $56,756
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .......................................................... $ 3,148 $ 7,067
Accrued expenses and other current liabilities ............................ 1,937 3,158
Sales return allowance .................................................... 372 456
Liabilities due to customers .............................................. 618 1,107
Deferred Taxes............................................................. -- 729
Income taxes payable ...................................................... 193 --
------- -------
Total current liabilities ............................................. 6,268 12,517
------- -------
DEFERRED CREDITS ............................................................... 14 134
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01 per share;
Authorized--1,000,000 shares;
Shares issued and outstanding--none .............................. -- --
Common Stock, par value $.01 per share;
Authorized--50,000,000 shares;
Issued and outstanding--12,052,500 and 13,002,977
shares, at January 31, 1997 and October 31, 1997,
respectively ................................................... 121 130
Note receivable from stockholder .......................................... (50) --
Deferred compensation ..................................................... (147) (72)
Additional paid-in capital ................................................ 20,874 40,285
Retained earnings ......................................................... 334 3,762
------- -------
Total stockholders' equity ............................................ 21,132 44,105
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................... $27,414 $56,756
======= =======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
dELiA*s Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
----------------------
<S> <C> <C>
1996 1997
--------- --------
(Unaudited)
NET SALES .................................................................. $ 7,110 $21,862
COST OF SALES .................................................................. 3,463 10,654
--------- --------
GROSS PROFIT .................................................................. 3,647 11,208
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................................... 2,693 9,156
INTEREST INCOME, NET............................................................ 4 402
--------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES........................................ 958 2,454
PROVISION FOR INCOME TAXES...................................................... 4 854
--------- --------
NET INCOME .................................................................. $ 954 $ 1,600
========= ========
NET INCOME PER SHARE............................................................ $ 0.12
========
SHARES USED IN THE CALCULATION OF NET
INCOME PER SHARE........................................................... 13,207
========
Pro Forma Income Data (Unaudited)
Income before provision for income taxes as reported ...................... $ 958
Pro forma provision for income taxes....................................... 391
---------
Pro forma net income....................................................... $ 567
=========
Pro forma net income per share............................................. $ 0.06
=========
Shares used in the calculation of pro forma net
income per share........................................................ 10,000
========
Nine Months
Ended October 31,
----------------------
1996 1997
--------- --------
(Unaudited)
NET SALES .................................................................. $ 15,482 $ 50,881
COST OF SALES .................................................................. 7,421 24,872
--------- --------
GROSS PROFIT .................................................................. 8,061 26,009
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................................... 6,331 21,615
INTEREST INCOME, NET............................................................ 24 959
--------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES........................................ 1,754 5,353
PROVISION FOR INCOME TAXES...................................................... 15 1,925
--------- --------
NET INCOME .................................................................. $ 1,739 $ 3,428
========= ========
NET INCOME PER SHARE............................................................ $ 0.27
========
SHARES USED IN THE CALCULATION OF NET
INCOME PER SHARE........................................................... 12,719
========
Pro Forma Income Data (Unaudited)
Income before provision for income taxes as reported ...................... $ 1,754
Pro forma provision for income taxes....................................... 719
---------
Pro forma net income....................................................... $ 1,035
=========
Pro forma net income per share............................................. $ 0.10
=========
Shares used in the calculation of pro forma net
income per share........................................................ 10,000
=========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
4
<PAGE>
dELiA*s Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended October 31,
--------------------------
<S> <C> <C>
1996 1997
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................. $ 1,739 $ 3,428
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation and amortization ........................................... 49 334
Compensation expense related to issuance of Restricted Stock ............ 48 75
Decrease in note receivable from stockholder............................. -- 50
Changes in operating assets and liabilities:
Receivables....................................................... (55) --
Receivables from related parties ................................. (61) 61
Merchandise inventories........................................... (3,491) (5,751)
Prepaid expenses and other current assets......................... (984) (5,233)
Deferred taxes ................................................... -- 1,265
Other assets...................................................... (262) (99)
Accounts payable ................................................. 2,328 3,919
Accrued expenses and other current liabilities ................... 1,227 1,221
Sales return allowance ........................................... 128 84
Liabilities due to customers ..................................... 150 489
Income taxes payable ............................................. (3) (193)
Deferred credits ................................................. 18 120
-------- --------
Net cash provided by (used in) operating activities............................. 831 (230)
======== ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................................... (366) (3,849)
Purchases of held-to-maturity securities................................... -- (27,769)
-------- --------
Net cash used in investing activities........................................... (366) (31,618)
======== ========
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from Issuance of Common Stock................................. -- 19,420
======== ========
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS ................................. 465 (12,428)
CASH & CASH EQUIVALENTS--BEGINNING OF PERIOD..................................... 675 21,316
-------- --------
CASH & CASH EQUIVALENTS--END OF PERIOD .......................................... $ 1,140 $ 8,888
======== ========
SUPPLEMENTARY CASH FLOW INFORMATION:
Income taxes paid ......................................................... $ 15 $ 1,282
======== ========
Interest paid ............................................................. $ 20 $ 0
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
5
<PAGE>
dELiA*s Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Business
The Company is a direct marketer of casual apparel and related accessories
to teen girls and young women primarily between the ages of 10 and 24. The
Company offers a broad selection of merchandise, presented in distinctively
styled catalogs; the first catalog was distributed in March 1994. The Company
maintains a corporate headquarters, telemarketing and customer service group in
New York, New York and operates a fulfillment facility for processing
merchandise in Hanover, Pennsylvania and, in the fourth quarter of fiscal 1997,
opened a retail store in Reading, Pennsylvania.
The Company is subject to seasonal fluctuations in its merchandise sales
and results of operations. The Company expects its sales operating results
generally to be lower in the first and second quarters than in the third and
fourth quarters (which include the majority of the back-to-school season and the
holiday season) of each fiscal year.
dELiA*s Inc. (the "Company" or "dInc") is a successor to a business
originally founded in September 1993. In 1995, the successor business began to
operate as a New York limited liability company under the name dELiA*s LLC
("dLLC"). As a limited liability company, dLLC was treated for income tax
purposes as a partnership with taxes on the income generated by dLLC paid by its
members. In October 1996, dInc was incorporated in Delaware. Prior to the
completion of the Company's initial public offering of Common Stock of dInc (the
"IPO"), dLLC and dInc engaged in a reorganization transaction (the 1996
"Reorganization") pursuant to which dLLC contributed its assets to dInc and dInc
assumed, and agreed to pay, perform and discharge, all liabilities of dLLC
(except for income tax liabilities). In connection with the 1996 Reorganization,
dInc issued 10,000,000 shares of Common Stock to dLLC, of which 704,474 shares
are restricted under the Company's Restricted Stock Plan. The 1996
Reorganization also resulted in the distribution to existing members of dLLC of
$4,000,000 and the shares of Common Stock of dInc in accordance with the dLLC
operating agreement (the "LLC Distribution"). The accompanying financial
statements and footnotes are presented to reflect the 1996 Reorganization as
described above, which was accounted for on a basis similar to a pooling of
interests.
In June 1997, the Company completed a public offering of 1,000,000 shares
of Common Stock at a public offering price of $21.00 per share (the "1997
Offering"). The Company received net proceeds of $19.4 million.
In July 1997, the dELiA*s business was reorganized into several
subsidiaries along functional business and geographic lines.
2. Summary of Significant Accounting Policies and Basis of Presentation
a. Principles of Consolidation--The consolidated financial statements
include the accounts of dInc and subsidiaries, all of which are wholly-owned.
All significant intercompany balances and transactions have been eliminated in
consolidation.
b. Unaudited Interim Financial Statements--In the opinion of management,
the unaudited financial statements for the nine month periods ended October 31,
1996 and 1997 are presented on a basis consistent with the audited financial
statements and reflect all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the results thereof. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the entire year.
6
<PAGE>
dELiA*s Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
c. Recent Accounting Pronouncements--In February 1997, the FASB issued SFAS
No. 128, "Earnings per Share" ("EPS"), which is effective for both interim and
annual periods ending after December 15, 1997. SFAS No. 128 supersedes APB No.
15 and specifies the computation, presentation and disclosure requirement for
basic and diluted EPS. The Company has determined that the adoption of this new
standard would not have had a material effect on EPS for all periods presented.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure," which is effective for periods ending after December
15, 1997. SFAS No. 129 establishes standards for disclosing information about an
entity's capital structure by superseding and consolidating previously issued
accounting standards. The financial statements of the Company are prepared in
accordance with the requirements of SFAS No.
129.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income. The Company has determined that the adoption of this new standard would
not have had a material effect on the Company's disclosure for all periods
presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which is effective for periods beginning
after December 15, 1997. SFAS No. 131 requires that public companies report
certain information about operating segments in their annual financial
statements and in condensed financial statements of interim periods issued to
shareholders. This statement also requires that public companies report certain
information about their products and services, the geographic areas in which
they operate and their major customers. The Company is currently reviewing the
impact of this statement on its current level of disclosure.
3. Property and Equipment
Major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
Estimated January 31, October 31,
Useful Lives 1997 1997
------------ ---------- -----------
<S> <C> <C> <C>
(Unaudited)
Furniture, fixtures and equipment................ 5-10 years $ 936,000 $ 3,736,000
Leasehold improvements........................... Term of lease 180,000 1,229,000
------------ -------------
Total--at cost................................... 1,116,000 4,965,000
Less accumulated depreciation and
Amortization................................... 95,000 414,000
------------ -------------
Total property and equipment--net................ $ 1,021,000 $ 4,551,000
============ =============
</TABLE>
4. Credit and Financing Agreements
At October 31, 1997, the Company had a line of credit agreement with a bank
providing for short-term loans of up to $5.0 million subject to bank approval.
Borrowings under the agreement are secured by
7
<PAGE>
dELiA*s Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
all assets of the Company except for merchandise inventories and bear interest
at the prime rate plus two percent (10.25 percent and 10.5 percent at January
31, 1997 and October 31, 1997, respectively). There were no funds borrowed under
the agreement during the fiscal year ended January 31, 1997 and the nine month
period ended October 31, 1997.
Outstanding letters of credit established to facilitate international
merchandise purchases at October 31, 1997 were $445,000.
5. Stock Options
In the nine month period ended October 31, 1997, options to purchase an
aggregate of 272,862 shares of Common Stock were granted to 38 employees of the
Company and its subsidiaries. These options will become exercisable over a
period of three months to five years from the date of grant. The exercise price
per share of each such option is generally equal to the fair market value of the
Common Stock on the date of grant.
A summary of the status of all plan and non-plan options to purchase shares
of Common Stock outstanding as of January 31, 1997 and October 31, 1997
(unaudited) follows:
<TABLE>
<CAPTION>
Fiscal Year 1996 Nine Months
Ended January 31, 1997 Ended October 31, 1997
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Weighted Weighted
Options Exercise Price Options Exercise Price
--------- ------------- --------- -------------
Outstanding at beginning of period -- $ -- 383,750 $11.00
Granted 383,750 11.00 272,862 18.49
Exercised -- -- -- --
Cancelled -- -- -- --
--------- ------- --------- -------
Outstanding at end of period 383,750 $11.00 656,612 $12.59
========= ======= ========= =======
Options exercisable
At end of period -- -- 50,000 $11.00
========= ======= ========= =======
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting
for its stock option and purchase plans. Accordingly, no compensation expense
has been recognized for those plans in the year ended January 31, 1997, and the
nine month period ended October 31, 1997. Had compensation expense been
determined based on the fair value of stock option grants on the date of grant
consistent with SFAS No. 123, the effect on the Company's net income and
earnings per share for the year ended January 31, 1997 would not have been
material.
The estimated fair market value of options granted during the year ended
January 31, 1997 was $4.08 per share. The fair value of options granted by the
Company during the year ended January 31, 1997 was estimated using the
Black-Scholes option-pricing model with the following weighted average
assumptions used: no dividend yield; expected volatility (based on comparable
stocks) of 45 percent; risk-free interest rate of 6.4 percent; expected lives of
three to five years.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Report.
Overview
The Company was founded in 1993 and distributed its first catalog in 1994
through a network of on-campus college representatives. In late 1994 and early
1995, in an effort to broaden the reach of its catalogs, the Company changed its
primary channel of distribution from college representatives to direct mail.
This change has resulted in a substantial increase in the Company's sales. In
order to support its direct marketing operations, the Company has made
significant capital expenditures for telephone and management information
systems and has hired and maintained an in-house workforce of teleservice
representatives.
The Company initially mailed catalogs to persons responding to
advertisements and to names on rented lists. The Company has built a proprietary
list of "house names" (customers who have made at least one purchase or have
requested a catalog from the Company in the preceding 36 months), which
currently contains approximately 2.7 million names, primarily through referrals,
word-of-mouth, returns of catalog request cards and targeted classified
advertising in selected magazines. A significant portion of the Company's
catalogs is mailed to house names, supplemented by purchased and rented lists.
The response rates generated from its house list are typically higher than those
the Company realizes from purchased or rented lists.
The Company plans to increase the number of catalogs it distributes from 8
million in fiscal 1996 to in excess of 30 million in fiscal 1997 and in excess
of 45 million in fiscal 1998. The Company distributed six editions of its
catalog in fiscal 1996 and anticipates distributing eight editions in fiscal
1997. As the Company continues to increase its prospecting efforts and the
number of catalogs it distributes, the Company intends to increase its aggregate
marketing expenditures, which the Company expects will result in a decrease in
operating margin. With increased catalog distribution, the Company expects that
response rates will decline in the future. Response rates have typically
fluctuated on a year-to-year and catalog-to-catalog basis. Response rates are
influenced by a number of factors including the timing of catalog mailings,
market acceptance of the Company's merchandise and the mix and presentation of
products and actions of competitors. Average order size has also fluctuated
seasonally. Generally, the average size of orders from the Company's fall and
winter catalogs is larger than the average size of orders from its spring and
summer catalogs.
The Company believes that as its revenue base grows and it further
penetrates its target market, the Company may not be able to sustain the levels
of percentage annual growth in net sales and growth in operating income
experienced in fiscal 1995 and fiscal 1996. Additionally, legislation introduced
in the U.S. Congress that proposes restrictions on persons, principally list
brokers, that sell, purchase or otherwise use for commercial purposes personal
information about teens (under the age of 16) and children could adversely
affect the Company's use of purchased and rented lists, as well as the Company's
ability to generate new names for its proprietary database. Although the Company
is not a list broker, it does mail catalogs to persons whose names are derived
from purchased and rented lists. Approximately 40% of the names of persons to
whom the Company mailed its back-to-school and fall 1997 catalogs were derived
from purchased and rented lists. The Company regularly explores new methods for
developing its house list and believes it will be able to continue to develop
this list through advertising and new channels for the distribution of its
catalogs. There can be no assurance, however, that the Company will be able to
develop its house list.
9
<PAGE>
The Company began operating its own warehouse and fulfillment operations on
June 30, 1997 in a leased facility located in Hanover, Pennsylvania. Prior to
that date, the Company used an unaffiliated third-party fulfillment contractor
to process and fulfill orders. In the second and third quarters of fiscal 1997,
the Company incurred additional expenses as a result of moving to and operating
the new facility, and has made and will continue to make substantial investments
in plant and equipment to improve the new facility. See "--Liquidity and Capital
Resources."
On December 24, 1996, the Company sold 2,052,500 shares of Common Stock in
the IPO. The Company has invested the net proceeds it received from the IPO,
consisting of $19.8 million, in interest-bearing, investment-grade securities.
On June 9, 1997, the Company completed the 1997 Offering in which it
received net proceeds of $19.4 million. The Company has invested the net
proceeds it received from the 1997 Offering in interest-bearing,
investment-grade securities. Stockholders of the Company sold an additional
1,300,000 shares in the 1997 Offering.
On July 1, 1997, the dELiA*s business was reorganized into several
subsidiaries along functional business and geographic lines. In connection with
this reorganization, the Corporation expects to realize certain state tax
savings in the second half of fiscal 1997 and thereafter.
In the beginning of the fourth quarter of fiscal 1997, the Company opened a
retail store in Reading, Pennsylvania. The retail store, the Company's first, is
intended to carry primarily overstocked merchandise.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's statement of operations to net
sales. Any trends reflected by the following table may not be indicative of
future results.
<TABLE>
<CAPTION>
Nine Months
Ended October 31,
-----------------------
<S> <C> <C>
1996 1997
---- ----
(Unaudited)
Net sales ...................................................................... 100.0% 100.0%
Cost of sales ...................................................................... 47.9 48.9
----- -----
Gross profit ...................................................................... 52.1 51.1
Selling, general and administrative expenses........................................ 41.0 42.5
Interest income, net................................................................ 0.2 1.9
----- -----
Income before provision for income taxes............................................ 11.3 10.5
Provision for income taxes.......................................................... 0.1 3.8
----- -----
Net income ...................................................................... 11.2% 6.7%
----- -----
Pro forma net income (1)............................................................ 6.7% 6.7%
===== =====
</TABLE>
- ------------------------
(1) Pro forma net income for the nine months ended October 31, 1996 is adjusted
to reflect the Company's financial statements as if it had been a C
corporation for the entire period. During the fourth quarter of fiscal
1996, the Company converted from a limited liability company to a C
corporation. Pro forma net income for the nine months ended October 31,
1997 represents actual reported net income.
Comparison of Three Months Ended October 31, 1996 and 1997
Net Sales. Net sales increased approximately $14.8 million, from $7.1
million in the third quarter of fiscal 1996 to $21.9 million in the third
quarter of fiscal 1997. The increase in net sales was primarily due to an
increase in the number of catalogs mailed. The Company distributed between four
and five times
10
<PAGE>
more catalogs in the third quarter of fiscal 1997 than in the third quarter of
fiscal 1996 (not including winter 1996 and winter 1997 catalogs mailed in late
October of each year). Aggregate response rates from catalogs distributed in the
third quarter of fiscal 1997 declined relative to catalogs distributed in the
third quarter of fiscal 1996 as the Company mailed additional catalog editions
during the third quarter of fiscal 1997 to a large number of persons who had
received a prior edition of those catalogs earlier in the period. The Company
believes aggregate response rates will usually decline when it mails additional
catalog editions within the same fiscal period. The Company believes that its
response rates were slightly enhanced in the third quarter of fiscal 1997 by the
inclusion within the Fall editions of the dELiA*s catalog of a test edition of
the Company's contents home furnishings and housewares catalog.
Gross Margin. Gross margin was constant at 51.3% in each of the third
quarters of fiscal 1996 and 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $6.5 million, from $2.7 million
in the third quarter of fiscal 1996 to $9.2 million in the third quarter of
fiscal 1997. Selling, general and administrative expenses increased as a
percentage of net sales from 37.9% in the third quarter of fiscal 1996 to 41.9%
in the third quarter of fiscal 1997. The increase as a percentage of net sales
was primarily due to (i) higher expenditures on corporate salaries,
telemarketing staff and additional information systems in anticipation of future
sales growth, as well as additional marketing expenditures as the Company
increased the number of catalogs it mailed, (ii) expenses incurred in connection
with greater catalog distribution in Japan, which, partially as a result of
unfavorable exchange rates, yielded lower revenues than expected and (iii)
expenses associated with the transition to the Company's new warehouse facility
and the opening of the Company's retail store.
Interest Income, Net. Interest income, net, increased approximately
$398,000, from $4,000 in the third quarter of fiscal 1996 to $402,000 in the
third quarter of fiscal 1997. The increase in interest income, net, was
primarily due to the Company's investment of the net proceeds from the IPO and
the 1997 Offering, which proceeds were received in the fourth quarter of fiscal
1996 and the second quarter of fiscal 1997, respectively.
Provision for Income Taxes. Provision for income taxes increased
approximately $850,000 from $4,000 in the third quarter of fiscal 1996 to
$854,000 in the third quarter of fiscal 1997. This increase was almost entirely
due to the 1996 Reorganization, which was effected in the fourth quarter of
fiscal 1996, in which the Company converted from a limited liability company to
a C corporation. See Note 1 of "Item 1--Consolidated Financial Statements."
Comparison of Nine Months Ended October 31, 1996 and 1997
Net Sales. Net sales increased approximately $35.4 million, from $15.5
million in the first nine months of fiscal 1996 to $50.9 million in the first
nine months of fiscal 1997. The increase in net sales was primarily due to an
increase in the number of catalogs mailed. The Company distributed between four
and five times more catalogs in the first nine months of fiscal 1997 than in the
first nine months of fiscal 1996 (not including winter 1996 and winter 1997
catalogs mailed in late October of each year). Aggregate response rates from
catalogs distributed in the first nine months of fiscal 1997 declined relative
to catalogs distributed in the first nine months of fiscal 1996, as the Company
mailed additional catalog editions during the first quarter, second and third
quarters of fiscal 1997 to a large number of persons who had received a prior
edition of those catalogs earlier in the period. The Company believes aggregate
response rates will usually decline when it mails additional catalog editions
within the same fiscal period.
11
<PAGE>
Gross Margin. Gross margin decreased from 52.1% in the first nine months of
fiscal 1996 to 51.1% in the first nine months of fiscal 1997. The decrease in
gross margin was due primarily to increased reserves for returns and inventory
obsolescence consistent with the Company's recent growth based upon management's
evaluation of merchandise inventories as of October 31, 1997 and the sale of
merchandise at a discount though sales circulars and an event sale in the third
quarter of fiscal 1997. In contrast, in the first nine months of fiscal 1996,
the Company had relatively less carryover inventory, and thus relatively fewer
discounted sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $15.3 million, from $6.3 million
in the first nine months of fiscal 1996 to $21.6 million in the first nine
months of fiscal 1997. Selling, general and administrative expenses increased as
a percentage of net sales from 41.0% in the first nine months of fiscal 1996 to
42.5% in the first nine months of fiscal 1997. The increase as a percentage of
net sales was primarily due to (i) higher expenditures on corporate salaries,
telemarketing staff and additional information systems in anticipation of future
sales growth, as well as additional marketing expenditures as the Company
increased the number of catalogs it mailed, (ii) expenses incurred in connection
with greater catalog distribution in Japan, which, partially as a result of
unfavorable exchange rates, yielded lower revenues than expected and (iii)
expenses associated with the transition to the Company's new warehouse facility
and the opening of the Company's retail store.
Interest Income, Net. Interest income, net, increased approximately
$935,000 from $24,000 in the first nine months of fiscal 1996 to $959,000 in the
first nine months of fiscal 1997. The increase in interest income, net, was
primarily due to the Company's investment of the net proceeds from the IPO and
the 1997 Offering, which proceeds were received in the fourth quarter of fiscal
1996 and the second quarter of fiscal 1997, respectively.
Provision for Income Taxes. Provision for income taxes increased
approximately $1.9 million, from $15,000 in the first nine months of fiscal 1996
to $1.9 million in the first nine months of fiscal 1997. This increase was
almost entirely due to the 1996 Reorganization, which was effected in the fourth
quarter of fiscal 1996, in which the Company converted from a limited liability
company to a C corporation. See Note 1 of "Item 1--Consolidated Financial
Statements."
Selected Quarterly Results of Operations
The following table sets forth certain unaudited statements of operations
data for the seven quarters ended October 31, 1997, as well as such data
expressed as a percentage of the Company's total net sales for the periods
indicated. This data has been derived from unaudited financial statements that,
in the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation of such information when
read in conjunction with the Company's annual audited financial statements and
notes thereto.
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Quarter Ended
------------------------------------------ -- --------------------------------
Fiscal 1996 Fiscal 1997
------------------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Apr. 30, July 31, Oct. 31, Jan. 31, Apr. 30, July 31, Oct. 31,
1996 1996 1996 1997 1997 1997 1997
----- ----- ----- ----- ----- ----- ----
(in thousands)
Net sales ....................... $3,709 $4,663 $7,110 $14,743 $12,928 $16.091 $21,862
Cost of sales ................... 1,725 2,233 3,463 7,203 6,392 7,826 10,654
------ ------ ------ ------- ------- ------- -------
Gross profit .................... 1,984 2,430 3,647 7,540 6,536 8,265 11,208
------- -------
Selling, general and
Administrative expenses ...... 1,489 2,149 2,693 5,519 5,222 7,237 9,156
Interest income, net ............ 9 11 4 152 237 320 402
------ ------ ------ ------- ------- ------- -------
Income before provision for
income taxes ................ 504 292 958 2,173 1,551 1,348 2,454
Provision (benefit) for income
Taxes ....................... 7 4 4 (343) 623 448 854
------ ------ ------ ------- ------- ------- -------
Net income ...................... $ 497 $ 288 $ 954 $ 2,516 $ 928 $ 900 $ 1,600
====== ====== ====== ======= ======= ======= =======
Pro forma net income(1) ......... $ 297 $ 171 $ 567 $ 1,272 $ 928 $ 900 $ 1,600
====== ====== ====== ======= ======= ======= =======
Percentage of Total Net Sales
------------------------------------------------------------------------------
Net sales ....................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales ................... 46.5 47.9 48.7 48.9 49.4 48.6 48.7
------ ------ ------ ------- ------- ------- -------
Gross profit .................... 53.5 52.1 51.3 51.1 50.6 51.4 51.3
Selling, general and
administrative expenses ..... 40.1 46.0 37.9 37.4 40.4 45.0 41.9
Interest income, net ............ 0.2 0.2 0.1 1.0 1.8 2.0 1.8
------ ------ ------ ------- ------- ------- -------
Income before provision for
income taxes ................ 13.6 6.3 13.5 14.7 12.0 8.4 11.2
Provision (benefit) for income
taxes ....................... 0.2 0.1 0.1 (2.3) 4.8 2.8 3.9
------ ------ ------ ------- ------- ------- -------
Net income ...................... 13.4% 6.2% 13.4% 17.1% 7.2% 5.6% 7.3%
====== ====== ====== ======= ======= ======= =======
Pro forma net income ............ 8.0% 3.7% 8.0% 8.6% 7.2% 5.6% 7.3%
====== ====== ====== ======= ======= ======= =======
</TABLE>
- ------------------------
(1) Pro forma net income for each quarter of fiscal 1996 is adjusted to reflect
the Company's financial statements as if it had been a C corporation for
the entire period. During the fourth quarter of fiscal 1996, the Company
converted from a limited liability company to a C corporation. Pro forma
net income for each quarter of fiscal 1997 represents actual reported net
income.
The Company is subject to seasonal fluctuations in its merchandise sales
and results of operations. The Company expects its net sales and results of
operations generally to be lower in the first and second quarters than in the
third and fourth quarters of each fiscal year (which include the majority of the
back-to-school season and the holiday season). The Company's quarterly results
may fluctuate as a result of numerous factors, including the timing, quantity
and cost of catalog mailings, the timing of sale circulars and liquidations, the
timing of merchandise deliveries, market acceptance of the Company's merchandise
(including new merchandise categories or products introduced), the mix of
products sold, the hiring and training of additional personnel, the timing of
inventory writedowns, the incurrence of other operating costs and factors beyond
the Company's control, such as general economic conditions and actions of
competitors. Accordingly, the results of operations in any quarter will not
necessarily be indicative of the results that may be achieved for a full fiscal
year or any future quarter.
Liquidity and Capital Resources
Since its inception, the Company has met its operating and cash
requirements through funds generated from operations, the private sales of
equity securities, the IPO and, most recently, the 1997 Offering. Cash provided
by operations in the first nine months of fiscal 1996 was $831,000 and cash used
in operations in the first nine months of fiscal 1997 was $230,000.
13
<PAGE>
Cash used in investing in the first nine months of fiscal 1996 and 1997 was
$366,000 and $31.6 million, respectively, as the Company invested the net
proceeds of the 1997 Offering in interest-bearing, investment-grade securities.
The Company expects to make capital expenditures of approximately $1.5 million
to upgrade its management information systems in fiscal 1997 and $1.0 million in
fiscal 1998. The Company also anticipates capital expenditures of at least $2.5
million in fiscal 1997 for property, plant and equipment, including leasehold
improvements, office equipment and expenditures relating to the Company's new
warehouse and distribution operations and $1.5 million in fiscal 1998. See
"--Results of Operations."
Cash flows from financing activities in the first nine months of fiscal
1997 were $19.4 million as a result of the 1997 Offering; the Company did not
engage in any financing activities in the first nine months of fiscal 1996.
Cash and cash equivalents decreased by approximately $12.4 million to $8.9
million at October 31, 1997 from $21.3 million at January 31, 1997, as the
Company received $19.4 in net proceeds from the 1997 Offering, offset by the
Company's shift of a portion of its investments to securities with maturities of
greater than 90 days and increased its inventory position during the nine months
ended October 31, 1997.
During the fiscal year prior to the IPO, the Company operated as a limited
liability company with taxes paid by its members. Following the 1996
Reorganization in which the Company's business was transferred to a Delaware
corporation, the Company ceased to be a flow-through entity and is now liable
for applicable income taxes.
The Company has a revolving line of credit for seasonal working capital,
collateralized by all of the Company's assets other than inventory. The maximum
amount available under the line of credit is $5.0 million. The interest rate on
the line of credit is the lending bank's prime rate (10.5% at October 31, 1997).
The line expires on July 31, 1998. The Company has not drawn on this line.
The Company believes that its cash on hand, together with cash generated by
operations, will be sufficient to meet its capital and operating requirements
through at least fiscal 1997. The Company's future capital requirements,
however, depend on numerous factors, including, without limitation, the success
of its marketing, sales and distribution efforts. There can be no assurance that
additional funds, if required, will be available to the Company on favorable
terms or at all.
Inflation
The Company does not believe that inflation has had a material adverse
effect on net sales or results of operation. The Company has generally been able
to pass on increased costs related to inflation through increases in its prices
to customers.
Recent Accounting Pronouncements
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share"
("EPS"), which is effective for both interim and annual periods ending after
December 15, 1997. SFAS No. 128 supersedes APB No. 15 and specifies the
computation, presentation and disclosure requirement for basic and diluted EPS.
The Company has determined that the adoption of this new standard would not have
had a material effect on EPS for all periods presented.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure," which is effective for periods ending after December
15, 1997. SFAS No. 129 establishes standards for disclosing information about an
entity's capital structure by superseding and consolidating previously issued
accounting standards. The financial statements of the Company are prepared in
accordance with the requirements of SFAS No. 129.
14
<PAGE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income. The Company has determined that the adoption of this new standard would
not have had a material effect on the Company's disclosure for all periods
presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which is effective for periods beginning
after December 15, 1997. SFAS No. 131 requires that public companies report
certain information about operating segments in their annual financial
statements and in condensed financial statements of interim periods issued to
shareholders. This statement also requires that public companies report certain
information about their products and services, the geographic areas in which
they operate and their major customers. The Company is currently reviewing the
impact of this statement on its current level of disclosure.
15
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings that management
believes would have a material adverse effect on the Company's financial
position or results of operations.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
third quarter of fiscal 1997.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Bill of Sale and Contribution and Assumption Agreement between
dELiA*s LLC and the Company (incorporated by reference to
Exhibit 2.1 to the Company's Registration Statement on Form
S-1 (Registration No. 333-15153))
3.1 Certificate of incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-15153))
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form
S-1 (Registration No. 333-15153))
10.1 Form of Employment Agreement between the Company and Stephen
I. Kahn (incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (Registration No.
333-15153))
10.2 Employment Agreement between the Company and Christopher C.
Edgar (incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-1 (Registration No.
333-15153))
10.3 Employment Agreement between the Company and Evan Guillemin
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (Registration No.
333-15153))
10.4 Form of Family Stockholders Agreement among the Company,
Stephen I. Kahn and the persons listed on exhibit A thereto
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Registration No.
333-15153))
10.5 1996 Stock Incentive Plan (incorporated by reference
to Exhibit 10.5 to the Company's Registration Statement
on Form S-1 (Registration No. 333-15153))
16
<PAGE>
10.6 Restricted Stock Plan (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on
Form S-1 (Registration No. 333-15153))
10.7 Stock Option Agreement between the Company and Evan Guillemin
(incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (Registration No.
333-15153))
10.8 [omitted]
10.9 Lease Agreement dated May 3, 1995 between the Company and The
Rector, Church-Wardens and Vestrymen of Trinity Church in the
City of New-York (the "Lease Agreement"); Modification and
Extension of Lease Agreement dated September 26, 1996
(incorporated by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (Registration No.
333-15153))
10.10 Form of Restricted Stock Agreements between the Company and
holders of Common Stock subject to the Restricted Stock Plan
(incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No.
333-15153))
10.11 [omitted]
10.12 Lease Agreement dated April 25, 1997 between the Company and
Keystone Distribution Center, Inc. (incorporated by reference
to Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the fiscal year ended April 30, 1997)
10.13 Agreement, dated April 4, 1997, between the Company and The
Rector, Church Wardens and Vestrymen of Trinity Church in the
City of New York amending the Lease Agreement (incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the fiscal year ended April 30, 1997)
10.14 Agreement, dated October 7, 1997, between the Company and The
Rector, Church Wardens and Vestrymen of Trinity Church in the
City of New York amending the Lease Agreement
21 Subsidiaries of the Registrant
27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the third quarter of
fiscal 1997.
17
<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.
dELiA*s Inc.
(Registrant)
Date: December 4, 1997
By: /s/ Stephen I. Kahn
--------------------
Stephen I. Kahn
Chairman of the Board, President and
Chief Executive Officer
By: /s/ Evan Guillemin
-------------------
Evan Guillemin
Chief Financial Officer and Treasurer
(principal financial and accounting officer)
18
<PAGE>
Exhibit Index
2.1 Bill of Sale and Contribution and Assumption Agreement between dELiA*s
LLC and the Company (incorporated by reference to Exhibit 2.1 to the
Company's Registration Statement on Form S-1 (Registration No.
333-15153))
3.1 Certificate of incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1 (Registration No. 333-15153))
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-15153))
10.1 Form of Employment Agreement between the Company and Stephen I. Kahn
(incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-15153))
10.2 Employment Agreement between the Company and Christopher C. Edgar
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (Registration No. 333-15153))
10.3 Employment Agreement between the Company and Evan Guillemin
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-15153))
10.4 Form of Family Stockholders Agreement among the Company, Stephen I.
Kahn and the persons listed on exhibit A thereto (incorporated by
reference to Exhibit 10.4 to the Company's Registration Statement on
Form S-1 (Registration No. 333-15153))
10.5 1996 Stock Incentive Plan (incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-1
(Registration No. 333-15153))
10.6 Restricted Stock Plan (incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-15153))
10.7 Stock Option Agreement between the Company and Evan Guillemin
(incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (Registration No. 333-15153))
10.8 [omitted]
10.9 Lease Agreement dated May 3, 1995 between the Company and The Rector,
Church-Wardens and Vestrymen of Trinity Church in the City of New-York
(the "Lease Agreement"); Modification and Extension of Lease Agreement
dated September 26, 1996 (incorporated by reference to Exhibit 10.9 to
the Company's Registration Statement on Form S-1 (Registration No.
333-15153))
10.10 Form of Restricted Stock Agreements between the Company and holders of
Common Stock subject to the Restricted Stock Plan (incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement on
Form S-1 (Registration No. 333-15153))
10.11 [omitted]
10.12 Lease Agreement dated April 25, 1997 between the Company and Keystone
Distribution Center, Inc. (incorporated by reference to Exhibit 10.12
to the Company's Annual Report on Form 10-K for the fiscal year ended
April 30, 1997)
10.13 Agreement dated April 4, 1997 between the Company and The Rector,
Church Wardens and Vestrymen of Trinity Church in the City of New York
amending the Lease Agreement (incorporated by reference to Exhibit
10.13 to the Company's Annual Report on Form 10-K for the fiscal year
ended April 30, 1997)
19
<PAGE>
10.14 Agreement dated October 7, 1997 between the Company and The Rector,
Church Wardens and Vestrymen of Trinity Church in the City of New York
amending the Lease Agreement
21 Subsidiaries of the Registrant
27 Financial Data Schedule
EXHIBIT 10.14
THIS AGREEMENT, made this 7th day of October, l997, between THE RECTOR,
CHURCH-WARDENS AND VESTRYMEN OF TRINITY CHURCH IN THE CITY OF NEW-YORK, a
religious corporation in the State of New York, having its office and address at
74 Trinity Place in the Borough of Manhattan, City, State and County of New York
(hereinafter referred to as the "Landlord"), and DELIA'S, INC., a Delaware
Corporation, having its place of business at 435 Hudson Street, Borough of
Manhattan, City, County and State of New York (hereinafter referred to as the
"Tenant").
W I T N E S S E T H :
WHEREAS, the Landlord and Delia's LLC entered into an agreement of lease
dated May 3, 1995, modified September 26, 1996 and further modified April 4,
1997 herein the Landlord leased to the Tenant a portion of the 3rd Floor as
described in the lease, in the building of the Landlord known as 435 Hudson
Street, New York, New York, for a term to commence May 1, 1995, and expire
(unless sooner terminated in accordance with the provisions of the lease) on
March 31, 2007 at the rent and additional rents and on the other terms and
covenants set forth in such lease (the said lease is hereinafter referred to as
the "Lease" and the premises thereby demised are hereinafter referred to as the
"Original Premises"), and
WHEREAS, Delia's LLC assigned all of its right, title and interest in the
Lease to the Tenant; and
WHEREAS, Tenant wishes to (i) take and hire additional space in said
building consisting of a portion of the 5th floor as hatched in red on the
diagram attached hereto and made part of the Agreement and marked Exhibit "C"
(such additional space is hereinafter referred to as the "Additional Space"),
and the Landlord is willing to agree to lease the Additional Space to the Tenant
on the terms herein prescribed and otherwise on those set forth in the Lease;
and
<PAGE>
WHEREAS, the Landlord and the Tenant desire to modify the Lease
accordingly.
NOW, THEREFORE, it is hereby mutually covenanted and agreed between the
parties hereto as follows:
l. The Lease shall be and it hereby is modified in the following respects
effective as of September 26, 1997:
(a) By making the Additional Space a part of the Premises demised under
the Lease which the Landlord lets and leases to the Tenant and the Tenant takes
and hires from the Landlord for the remainder of the term of the Lease and upon
all of the terms, covenants and conditions of the Lease except as they are
herein modified.
(b) Subject to Section 2 hereof, the fixed annual rent payable under the
Lease shall be increased to the annual rates of (i) $525,374.50 during the
period commencing on May 1, 1998 and ending April 30, 2003, payable in monthly
installments of $43,781.21 payable in advance on the first of each calendar
month and (ii) of $538,999.50 during the period commencing on May 1, 2003 and
ending March 31, 2007, payable in monthly installments of $44,916.63 payable in
advance on the first of each calendar month.
(c) The definition of "Tenant's Proportionate Share" shall be adjusted
to reflect the addition of the Additional Space.
(d) For the purposes of computing the escalations in respect to the
Additional Space, the following changes are made to Article THIRTY-SEVENTH of
the Lease:
(i) The term "Base Index" shall mean the Index as last published
prior to November 1, 1997;
(ii) The term "Base Year" shall mean the calendar year 1998.
(iii) The term "Computation Date" shall mean the first day of April,
1999 and, in Subsequent Years, its anniversary date.
(iv) "Statements for the Tenant" shall be furnished on or before
May 1, 1999, and on or before that day in each Subsequent
Year.
The Tenant shall continue to pay escalation with respect to the Original
Premises as set forth in the Lease.
(2)
<PAGE>
2. The Tenant is hereby granted the privilege of occupying the
Additional Space subject to all of the terms, covenants and conditions of the
lease, including but not limited to, the payment of any service charges for
electric current, water, sprinkler maintenance and any overtime elevator or heat
service and to the payment of any additional rent payable pursuant to the
provisions of Article THIRTY-SEVENTH of the Lease but otherwise free of the
payment of the fixed rent applicable to the Additional Space. ($17,961.63 per
month) during the period beginning with September 26, 1997 and ending on April
30, 1998, the date prior to the commencement of the term.
The right to occupy the premises free of rent during the period set forth
above shall be subject to the condition that the Tenant shall not default in the
payment of any other fixed rent, or any additional rent or any other charge due
under this lease or in the performance of the other terms, covenants and
conditions thereof. In the event of any such default, then fixed annual rent at
the monthly rate set forth in this lease shall be payable during the period in
which the Tenant would otherwise be entitled to the use of the premises free of
fixed annual rent. Any such payment shall be paid within l0 days following
demand and shall constitute additional rent under this lease.
3. It is agreed that the following work is to be done in the Additional
Space by the Landlord at the Landlord's expense:
a) Renovate and recaulk windows. Replace any cracked or broken
and nontransparent panes and wash once at commencement of
lease.
b) Demolish any unused piping and wiring, etc. Deliver perimeter
radiation in good working order.
c) Deliver up to 10 watts per sq. ft. of 3-phase electric power
with disconnect and meter; Tenant to be responsible for the
distribution of electricity within the premises.
d) Deliver ACP-5 form.
The Tenant agrees that, notwithstanding the fact that the Landlord will
tender the Additional Space to the Tenant for possession on September 26, 1997,
the Landlord may perform and complete the items of work listed above after that
date and the Tenant agrees to provide the Landlord with unrestricted access to
the Additional Space and to cooperate fully
(3)
<PAGE>
with the Landlord in order to permit the Landlord to perform such work as
expeditiously as possible.
In the event that the Landlord shall not complete the work set forth above
by November 1, 1997, then (but only if and only to the extent that) such delay
actually prevents or delays the Tenant from constructing and installing the
improvements it intends to construct and install in the Additional Space, then
the payment of the fixed rent applicable to the Additional Space ($17,961.63 per
month), shall be postponed (from May 1, 1998) by the number of days equal to the
number of days of such delay.
4. Except as modified in accord with the provisions of this Agreement,
the Lease is hereby ratified and affirmed and the Tenant covenants and agrees to
keep and perform the obligations of the Lease as hereby modified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE RECTOR, CHURCH-WARDENS AND
VESTRYMEN OF TRINITY CHURCH IN
THE CITY OF NEW-YORK
[CORPORATE SEAL]
ATTEST:
By: /s/ Joseph Palombi By: /s/ Stephen Heyman
------------------ ------------------
Executive Vice President Director of Leasing
of Real Estate
[CORPORATE SEAL]
ATTEST: DELIA'S, INC.
By: /s/ Karen Christensen By: /s/ Alex S. Navarro
--------------------- -------------------
Assistant Secretary Title: Senior Vice President
(4)
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction of Incorporation
- ---- -----------------------------
dELiA*s Operating Company Delaware
dELiA*s Distribution Company Delaware
dELiA*s Retail Company Delaware
dELiA*s Interactive Company Delaware
dELiA*s Japan Company Delaware
dELiA*s Delaware Company Delaware
dELiA*s Foreign Sales Corporation Barbados
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1997
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 8,888
<SECURITIES> 12,692
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 9,823
<CURRENT-ASSETS> 36,946
<PP&E> 4,551
<DEPRECIATION> (414)
<TOTAL-ASSETS> 56,756
<CURRENT-LIABILITIES> 12,517
<BONDS> 0
0
0
<COMMON> 130
<OTHER-SE> 43,975
<TOTAL-LIABILITY-AND-EQUITY> 56,756
<SALES> 50,881
<TOTAL-REVENUES> 50,881
<CGS> 24,872
<TOTAL-COSTS> 46,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,353
<INCOME-TAX> 1,925
<INCOME-CONTINUING> 3,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,428
<EPS-PRIMARY> 027
<EPS-DILUTED> 027
</TABLE>
