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Filed by iTurf Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject company: dELiA*s Inc.
Commission File No. for related registration statement: 333-44916
The following is a transcript of a conference call with investors, analysts and
the public hosted by iTurf Inc. on September 8, 2000 and made available to the
public for replay on September 11, 2000.
SPOKESPERSON:
iTurf has filed a proxy/registration statement and other documents with the
United States Securities and Exchange Commission relating to the proposed merger
between iTurf and dELiA*s. The proxy/registration statement will be mailed to
shareholders after the SEC has declared the registration statement effective.
Shareholders are urged to read the proxy/registration statement and other
documents carefully because they will contain important information about the
merger. These documents are available for free from the SEC's web site
(www.sec.gov) and from dELiA*s and iTurf by contacting Morrow & Co., Inc., 445
Park Avenue, New York, NY 10022.
iTurf, its executive officers and its board of directors will be soliciting
proxies from iTurf stockholders to vote in favor of the merger. iTurf's
executive officers and board of directors include Stephen Kahn, Christopher
Edgar, Evan Guillemin, Dennis Goldstein, Thomas Evans, Bruce Nelson, Timothy
Nye, Douglas Platt and Beth Vanderslice. For information about these directors
and executive officers, stockholders should refer to the proxy/registration
statement filed by iTurf on August 31, 2000, which is available for free from
the SEC's web site (www.sec.gov).
Operator: Good morning, ladies and gentlemen, and welcome to the
iTurf, Incorporated second quarter earnings conference
call, hosted by Morgen Walke Associates. At this time, all
participants are in a listen only mode. Later, we will
conduct a question-and-answer session, and instructions
will follow at that time. If anyone should require
assistance during the call, please press the star followed
by the zero on your touch tone phone. As a reminder,
ladies and gentlemen, this conference is being recorded
Friday, September 8th, 2000, and it may not be reproduced
in whole or in part without written permission from the
company.
I would now like to introduce Ms. Bernadette Garfinkle of
Morgen Walke Associates. Please go ahead, ma'am.
Bernadette Garfinkle: Thank you. Good morning, everyone, and thank you for
joining us today. Before we begin, I would like to note
that this conference call contains certain forward-looking
statements with respect to the future performance of iTurf
that involve risks and uncertainties. Various factors
could cause the actual results of the company to be
materially different from any
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future results expressed or implied by such
forward-looking statements. These factors are discussed in
the company's filings, including iTurf's most recent
registration statement on form S-4, filed with the
Securities and Exchange Commission.
I would now like to turn the call over to Stephen Kahn,
President and Chief Executive Officer of iTurf.
Stephen Kahn: Good morning, and welcome to iTurf's second quarter review
conference call. I'd like to welcome everyone present
joining us on the call, including those listening over the
Webcast. We're pleased to announce that iTurf had another
solid quarter, once again exceeding analysts' estimates.
During the quarter, we continued to build upon our
leadership position as the dominant proprietary online
network for teens, generating significant growth in nearly
operating metric on a year-over-year basis. As you're all
aware, we announced our intention last month to recombine
iTurf and Delia's, creating what we believe will be a
multi-channel powerhouse in the teen space, with leading
online and off line assets.
Dennis Goldstein, iTurf's Chief Financial Officer, who
will be assuming the title President of iTurf, will
provide details about iTurf's second quarter results, but
first I'd like to review some of the highlights that
reflect the progress we're making on the online front.
First, net revenues increased 160 percent to $7.7 million
in the quarter, and a net loss per share of 40 cents
before amortization of the intangible assets and a
non-cash compensation charge. Those numbers were
significantly ahead of consensus analyst numbers by 9
cents.
The network continues to enjoy exceptionally strong
traffic. According to Nielsen net ratings, iTurf generated
2.9 million unique visitors-- 2.9 million unique visitors
in the month of July, which translates into a reach of 3.3
percent. Days used in July were approximately 179 million
and user registrations across the network currently total
more than 9 and a half million.
During the second quarter, iTurf's non-commerce revenues
grew to nearly $1.3 million, up 25 percent over the first
quarter. This represents significant progress in
advertising sales, and we believe that we've barely
scratched the surface here. As you know, the iTurf
communities are amongst the best positioned online media
properties focused on the teen space in terms of reach,
membership and unique content.
The merger is designed to allow us to focus on monetizing
these community properties by more aggressively driving ad
sales traffic and membership. Amongst other benefits, the
merger will provide enhanced access to Delia's land-based
assets, enabling us to offer fully integrated off line and
online packages to advertisers, a significant competitive
advantage in the teen space.
We're also excited about our continued success on the
commerce side of the business. Sales at delias.com in the
second quarter were up nearly 200 president
year-over-year, testament to both the strength of this
brand and the loyalty of our customers. We believe that
following the merger our ability to manage delias.com, the
Delia's catalog and the Delia's retail stores under one
corporate structure will truly maximize the power of the
Delia's brand.
The planned reintegration of delias.com with the other
Delia's channels not only creates a clicks and bricks
opportunity that no one else in this teen space can offer,
it also creates a much richer brand experience for the
Delia's customer.
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Traffic on the network continues to be driven by several
initiatives on a community site, including the relaunch of
sparknotes.com, which entered-- which entered the new
school year with a vastly expanded educational resource
site. gURL.com is also planning an exciting relaunch
scheduled for this fall, and continues to effectively
leverage its content into off line channels. Successful
strategies at thespark.com are ongoing, and we're seeing
robust activity on iturf.com, which continues to cement
its status as a leading community site for teen
interaction.
We're pleased with iTurf's second quarter results, and
with the significant progress we have made, and we're
looking forward to building upon this success through
iTurf's planned merger with Delia's. Although we won't
begin to report results as a combined entity until the
fourth quarter of this year, we know that the combined
entity's core businesses are on track to generate positive
operating cash flow in the fourth quarter of this year,
and we continue to anticipate they'll generate positive
EBITDA on an ongoing basis starting in the second half of
2001.
With that, I'd like to now turn the call over to Dennis to
run through the numbers in more detail.
Dennis Goldstein: Thanks, Steve. From a financial perspective, the second
quarter reflected ongoing solid performance as our
commerce businesses continued to mature, and our
advertising-based media business continued to develop.
Relative to a year ago, we continue to show dramatic
improvements along virtually every operating metric.
In addition, on August 16th, we announced our plan to
recombine our Internet assets with the off line of
Delia's, which we believe will create the preeminent
clicks and mortar multi-channel retailer in the country
and enable us to more aggressively focus on building our
communities and advertising revenues. We expect this
transaction to close in the fourth quarter, which-- which
Steve mentioned, and will be our first quarter reporting
as a combined entity.
For the quarter ended July 29th, our net revenue grew 160
percent to $7.7 million from $3 million a year ago.
Commerce revenues were strong in the second quarter,
reaching $6.4 million from $2.6 million a year ago.
Non-commerce revenues also continued to ramp, reaching
$1.3 million, up more than 250 percent year-over-year, and
25 percent on a sequential basis.
From a commerce perspective, delias.com remains our most
important driver of revenues, representing 64 percent of
total revenues, and 76 percent of commerce sales. The
second quarter is a seasonally difficult one, benefiting
from the tail end of the Spring season and the beginning
of back-to-school. Nonetheless, we achieved a nearly 150
percent increase in commerce revenues over the last year.
Also during the quarter, our cumulative online customer
count increased 18 percent to 458,000. For perspective,
our online customer count stood at 90,000 at the end of
the second quarter last year.
Revenues from our other commerce properties, including
tsisoccer.com, StorybookHeirlooms.com and droog.com
doubled over last year levels, and represented 18 percent
of Q-2 net revenue. As we discussed on our last call,
while these properties represent terrific brands and
exciting opportunities, both online and off, we will be
seeking new strategic partners for these assets to enable
management to focus on-- its attention on its two core
businesses. These asset sales are expected to be completed
by the end of the year.
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Non-commerce revenues, which include advertising and
subscription fees, reached $1.3 million in Q-2,
representing a 25 percent increase over Q-1. While in line
with expectations, increasing our growth trajectory here
is a major focus of management time and attention going
forward. Toward this end, we remain committed to building
our internal sales force and creative execution
capabilities to realize this potential.
We continue to believe that our network represents the
single best place on the Web for advertisers to reach
teens. Our commitment to editorial content enables us to
offer advertisers integrated content sponsorships and our
recognition of the inherent diversity of the teen
demographic means we can provide advertisers with the
ability to reach our users through multiple sites and
editorial approaches.
And finally, our critical mass of traffic is well ahead of
our most significant competitors. Last Friday it was a
significant day for iTurf on a number of fronts. On the
content side, we launched our greatly expanded
sparknotes.com site, which I believe is the best academic
resource on the Web today. As promised, the site now
covers a full range of academic subjects, moving beyond
its core-- original core of literature to include math,
physics, biology, economics and a host of other topics
with a collection of study guides well in excess of our
launch goal of 500.
This site truly represents what differentiates our
company. It offers intelligent, relevant and
differentiated content, it utilizes the unique attributes
of the Web to improve upon traditional media, and it
addresses a specific need of our target demographic.
Also on Friday, we launched two significant sponsorships
on the network for Proctor and Gamble. On iturf.com, we
launched the Pantene Take Five Spa, which will live on the
iTurf network during the academic year, and include the
number of traffic-driving programs on gURL, SparkNotes,
TheSpark and delias.com.
The Spa is our first client mini-site, featuring articles,
quizzes, product reviews, exercise techniques and other
lifestyle pieces that support the brand's positioning to
teens.
In addition, also for P&G, we launched the Zest Energy
Rush sweepstakes on gURL.com, which was designed in the
"gURL Style", utilizing flash technology to introduce
Zest's new Energy Rush Bodywash. We look forward to
selling more integrated advertising packages such as
these, and believe they will be instrumental in building
iTurf's ad sales business.
Gross profit was $3.8 million, or 49.4 percent of revenues
in the second quarter, compared to $1.3 million or 44.1
percent of revenues last year. Improvement in gross
margins of 528 basis points year-over-year, is a result of
both better margin realization on premium commerce
revenues, as well as an increase in high margin
advertising revenues as a percentage of the total.
SG&A, including the amortization of intangibles and
non-cash compensation charges, was $14.8, or 193 percent
of revenues in the second quarter, compared to $4.1
million or 137 percent of revenues a year ago. Sales and
marketing expenses totaled $7.9 million, down from $9.1
million last quarter. Operating and development expenses
totaled $3.3 million in the second quarter, well below
expectations, and general and administrative expenses
totaled $1.2 million, in line with expectations.
We ended the quarter with a full time head count of 123
and our current hiring efforts are focused, in particular,
in the areas of sales and sales support. Finally, good
will from acquisitions and non-cash compensation totaled
$2.4 million.
For the quarter, we reported a net loss, before these
non-cash charges, of $8 million or 40 cents per share,
compared with a net loss of $1.7 million or 10 cents a
share last year.
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Significantly, these results beat first call consensus
estimates by 9 cents. We had average shares outstanding of
20 million versus 17.3 million in Q-2 1999.
Looking forward, we're off to a good start in the third
quarter. We remain confident that our business is ramping
according to expectations. As we will be reporting as a
stand-alone entity in the third quarter, we do not
anticipate any significant changes in guidance for the
third quarter on an operating basis. However, we may take
a non-cash charge to earnings in Q-3, prior to the closing
of the transaction.
Looking at Q-4 and beyond, we continue to expect the
combined company will achieve cash break-even on our core
operations in the fourth quarter of this year, and on an
ongoing basis starting in the second half of fiscal 2001.
From a cash perspective, we remain on solid footing. At
quarter-end we had cash and investments of $38 million. We
continue to believe that our cash resources will be
sufficient to enable us to build our business, and with
the anticipated proceeds from asset dispositions, be
adequate to support our business through break-even in the
second half of 2001.
Thank you for listening. At this time, I'd like to open
the call to questions.
Operator: Thank you, sir. Ladies and gentlemen, we will now begin
the question-and-answer session. If you have a question,
you will need to press the one followed by the four on
your telephone. You will hear a three-tone prompt
acknowledging your request. If your question has been
answered and you would like to withdraw your polling
request, you may do so by pressing the one followed by the
three. If you are on a speaker phone, please pick up your
handset before entering your request. One moment, please,
for the first question.
Jeff Klinefelter with US Bancorp Piper Jaffray, please go
ahead.
Jeff Klinefelter: Yes, I have a couple of questions. First of all, a very
nice quarter. It looks like a strong-- strong trends at
commerce and sponsorship. I have questions on both of
those fronts. First of all, on sponsorship revenue, can
you give us an idea of where you see this ramping based on
the $1.3 million this quarter, with respect to the
SparkNotes relaunch? Are you seeing more of an interest
there from, maybe a different set of sponsors than you saw
before? Can you give us a sense of where you see that
trending, in addition to maybe some other retailers who
may want to advertise on your Web sites?
And then also, on the commerce front, can you give us an
idea, particularly on delias.com, what categories are
driving sales there? What happens to-- what are the most
popular items this fall? And where do you see growth
heading there?
D. Goldstein: Sure. Jeff, on the sponsorship side, obviously we are
incredibly excited about sparknotes.com, and I think, in
terms of the kind of people who are interested, I think
it's kind of emblematic of the general broader network,
which is the fact that we have kind of editorial control
over the vast majority of the site. We are finding a
number of advertisers who are kind of uncomfortable with
some of the aspects of community, that we have more and
more and more content areas that they're incredibly
comfortable and eager to advertise in.
You know, if you look at some of the other people who are
competing in the community space, a lot of the traffic
that is being attempted to be monetized currently is
traffic that is up against chat and other kind of
uncontrolled editorial environments. I think, you know,
SparkNotes is the best example, probably, on our sites,
where virtually all of the content is created and edited
by our people and therefore are ideal forums for sponsors.
You know, when we look at the best opportunities for the
company, it's actually in a multi-site way. I think the
Pantene Take Five Spa is a good example. We built that
site as a mini-
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site on iturf.com, which is probably the site that has the
broadest demographic appeal. But it is with traffic being
driven to it from five other sites that represent niches
from a demographic point of view, and have kind of hooks
that drive people to the site, that are different by site.
If we could walk you through it to show you, the thing
we're most excited about is that we can offer a broader
package across mini-sites in an editorially controlled way
that make some of the more conservative off line
advertisers, particularly comfortable.
S. Kahn: Jeff, just talking to some of the apparel trends that
we've been seeing on the delias.com side, I think it's
important to, in general, talk about the strength that
we've seen in the private label business across the board.
We continue to see that, obviously, on the direct side of
the business, in both the catalog and in the e-commerce
side. And we're talking the basics, which is, strength in
items like the wide-strap tank, long-sleeved tees.
One of the interesting things, because it talks to the
strength of our private label program, is the enormous
success that we've experienced in the denim category in
the stores. And I think you're going to probably hear a
lot more about that program on the Delia's conference call
at 11:00.
By the same token, we've also seen strength in the
traditional types of novelty items that have always been a
part of our selection. You are going to hear a lot more
about the production improvements that we've begun to see
on the sourcing side that have actually gone into the
margin expansion. That will be discussed, again, in a
couple of hours, but we are very, very pleased with our
private label programs.
J. Klinefelter: OK, just a couple of quick follow-ups and I'll get off.
One is on the cash position, could you share with us where
you see the year ending this year, and kind of what you
anticipate your burn rate is going forward next year? And
then also, on kind of a higher level, we're hearing a lot
about online companies and online properties trying to
leverage and come up with additional monetization
opportunities off line, such as going out to maybe
department store companies or other chains and helping
them set up a teen presence and maybe doing sort of a
co-branded off line teen presence using your online
properties. Wondering if there are any thoughts on that
front?
D. Goldstein: Sure. As far as cash burn is concerned, from a cash burn
perspective, our cash burn in last quarter was about $8
million in cash. We see that number declining as we head
into the latter half of the year, dropping probably to
about $7 million in Q-3 and dropping to about $4 million
in Q-4. It's driven by two things: One is obviously the
underlying growth on the revenue side as well as the
seasonal nature of our revenues in the back half of the
year. And then secondly, as we've discussed, in previous
call, a number of our multi-year marketing deals are
starting to wind down, and as a result, you're going to
see our sales and marketing expenses as a percent of total
going down over time.
I think what we're projecting at the moment is to have
cash balance at the end of the year as a combined entity
in the $30 million range. That obviously takes into
account some anticipated proceeds from the sale of
non-core assets. But that number's significant because
it's $30 million with no debt and a credit facility of $25
million in place.
So we believe, looking forward, that we are well
positioned to fund our operations on a combined basis,
into the back half of next year, which, again, as Steve
mentioned, is when we anticipate being profitable, on a
forward going basis.
As far as leveraging the online and the off line
opportunities, obviously one of the driving motivations of
this transaction from our perspective is our ability to
offer both online and off line integrated solutions to
advertisers, and, I think the balance of the dELiA*s brand
is incredibly powerful for us as we go to talk to
advertisers, because it's a brand that has broad
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acknowledgement among many consumer goods companies that
it is a brand that understands teens and has a franchise
that has permission to market to teens.
We're very excited about expanding those relationships.
We've obviously done some of that historically, linking,
separate companies, our online sponsorships with package
insert programs, on the dELiA*s side. Again, as a combined
entity, we plan to take that to an altogether new level.
You know, specifically, linking up with department stores,
I can't speak to anything specifically there. Obviously,
it makes sense, but we have no particular project that
kind of maps out what you've described.
J. Klinefelter: OK, great. Thanks a lot. Great quarter.
D. Goldstein: Thanks.
Operator: Ladies and gentlemen, if there are any additional
questions, please press the one followed by the four at
this time. Dorothy Lakner with CIBC World Markets, please
go ahead.
Dorothy Lakner: Yes, thanks and good morning, and congratulations. Great
quarter. Could you talk a little bit more about the
gURL.com relaunch, when you might expect that to take
place and what we might expect to see on the new site?
D. Goldstein: OK. Yeah, gURL.com is in the midst of its redesign. From a
design perspective, it's completed. From a development
point of view, it's in process. That's anticipated in the
October time frame, during the month of October.
The site has a really grassroots eclectic appeal, and from
a design perspective, it works really well in attracting
and retaining teen girl users. One of the things that we
are anxious to do in the redesign is actually to basically
reevaluate and actually recreate the navigation, the way
users find their way through the site. Because what we
have found while the grassroots appeal of the site is kind
of ideal in terms of getting people interested in the
site, it is not really the easiest site to kind of
navigate your way around.
So what the redesign has done is retained all those kind
of grassroots elements, but at the same time, organized
the site into five channels and in a much more logical way
so that, at least in my opinion, a new user coming to the
site has a much easier time getting deeply involved in the
site than, say, the pioneers who joined the site
originally.
The second, and I think the most important thing is that
the site is being designed with, you know, advertising and
content sponsorship in mind. The site, as you know, was
the product of a graduate school project. It wasn't
created, initially, as a commercial enterprise. Despite
that, we've done an enormous amount of advertising on the
site over the last two years, but the site was not
designed with that in mind. The new design has kind of
taken that as a desired premise, and therefore it makes it
much easier for us to create content sponsorships of
impact.
D. Lakner: OK, great. And then the second question was on gross
margin. You had a nice improvement in gross margin in the
second quarter. Can we anticipate similar improvements in
the third quarter and beyond?
D. Goldstein: Yes. Our expectation is that gross margin will continue to
expand. And that's driven by basically the same underlying
factors that drove it this quarter. And there are two. One
is the margin improvement on the premium side, driven
largely by the expansion of private label programs. But
also, in the back half we have a higher balance of premium
sales to liquidation sales items, which we had in the
second quarter.
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The second thing is, as we expand the advertising
revenues, clearly those have very high margins. The
expectation is that they will continue to contribute to
margin expansion going forward. So looking to the back
half, yes, we do see margin improvements to continue in
the same fashion.
D. Lakner: OK, and just one more question, Dennis. You talked about
the head count and your focus now is on sales. Can you
speak a little bit to that? Are you looking to add people?
D. Goldstein: Yeah. We're looking to add people in two areas. One is in
sales and in direct sales, and the other is in sales
support, which is kind of the creative and execution
resources necessary to do the more interesting content
sponsorships that we're currently being asked to do. And
since the things that we are pitching currently are not
banner ads, they are client mini-sites and things that are
integrated with the content on the sites, there is a not
insubstantial kind of requirement on our side to provide
creative services. So we're expanding in both areas, and
I'm hopeful that in the near term I can share some more
information on the specifics of the people we're bringing
in. But the expectation is over the next several quarters
we will be expanding in both of those areas.
D. Lakner: Thanks, Dennis.
D. Goldstein: No problem.
Operator: Once again, ladies and gentlemen, if you have a question,
please press the one followed by the four at this time.
Once again, if there are any additional questions, please
press the one followed by the four at this time. I show no
further questions. Please continue with your presentation
or any closing remarks.
S. Kahn: Thanks. I'd like to thank everyone for joining us on the
iTurf conference call, as well as your continued interest
and support. I'm happy to have had the opportunity to
share another great quarter with you, and look forward to
future calls when we'll begin to report dELiA*s and iTurf
results as a combined entity. Thanks again. I look forward
to speaking with you all soon.
Operator: Ladies and gentlemen, that does conclude your conference
call for today. You may all disconnect, and thank you for
participating.
FORWARD-LOOKING STATEMENT DISCLAIMER:
Forward-looking statements in this conference recording, including but not
limited to those related to consummation of the proposed merger of iTurf and
dELiA*s, expectations relating to future financial performance, synergies
resulting from the proposed merger, the divestiture of non-core assets and the
expansion and growth of each company's businesses are made pursuant to the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward- looking statements generally relate to future results or events. The
terms "believes," "expects," "intends," "anticipates" or "plans" and similar
expressions are intended to identify some of the forward-looking statements
contained in this press release. Forward-looking statements involve a number of
risks, uncertainties and other factors beyond iTurf's and dELiA*s control, which
may cause material differences in actual results, performance or other
expectations. These factors include, but are not limited to, the condition of
the financial markets generally; the risk that dELiA*s and iTurf's businesses
will not be integrated successfully after the proposed merger; costs related to
the merger; the risk that dELiA*s or iTurf stockholders will fail to approve the
merger or that litigation will delay or prevent the transaction's consummation;
the ability of dELiA*s and iTurf to divest non-core assets on satisfactory terms
or at all; access to financing to fund operations and the expansion strategies
of each business; increases in the cost of materials, printing, paper, postage,
shipping and labor; timing and quantity of catalog and electronic mailings;
response rates; each company's ability to leverage investments
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made in infrastructure to support expansion; acceptance of new retail concepts;
availability of acceptable store sites and lease terms; ability to open new
stores; possibility of increasing comparable store sales; adverse weather
conditions and other factors affecting retail stores generally; levels of
competition; iTurf's ability to sell advertising; changes in the growth rate of
Internet usage and online user traffic levels; levels of demand for Internet
advertising; the ability to retain key personnel; the ability of computer
systems to scale with growth in online traffic; difficulties in integrating
acquisitions of new businesses and technology; general economic conditions and
other factors affecting retail sales; dELiA*s ability to anticipate and respond
to fashion trends; each company's dependence on third parties; and other factors
detailed elsewhere in this press release, in iTurf's most recent registration
statement on Form S- 4 and in iTurf's and dELiA*s most recent annual reports on
Form 10-K and quarterly reports on Form 10-Q filed with the Securities and
Exchange Commission.
