UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended October 2, 1999
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from to
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Commission File No. 0-26079
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David's Bridal, Inc.
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(Exact name of registrant as specified in its charter)
Florida 65-0214563
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(State or other jurisdiction of (I.R.S. Employer ID number)
incorporation or organization)
44 W. Lancaster Ave, Ardmore, Pennsylvania 19003
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(Address of principal executive offices) (Zip code)
610-896-2111
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(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 and 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 ( )
As of October 2, 1999 there were 19,366,166 shares of the registrant's Common
Stock outstanding.
<PAGE>2
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Index Page
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PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Condensed Consolidated
Financial Statements (Unaudited)
Consolidated Balance Sheets -
October 2, 1999 and January 2, 1999 3
Consolidated Statements of Operations-
Thirteen and Thirty-nine weeks ended
October 2, 1999 and October 3, 1998 4
Condensed Consolidated Statements of
Cash Flows - Thirty-nine weeks ended
October 2, 1999 and October 3, 1998 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 15
PART II - OTHER INFORMATION 16
- ----------------------------
SIGNATURE 17
<PAGE>3
Item 1.
<TABLE>
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(dollar amounts in thousands, except per share amounts)
<CAPTION>
October 2,1999 January 2, 1999*
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash ...................................................... $ 1,665 $ 320
Short-term investments..................................... 11,665 -
Accounts receivable........................................ 3,746 2,423
Merchandise inventories.................................... 40,058 37,799
Prepaid and other expenses................................. 2,560 2,323
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Total Current Assets.................................... 59,694 42,865
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Property and Equipment-at cost:
Land....................................................... 1,196 1,196
Building and improvements.................................. 15,737 13,433
Furniture, fixtures and equipment.......................... 14,982 10,791
Construction in progress................................... 3,549 2,062
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35,464 27,482
Less accumulated depreciation and amortization............. 9,472 6,832
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Total Property and Equipment............................ 25,992 20,650
Other........................................................ 1,619 2,043
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Total Assets.................................................. $ 87,305 $ 65,558
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank overdrafts............................................ $ 4,643 $ 4,033
Current portion of capitalized lease obligations........... 289 134
Current portion of long-term debt.......................... 139 147
Accounts payable........................................... 4,793 6,070
Accrued expenses........................................... 9,927 4,837
Income taxes payable....................................... 473 355
Deferred tax liabilities................................... 236 236
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Total Current Liabilities............................... 20,500 15,812
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Long-Term Debt, less current maturities...................... 2,158 19,366
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Deferred Rent................................................ 3,378 2,861
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Capitalized Lease Obligations, net of current portion........ 739 281
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Commitments and Contingencies
Stockholders' Equity:
Convertible Preferred Stock, liquidation value
$33,977 at January 2, 1999.............................. - 11
Common Stock:
Common Stock, par value $.01 per share:
Authorized 100,000,000 shares - Issued and
outstanding 19,366,166 at October 2, 1999................ 194 -
Class A, par value $.01 per share:
Authorized 16,250,000 shares - Issued and
outstanding 9,739,848 at January 2, 1999................. - 97
Class B, par value $.01 per share:
Authorized 1,500,000 shares - none issued or
outstanding.............................................. - -
Class C, par value $01 per share:
Authorized 3,750,000 shares - none issued or
outstanding.............................................. - -
Additional paid-in capital.................................. 40,789 18,282
Retained earnings........................................... 19,547 8,848
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Total Stockholders' Equity.............................. 60,530 27,238
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Total Liabilities and Stockholders' Equity.................... $87,305 $65,558
=========== ===========
See notes to condensed consolidated financial statements.
*Taken from the audited consolidated financial statements at January 2, 1999.
</TABLE>
<PAGE>4
<TABLE>
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollar amounts in thousands, except per share amounts)
UNAUDITED
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
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Oct. 2,1999 Oct. 3, 1998 Oct. 2, 1999 Oct. 3, 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales..................................... $43,249 $31,833 $143,610 $99,978
Other income.................................. 3,993 2,623 10,246 7,263
------------ ------------ ----------- ------------
Total revenues................................ 47,242 34,456 153,856 107,241
Cost of sales, including buying, distribution
and occupancy costs......................... 25,907 19,742 81,798 59,493
------------ ------------ ----------- ------------
Gross profit.................................. 21,335 14,714 72,058 47,748
Selling, general and administrative expenses.. 17,219 12,547 54,632 37,135
------------ ------------ ----------- ------------
Income from operations........................ 4,116 2,167 17,426 10,613
Interest (income) expense, net................ (56) 292 319 857
------------ ------------ ----------- ------------
Income before income taxes.................... 4,172 1,875 17,107 9,756
Provision for income taxes.................... 1,564 694 6,424 3,691
------------ ------------ ----------- ------------
Net income.................................... $ 2,608 $ 1,181 $ 10,683 $ 6,065
============ ============ =========== ============
Net income per share:
Basic......................................... $ 0.13 $ 0.12 $ 0.75 $ 0.62
Diluted....................................... $ 0.13 $ 0.06 $ 0.56 $ 0.33
Weighted shares outstanding:
Basic......................................... 19,366 9,740 14,294 9,755
Diluted....................................... 19,787 18,429 19,073 18,369
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>5
<TABLE>
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
UNAUDITED
<CAPTION>
Thirty-nine weeks ended
----------------------------------
October 2, 1999 October 3, 1998
--------------- ---------------
<S> <C> <C>
Net Cash Provided by Operating Activities............. $ 15,011 $ 10,396
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Cash Flows from Investing Activities:
Capital expenditures.................................. (7,512) (5,785)
Short-term investments................................ (11,648) -
Other, net............................................ 170 -
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Net Cash Used in Investing Activities................. (18,990) (5,785)
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Cash Flows from Financing Activities:
Net payments under revolving credit agreement......... (17,100) (2,800)
Net proceeds from issuance of common stock............ 21,454 -
Reduction of long-term debt........................... (319) (184)
Repayment of short-term debt.......................... - (460)
Proceeds from exercise of stock options............... 723 -
Increase in bank overdrafts........................... 610 97
Repurchase of common stock............................ - (651)
Payment of debt issue costs........................... (44) (22)
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Net Cash Provided by (Used in)Financing Activities.... 5,324 (4,020)
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Net Increase in Cash....................................... 1,345 591
Cash at Beginning of Year.................................. 320 464
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Cash at End of Period...................................... $ 1,665 $ 1,055
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>6
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1. Condensed Consolidated Financial Statements
The consolidated balance sheet as of October 2, 1999, the consolidated
statements of operations for the thirteen and thirty-nine week periods ended
October 2, 1999 and October 3, 1998 and the condensed consolidated statements of
cash flows for the thirty-nine week periods ended October 2, 1999 and October 3,
1998 have been prepared by the Company without audit. In the opinion of
management, all adjustments, consisting of normal and recurring adjustments,
necessary to present fairly the financial position, results of operations and
cash flows at October 2, 1999 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Registration Statement on Form S-1 as filed with the Securities and Exchange
Commission. The results of operations for the thirteen and thirty-nine week
periods ended October 2, 1999 are not necessarily indicative of the operating
results for the full year.
NOTE 2. Initial Public Offering
In June of 1999 the Company completed an initial public offering of its Common
stock at a price of $13 per share. All outstanding shares of Preferred stock
converted into 7,543,817 shares of Common stock. A total of 8,400,000 shares of
Common stock were sold during the offering which included 1,935,581 shares sold
by the Company, 6,317,499 shares sold by shareholders and 146,920 shares sold
which were issued immediately prior to completion of the offering in connection
with the exercise of stock options. The net proceeds to the Company were $21.5
million. At the time of the offering, the Company granted stock options to
purchase 762,530 shares of Common stock to employees at an exercise price of
$13.
NOTE 3. Short-term Investments
Pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"), the Company has
classified its entire portfolio of short-term investments as available for sale
as they are available to support current operations or to take advantage of
other investment opportunities. Securities available for sale are stated at
fair value with unrealized gains and losses included in stockholders' equity.
Dividend and interest income is recognized when earned and is recorded in
interest income. The amortized cost of debt securities is adjusted for
accretion of discounts to maturity. Such amortization is also included in
interest income. The Company currently invests only in high-quality, short-term
securities in accordance with its investment policy. As such, there were no
significant differences between amortized cost and estimated fair value at
October 2, 1999 or unrealized gains and losses have been minimal.
NOTE 4. Merchandise Inventories
Merchandise inventories are valued at the lower of cost (first-in, first-out)
or market. Costs associated with certain buying, receiving and distribution
activities are included in inventories.
<PAGE>7
NOTE 5. Net Income Per Share
<TABLE>
<CAPTION>
(in thousands, except per share data)
Thirteen weeks ended Thirty-nine weeks ended
-------------------------------- ----------------------------------
Oct. 2, 1999 Oct. 3, 1998 Oct. 2, 1999 Oct. 3, 1998
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
(a) Net Income................................... $2,608 $1,181 $10,683 $6,065
- -------------------------------------------------------------------------------------------------------------------
(b) Basic weighted average number of Common
shares outstanding during the period....... 19,366 9,740 14,294 9,755
(c) Weighted average Common shares assumed
issued upon conversion of preferred stock.. - 8,242 4,258 8,242
(d) Weighted average Common shares assumed
issued upon exercise of dilutive stock
options, net of assumed repurchase, at
the average market price................... 421 447 521 372
- -------------------------------------------------------------------------------------------------------------------
(e) Diluted weighted average number of
Common shares assumed outstanding during
the period................................. 19,787 18,429 19,073 18,369
- -------------------------------------------------------------------------------------------------------------------
Basic Income per Share (a/b)................. $ .13 $ .12 $ .75 $ .62
Diluted Income per Share (a/e)............... $ .13 $ .06 $ .56 $ .33
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 6. Commitments and Contingencies
The Company has entered into a lease agreement to expand their warehouse by
36,000 square feet increasing the total warehouse space to 90,000 square feet.
In addition, the Company has entered into an agreement to purchase larger
offices for a purchase price of $7,275,000. The Company anticipates funding the
purchase of their new offices through mortgage financing and cash from
operations.
From time to time the Company is named as a defendant in legal actions arising
from its normal business activities. Although the amount of any liability that
could arise with respect to currently pending actions of this nature cannot be
accurately predicted, in the opinion of the Company, any such liability will not
have a material adverse effect on the financial position or results of
operations of the Company.
<PAGE>8
Item 2.
<TABLE>
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere
in this report.
For example, our statements regarding our readiness for the year 2000, anticipated
expenditures for year 2000 readiness, effects of the year 2000, our continued growth plans,
estimated capital expenditures, anticipated expenditures and funding requirements, sources
of funding, adequacy of funding, anticipated new store openings and the payment of dividends.
In addition, when used in this report, the words "anticipate", "believe", "estimate" and similar
expressions are generally intended to identify forward-looking statements. For these statements
we claim the protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. There are important factors that could
cause actual results to differ materially from those expressed or implied by such forward-looking
statements, including:
- - changes in general economic and business conditions and those in the bridal
industry in particular
- - actions of competitors
- - our ability to recover our costs in the pricing of our products
- - the extent to which we are able to develop new products and expand our business
into new markets
- - our inability to effectively manage our growth
- - the level of demand for our product
- - changes in our business strategies
- - developments in international markets
- - our inability to obtain financing when required
<PAGE>9
Results of Operation -
The following table presents for the periods indicated certain items in the consolidated statements of operations
as a percentage of total revenues and the percentage change in dollar amounts of such items compared to the
indicated prior period.
<CAPTION>
Percentage of Total Revenues Percentage Change
- -------------------------------------------------------- ---------------------------------- -----------------
Thirteen weeks ended October 2, 1999 October 3, 1998 Fiscal 1999 vs.
(Fiscal 1999) (Fiscal 1998) Fiscal 1998
- -------------------------------------------------------- -------------- -------------- -----------------
<S> <C> <C> <C>
Net sales............................................... 91.5% 92.4% 35.9%
Other income............................................ 8.5 7.6 52.2
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Total Revenues.......................................... 100.0 100.0 37.1
Cost of sales, including buying, distribution
and occupancy costs................................... 54.8 57.3 31.2
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Gross Profit............................................ 45.2 42.7 45.0
Selling, General and Administrative Expenses............ 36.5 36.4 37.2
------ ------
Income from operations.................................. 8.7 6.3 90.0
Interest (Income) Expense, net ......................... (0.1) 0.9 (119.3)
------ ------
Income Before Income Taxes.............................. 8.8 5.4 122.6
Income Tax Provision.................................... 3.3 2.0 125.7
------ ------
Net Income ............................................ 5.5% 3.4% 120.8
====== ======
</TABLE>
<PAGE>10
Thirteen Weeks Ended October 2,1999 vs. Thirteen Weeks Ended October 3, 1998
- ----------------------------------------------------------------------------
TOTAL REVENUES. Total revenues for the thirteen weeks ended October 2,
1999 (third quarter of fiscal 1999) were $47.2 million, an increase of $12.8
million, or 37.1% from the thirteen weeks ended October 3, 1998 (third quarter
of fiscal 1998). We attribute the $12.8 million increase to a $4.8 million, or
14.1%, increase in comparable store sales, $5.0 million from stores opened in
fiscal 1999, $2.7 million from stores opened in fiscal 1998 but not qualifying
as comparable stores and an increase in third party promotional fees.
GROSS PROFIT. Gross profit for the third quarter of fiscal 1999 was $21.3
million (45.2% of total revenues) as compared with $14.7 million (42.7% of total
revenues) in the third quarter of fiscal 1998. We were able to achieve higher
gross profit as a percentage of total revenues due to an improvement in
merchandise margins coupled with a decrease in buying costs as a percentage of
total revenues partially offset by an increase in distribution costs. We were
able to achieve higher merchandise margins through our international and
domestic direct sourcing efforts, which have resulted in lower product costs.
Buying costs decreased as a percentage of total revenues due to the application
of fixed costs over a larger total revenue base. Distribution costs increased
as a percentage of total revenues due primarily to increased personnel costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $17.2 million (36.5% of total revenues) in the
third quarter of fiscal 1999 as compared with $12.5 million (36.4% of total
revenues) in the third quarter fiscal 1998. The significant components of
selling, general and administrative expenses include store personnel costs,
store selling expenses, back office support costs and advertising expenses.
The $4.7 million increase in selling, general and administrative expenses
reflects our continued investment in personnel and infrastructure as well as an
increase in variable store selling expenses to support the new store openings
and our continued future growth plans. The increase in selling, general and
administrative expenses as a percentage of total revenues was primarily due to
increases in media and store personnel expenses, partially offset by decreases
in back office costs and store selling expenses as a percentage of total
revenues.
INTEREST (INCOME) EXPENSE, net. Net interest income in the third quarter
of fiscal 1999 was $56,000 as compared to net interest expense of $292,000 in
the third quarter of fiscal 1998. The interest income was a result of our
investing activities of excess cash. Our interest expense decreased as compared
to last year due to lower debt levels as a result of financing more of our
growth with cash provided by operations and proceeds received from our initial
public offering.
TAXES. Our effective tax rate was 37.5% in third quarter of fiscal 1999,
compared to 37.0% in the third quarter of fiscal 1998.
NET INCOME. As a result of the factors described above, our net income in
the third quarter of fiscal 1999 was $2.6 million, an increase of 120.8%, or
$1.4 million, over our third quarter of fiscal 1998 net income of $1.2 million.
<PAGE>11
<TABLE>
DAVID'S BRIDAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operation -
The following table presents for the periods indicated certain items in the consolidated statements of operations
as a percentage of total revenues and the percentage change in dollar amounts of such items compared to the
indicated prior period.
<CAPTION>
Percentage of Total Revenues Percentage Change
- -------------------------------------------------------- ---------------------------------- -----------------
Thirty-nine weeks ended October 2, 1999 October 3, 1998 Fiscal 1999 vs.
(Fiscal 1999) (Fiscal 1998) Fiscal 1998
- -------------------------------------------------------- -------------- -------------- -----------------
<S> <C> <C> <C>
Net sales............................................... 93.3% 93.2% 43.6%
Other income............................................ 6.7 6.8 41.1
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Total Revenues.......................................... 100.0 100.0 43.5
Cost of sales, including buying, distribution
and occupancy costs................................... 53.2 55.5 37.5
------ ------
Gross Profit............................................ 46.8 44.5 50.9
Selling, General and Administrative Expenses............ 35.5 34.6 47.1
------ ------
Income from operations.................................. 11.3 9.9 64.2
Interest Expense, net .................................. 0.2 0.8 (62.8)
------ ------
Income Before Income Taxes.............................. 11.1 9.1 75.3
Income Tax Provision.................................... 4.2 3.4 74.1
------ ------
Net Income ............................................ 6.9% 5.7% 76.1
====== ======
</TABLE>
<PAGE>12
Thirty-nine Weeks Ended October 2, 1999 vs. Thirty-nine Weeks Ended October 3,
1998
- --------------------------------------------------------------------------------
TOTAL REVENUES. Total revenues for the thirty-nine weeks ended October 2,
1999 were $153.9 million, an increase of $46.6 million, or 43.5% from the
thirty-nine weeks ended October 3, 1998. We attribute the $46.6 million increase
to a $20.9 million, or 19.8%, increase in comparable store sales, $9.0 million
from stores opened in fiscal 1999, $16.2 million from stores opened in fiscal
1998 but not qualifying as comparable stores and an increase in third party
promotional fees.
GROSS PROFIT. Gross profit for the first thirty-nine weeks of fiscal 1999
was $72.1 million (46.8% of total revenues) as compared with $47.7 million
(44.5% of total revenues) in the first thirty-nine weeks of fiscal 1998. We
were able to achieve higher gross profit as a percentage of total revenues due
to an improvement in merchandise margins coupled with decreases in buying and
store occupancy partially offset by an increase in distribution costs. The
decreases in buying and store occupancy costs as a percentage of total revenues
were achieved by leveraging these fixed costs over a larger total revenue base.
We were able to achieved higher merchandise margins through our international
and domestic direct sourcing efforts, which have resulted in lower product
costs. Distribution costs increased as a percentage of total revenues due
primarily to increased personnel costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $54.6 million (35.5% of total revenues) in the
first thirty-nine weeks of fiscal 1999 as compared with $37.1 million (34.6% of
total revenues) in the first thirty-nine weeks of fiscal 1998. The significant
components of selling, general and administrative expenses include store
personnel costs, store selling expenses, back office support costs and
advertising expense. The increase in selling, general and administrative
expenses as a percentage of total revenues was due primarily to increases in
advertising expenses, store personnel and back office expenses, partially offset
by a decrease in store selling expenses as a percentage of total revenues.
Advertising expense increased as a percentage of total revenues due to
heightened levels of national and local advertising. Store personnel costs
increased as a percentage of total revenues due to higher store payroll expense
coupled with higher employee benefit costs. Back office support costs increased
as a percentage of total revenues primarily due to Year 2000 remediation costs
and consulting costs related to an income tax study. Store selling expenses
decreased as a percentage of total revenues due to decreases in our variable
costs as a percentage of total revenues.
INTEREST EXPENSE. Interest expense in the first thirty-nine weeks of
fiscal 1999 was $319,000 as compared to $857,000 in the first thirty-nine weeks
of fiscal 1998. The decrease was due to lower interest rates coupled with lower
debt levels as a result of financing more of our growth with cash provided by
operations and proceeds received from our initial public offering.
TAXES. Our effective tax rate was 37.6% in the first thirty-nine weeks of
fiscal 1999, compared to 37.8% in the first thirty-nine weeks of fiscal 1998.
NET INCOME. As a result of the factors described above, our net income in
the first thirty-nine weeks of fiscal 1999 was $10.7 million, an increase of
76.1%, or $4.6 million, over the first thirty-nine weeks of fiscal 1998 net
income of $6.1 million.
<PAGE>13
LIQUIDITY AND CAPITAL RESOURCES - October 2, 1999
- -------------------------------------------------
We require cash principally to finance capital investment in new stores,
new store inventory and seasonal working capital. We opened 15 stores in the
first thirty-nine weeks of fiscal 1999 and anticipate opening 7 additional
stores during the balance of Fiscal 1999. We currently estimate that our capital
expenditures will be approximately $11.0-$12.0 million in fiscal 1999 including
the $7.5 million incurred to date in fiscal 1999. Our capital expenditures will
be incurred to open new stores, remodel or expand existing stores and fund
capital investment activities. The $11.0-$12.0 million we anticipate spending
will be used for the following:
- - $6.0 million for new stores,
- - $3.5 million on improvements to existing stores
- - $825,000 for the introduction of a new warehouse management system
- - $1.2 million on various capital investment activities
We have entered into a lease agreement to expand our warehouse by 36,000
square feet increasing our warehouse space to 90,000 square feet. In addition,
we have entered into an agreement to purchase larger offices at a cost of
approximately $7,275,000. We anticipate funding the purchase of our new offices
through mortgage financing and cash from operations.
We believe that our cash flow from operations, proceeds from our initial
public offering and amounts available under our revolving credit agreement will
be sufficient to fund anticipated capital expenditures and working capital
requirements for at least the next 12 months. Our working capital was $39.2
million as of October 2, 1999 as compared to $23.1
million at October 3, 1998.
Our cash flows provided by operating activities was $15.0 million for the
first thirty-nine weeks of fiscal 1999 as compared to $10.4 million in the first
thirty-nine weeks of fiscal 1998. The increase was primarily due to higher net
income coupled with increases in accrued expenses partially offset by an
increase in inventory levels related to new store openings and comparable store
sales growth.
Our net cash used in investing activities in the first thirty-nine weeks
of fiscal 1999 was $19.0 million as compared to $5.8 million in the first
thirty-nine weeks of fiscal 1998. Our cash used in investing activities
primarily represents our capital expenditures in opening new stores and the
investing of proceeds received from our initial public offering.
Our net cash provided by financing activities in the first thirty-nine
weeks of fiscal 1999 was $5.3 million as compared to net cash used of $4.0
million in the first thirty-nine weeks of fiscal 1998. The $5.3 million of cash
provided by financing activities in the first thirty-nine weeks of fiscal 1999
was primarily from the net proceeds received from our initial public offering
partially offset by the repayment of the outstanding amounts under our revolving
credit agreement.
The Revolving Credit Agreement provides for borrowings up to $30.0
million, of which up to $25.0 million may be used for letters of credit. Cash
borrowings and letters of credit are secured by all of our assets. Our
borrowings under this agreement are restricted to a specified percentage of our
accounts receivable and inventory. Specifically we are not permitted to borrow
amounts that are greater than the sum of 80% of our eligible accounts receivable
and 60% of our eligible inventory. The revolving credit agreement provides some
exceptions to these limitations. These exceptions allow us to exceed these
limitations by $3.0 million from October 1, 1999 to March 31, 2000 and $2.0
million from October 1, 2000 to March 31, 2001. The interest rates that we are
charged under our revolving credit agreement are variable.
We can choose to have our interest rate based on:
- - The higher of the U.S. federal funds rate plus 0.5% and our bank's prime
rate, or
- - Adjusted LIBOR plus an applicable margin of between 1.25% and 1.75% depending
on our financial performance.
As of October 2, 1999, we had no cash borrowings, issued $3.2 million of
letters of credit and had $28.0 million available to borrow under our revolving
credit agreement. Our long-term debt including capitalized lease obligations,
as a percentage of our total capitalization, was 4.6% at the end of the first
thirty-nine weeks of fiscal 1999 as compared to 32.6% at the end of the first
thirty-nine weeks of fiscal 1998.
We currently intend to retain all future earnings to fund the development
and growth of our business. We do not currently anticipate paying any cash
dividends. Our board of directors will make future decisions regarding cash
dividends on our common stock. These decisions will depend on our results of
operations, financial position, capital requirements, general business
conditions and restrictions imposed by any financing arrangements. Our
revolving credit agreement currently prohibits the payment of dividends.
<PAGE>14
SEASONALITY
Our business is subject to seasonal variations and our revenues and income
historically have been higher from January through April and lower from October
through December. Our working capital requirements tend to fluctuate throughout
the year and increase during the months of November and December. This is
because we increase our inventory in these months to support sales, which tend
to be higher from January through April.
YEAR 2000 COMPLIANCE
The Year 2000 issue results from the writing of computer programs using
two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations. In this section we will describe our current
state of readiness for the Year 2000 issue and other information relating to the
Year 2000 issue.
Information Technology Systems - Our core information technology system is the
STS integrated retail system. The system supports our major business functions,
including merchandise planning, finance and accounting, and point-of-sale
systems. With STS we have completed an analysis of all modules included in this
retail system to insure that they are Year 2000 compliant. Year 2000
remediation has been completed for all STS modules.
Our other information technology systems are either internally developed
legacy systems or "off the shelf" applications. The most significant legacy
system is our new distribution system, which supports distribution center
operations and inventory transfers among stores. Our new warehouse system is
Year 2000 compliant and was implemented on October 18, 1999. Other legacy
systems support special order warehouse processing allocation and replenishment
systems. The assessment of the Year 2000 readiness of these systems and
remediation is complete. Our "off the shelf" applications have been inventoried
and assessed for compliance. In all instances the applications are compliant or
not critical to the daily operations or decision support processes. We do not
believe that non-compliance of "off the shelf"applications would materially
adversely affect our operations.
Non-Information Technology Systems- Non-information technology systems are
systems which contain embedded technology such as microcontrollers. Our non-
technology systems include security systems, fax machines, elevators and HVAC
systems. Our preliminary assessment of non-information technologies do not have
embedded date functions for the models utilized in our corporate and field
facilities and, therefore, are not subject to Year 2000 issues.
Material Third Party Relationships- We have made inquiries of our principal
suppliers and service providers to determine the affect on our business if these
third parties fail to remediate their own Year 2000 issues. These parties
include merchandise vendors, business service vendors, including our credit card
processor and telecommunications providers, and our joint venture partner, which
sources merchandise from Asia. All principal suppliers and service providers
have been contacted by us to assess compliance efforts and the risk to us
related to Year 2000 issues. These communications were completed either by
direct mail, electronic mail, or researching Year 2000 Internet sites. We have
received replies from approximately 98% of our merchandise vendors with each
either providing a statement of compliance or signing a statement of compliance
which we provided. These communications are retained in our Year 2000 archives
in order for us to monitor the progress these third parties are making to
remediate their Year 2000 issues. The assessment of the remaining 2% is in-
progress.
We entered into contracts with external contractors to provide business
solutions for some of our year 2000 efforts. The scope of the contracts
included network, server and desktop remediation at all corporate facilities and
the installation of a POS upgrade, provided by our POS software vendor STS, at
store level. In addition, the contractor completed an independent certification
of important vendors who have provided us with Year 2000 letters of compliance
to validate risk and cost estimates. All work related to these contracts has
been completed.
Through October 2, 1999, we have incurred approximately $325,000 in
remediation costs associated with Year 2000 issues. The significant components
of the total cost included $80,000 to upgrade our POS system, $85,000 to
remediate our network hardware, $75,000 for application software remediation and
$50,000 for Year 2000 testing of systems and software.
If our joint venture partner or a large number of our merchandise vendors
are not Year 2000 compliant, our ability to purchase merchandise and take
delivery of merchandise on a timely basis may be materially adversely affected.
If our business service vendors are not Year 2000 compliant, a variety of
functions essential to the operation of our business, such as
telecommunications, could be severely impaired. If our telecommunications and
credit card processing service providers are not Year 2000 compliant on a timely
basis, our operations could be materially adversely affected. If our
telecommunication providers are not compliant, we would be required to migrate
our service to a compliant vendor. If our credit card processor is not
compliant, we would be required to approve and settle credit requests manually.
This may require the imposition of credit limits in the absence of direct
approval by the credit card processor, a highly cumbersome process when applied
to individual sales.
<PAGE>15
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's operations are exposed to market risks primarily as a
result of changes in interest rates. The Company does not use
derivative financial instruments for speculative or trading
purposes.
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates
relates to its long-term debt obligations. The fixed rate of 8% on
the Company's long-term debt at October 2, 1999 approximates market
rates: thus, the fair value of the debt approximates its reported
value. Borrowings under the Company's Revolving Credit Agreement
are based on current market rates and are fixed for a period not
exceeding 6 months. Thus, the fair value of these borrowings
approximates its reported value. No borrowings were outstanding
under this agreement at October 2, 1999. In the past, the Company
has not entered into financial instruments such as interest rate
swaps or interest rate lock agreements. However, it may consider
these instruments to manage the impact of changes in interest rates
based on management's assessment of future interest rates,
volatility of the yield curve and the Company's ability to access
the capital markets in a timely manner.
<PAGE>16
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On October 22, 1999, Kathy L. Kennedy, our Senior Vice President,
Sales, resigned to pursue other career opportunities. We have used
existing employees to perform those tasks previously performed by
Ms. Kennedy and do not anticipate her departure will have any
material adverse effect.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
<PAGE>17
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.
DAVID'S BRIDAL, INC.
--------------------
(Registrant)
Date: November 15, 1999 By: /s/ Edward S. Wozniak
---------------------- --------------------------
Edward S. Wozniak
Senior Vice President Finance,
& Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF OCTOBER 2, 1999 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THIRTY-NINE WEEK PERIOD ENDED OCTOBER
2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER>1000
<S> <C>
<PERIOD-START> JAN-03-1999
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 1,665
<SECURITIES> 11,665
<RECEIVABLES> 3,746
<ALLOWANCES> 0
<INVENTORY> 40,058
<CURRENT-ASSETS> 59,694
<PP&E> 35,464
<DEPRECIATION> 9,472
<TOTAL-ASSETS> 87,305
<CURRENT-LIABILITIES> 20,500
<BONDS> 2,897
0
0
<COMMON> 194
<OTHER-SE> 60,336
<TOTAL-LIABILITY-AND-EQUITY> 87,305
<SALES> 152,309
<TOTAL-REVENUES> 153,856
<CGS> 81,798
<TOTAL-COSTS> 81,798
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 319
<INCOME-PRETAX> 17,107
<INCOME-TAX> 6,424
<INCOME-CONTINUING> 10,683
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,683
<EPS-BASIC> .75
<EPS-DILUTED> .56
</TABLE>
