<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 1995
---------------------------------------------
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 Number 0-12188
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DEB SHOPS, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1913593
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9401 Blue Grass Road, Philadelphia, Pennsylvania 19114
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(Address of principal executive offices) (Zip Code)
(215) 676-6000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name and address and former fiscal year, if changed since last report)
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 l934 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
----------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, Par Value $.01 12,844,680
---------------------------- -----------------------------------
(Class) (Outstanding at July 31, 1995)
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
I N D E X
---------
Page
----
PART I. Financial Information:
Consolidated Balance Sheets - 1
July 31, 1995 and January 31, 1995
Consolidated Statements of Operations 2
Six Months and Three Months Ended
July 31, 1995 and July 31, 1994
Consolidated Statements of Cash Flows - 3
Six Months Ended July 31, 1995 and July 31, 1994
Notes to Consolidated Financial Statements - 4
July 31, 1995
Management's Discussion and Analysis of Results of
Operations and Financial Condition 5-7
PART II. Other Information 8
<PAGE>
DEB SHOPS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1995 1995
---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 45,786,810 $ 50,610,195
Merchandise inventories 31,664,412 28,576,374
Prepaid expenses and other 5,355,497 3,920,716
Current deferred income taxes 1,196,129 1,196,129
------------ ------------
Total Current Assets 84,002,848 84,303,414
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost
Building and improvements 1,982,000 1,982,000
Leasehold improvements 31,144,261 31,198,281
Furniture and equipment 16,236,994 16,647,563
------------ ------------
49,363,255 49,827,844
Less accumulated depreciation
and amortization 30,728,134 29,762,281
------------ ------------
18,635,121 20,065,563
------------ ------------
OTHER ASSETS
Long term deferred income taxes 665,211 665,211
Other 1,167,514 1,167,514
------------ ------------
Total Other Assets 1,832,725 1,832,725
------------ ------------
$104,470,694 $106,201,702
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 15,447,043 $ 11,663,983
Accrued expenses 4,904,921 5,114,260
Income taxes -- --
------------ ------------
Total Current Liabilities 20,351,964 16,778,243
------------ ------------
Capital Lease Obligation 2,040,408 2,040,408
------------ ------------
COMMITMENTS
SHAREHOLDERS' EQUITY
Series A Preferred Stock, par value $1.00 a share:
Authorized - 5,000,000 shares
Issued and outstanding - 460 shares,
liquidation value $460,000 460 460
Common Stock, par value $.01 a share:
Authorized - 25,000,000 shares
Issued Shares - Apr 30, 1995: 15,688,290;
January 31, 1995: 15,688,290 156,883 156,883
Additional paid in capital 5,541,944 5,541,944
Retained earnings 93,955,458 99,218,862
------------ ------------
99,654,745 104,918,149
Less common treasury shares, at cost -
July 31, 1995: 2,843,610; 17,576,423 17,535,098
------------ ------------
January 31, 1995: 2,835,345 82,078,322 87,383,051
------------ ------------
$104,470,694 $106,201,702
============ ============
</TABLE>
The notes to consolidated financial statements are an integral part of these
financial statements.
-1-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31, Three Months Ended July 31,
-------------------------------- ---------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 81,418,237 $ 90,609,560 $ 42,316,779 $ 47,293,927
Other Income, principally
interest 1,270,146 470,528 681,280 146,335
------------ ------------ ------------ ------------
82,688,383 91,080,088 42,998,059 47,440,262
------------ ------------ ------------ ------------
Costs and Expenses
Cost of sales, including
buying and occupancy costs 67,382,607 71,906,896 34,612,112 36,806,860
Selling and administrative 19,253,879 21,060,137 9,857,527 11,105,744
Depreciation and amortization 1,995,432 2,034,731 1,013,628 1,034,952
------------ ------------ ------------ ------------
88,631,918 95,001,764 45,483,267 48,947,556
------------ ------------ ------------ ------------
(Loss) Before Income Taxes ( 5,943,535) ( 3,921,676) ( 2,485,208) ( 1,507,294)
Income taxes (benefit) ( 1,992,000) ( 1,313,800) ( 833,000) ( 504,800)
------------ ------------ ------------ ------------
Net (Loss) ($ 3,951,535) ($ 2,607,876) ($ 1,652,208) ($ 1,002,494)
============ ============ ============ ============
Net (Loss) Per Common Share ($ 0.31) ($ 0.19) ($ 0.13) ($ 0.08)
============ ============ ============ ============
Cash Dividend Declared
Per Common Share $ 0.10 $ 0.10 $ 0.05 $ 0.05
============ ============ ============ ============
Weighted Average Number of
Common Shares Outstanding 12,845,861 13,624,199 12,844,680 12,837,945
============ ============ ============ ============
</TABLE>
The notes to consolidated financial statements are an integral part of these
financial statements.
-2-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
--------------------------------
1995 1994
---- ----
<S> <C> <C>
(Decrease) in Cash and Cash Equivalents
Cash flows (used in) operating activities:
Net (Loss) ($ 3,951,535) ($ 2,607,876)
Adjustments to reconcile net (Loss) to net
cash used in operating activities:
Depreciation and amortization 1,995,432 2,034,731
Vesting of restricted incentive stock ( 41,325) ( 53,040)
Loss on retirement of property and equipment 151,697 302,089
Change in assets and liabilities:
(Increase) in merchandise inventories ( 3,088,038) (14,608,750)
(Increase) in prepaid expenses and other ( 1,434,781) ( 565,501)
Increase in trade accounts payable 3,783,259 5,954,240
(Decrease) increase in accrued expenses ( 209,339) 327,769
(Decrease) in income taxes -- ( 2,834,878)
------------ ------------
Net cash used in operating activities ( 2,794,630) ( 12,051,216)
------------ ------------
Cash flows (used in) investing activities:
Purchase of property, plant and equipment ( 716,687) ( 1,446,664)
------------ ------------
Net cash used in investing activities ( 716,687) ( 1,446,664)
------------ ------------
Cash flows (used in) financing activities:
Preferred stock cash dividends paid ( 27,600) ( 27,600)
Common stock cash dividends paid ( 1,284,468) ( 1,284,295)
Purchase of treasury stock (NOTE D) -- ( 16,708,890)
------------ ------------
Net cash used in financing activities ( 1,312,068) ( 18,020,785)
------------ ------------
(Decrease) in cash and cash equivalents ( 4,823,385) ( 31,518,665)
Cash and cash equivalents at beginning of period 50,610,195 71,614,201
------------ ------------
Cash and cash equivalents at end of period $ 45,786,810 $ 40,095,536
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on capital lease obligation $ 212,000 $ 222,000
Income taxes 86,617 2,353,456
</TABLE>
The notes to consolidated financial statements are an integral part of these
financial statements.
-3-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 31, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended July 31, 1995 are not
necessarily indicative of the results that may be expected for the fiscal year
ending January 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1995. The Balance
Sheet at January 31, 1995 has been derived from the audited financial statements
at that date.
NOTE B - INCOME TAXES
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that are expected to be in effect when
the differences reverse. Deferred income taxes result principally from
differences in timing of recognition of overhead in inventory, deductibility of
certain liabilities and depreciation expense. The tax benefit for the six months
ended July 31, 1995, is included in prepaid expenses and other on the
accompanying consolidated balance sheet.
NOTE C - RESTRICTED STOCK INCENTIVE PLAN
Effective June 1, 1990, the Company adopted a Restricted Stock Incentive Plan
("RSIP"), administered by the Company's Stock Option Committee. Under the RSIP,
a maximum of 300,000 shares of the Company's Common Stock may be awarded as
bonuses to key employees. No more than 100,000 shares may be issued under this
plan during any calendar year. Upon grant, the shares shall be registered in the
name of the recipient who shall have the right to vote the shares and receive
cash dividends, but the right to receive the certificates and retain the shares
does not vest until the grantee has remained in the employ of the Company for a
period determined by the Stock Option Committee. At the time of vesting, a
portion of the shares may be withheld to cover withholding taxes due on the
compensation income resulting from the grant.
At July 31, 1995, there were 206,000 shares reserved for future grant.
NOTE D - TREASURY STOCK
On April 4, 1994, the Company purchased 2,761,800 shares of its outstanding
common stock for approximately $16,700,000, utilizing available cash funds.
-4-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Net sales for the six month and three month periods ended July 31, 1995
decreased ($9,191,323) (10.1%) and ($4,977,148) (10.5%), respectively, over the
comparable six month and three month periods of 1994. The decrease in net sales
was principally attributable to the decrease in the number of stores and
continued customer resistance to product and pricing and a lack of fashion
direction in the women's specialty apparel industry.
Per Store Data1 July 31
Six Months Three Months
---------- ------------
1995 1994 1995 1994
---- ---- ---- ----
Stores open at end of period 334 357 334 357
Average number of stores in
operation during the period 336 359 336 358
Average net sales per store
(in thousands) $ 242 $ 252 $ 126 $ 132
Average net (loss) per store
(in thousands) ($ 12 ) ($ 7 ) ($ 5 ) ($ 3 )
Comparable store sales2 -
Percent Change ( 6.5%) ( 6.0%) ( 7.0%) ( 9.8%)
Since fiscal 1993 the Company has trended toward lower sales and since
fiscal 1991 the Company has trended toward lower earnings. Sales have been lower
principally due to lower demand as a result of increased customer resistance to
product and pricing and a lack of fashion direction in the women's specialty
apparel industry. Management has tried and continues to try to adjust the
product mix and pricing philosophy in an attempt to stimulate sales. In March,
1995, the Company introduced shoes into 200 of its locations in an attempt to
generate new business and multiple sales. In August, 1993, the Company
introduced its private label credit card as a means of attempting to stimulate
sales. The credit card also serves as a vehicle for direct mail contact with the
customer.
The decrease in net sales was accompanied by a net loss of ($3,951,535)
for the six months ended July 31, 1995 and a net loss of ($1,652,208) for the
three months ended July 31, 1995 as compared to a net loss of ($2,607,876) for
the six months ended July 31, 1994 and a net loss of ($1,002,494) for the three
months ended July 31, 1994. The loss was primarily attributable to the decrease
in total sales, along with decreased margins as a result of increased
competitive pressures. Sales and margins at these levels are insufficient to
cover fixed overhead. The net loss for the six months ended July 31, 1994 was
partially offset (to the extent of $600,000) by refunds of insurance premiums
received during the quarter ended April 30, 1994. The primary reason for the
decreases in comparable store sales was customer resistance to product and
pricing and a lack of fashion direction in the women's specialty apparel
industry. Net loss was (4.9%) of net sales for the six months ended July 31,
1995 compared to a net loss of (2.9%) of net sales for the six months ended July
31, 1994. For the three months ended July 31, net loss was (3.9%) of net sales
in 1995 compared to a net loss of (2.1%) of net sales in 1994.
Cost of sales, including buying and occupancy costs decreased
($4,524,289) (6.3%) and ($2,194,748) (6.0%), respectively, over the comparable
six month and three month periods of 1994. The decrease in cost of sales, buying
and occupancy costs was principally due to a decline in average net sales per
store, and a decline in the average number of stores in operation during the
period. As a percentage of net sales, these costs were 82.8% and 81.8%,
respectively, for the six month and three month periods ended July 31, 1995 as
compared to 79.4% and 77.8%, respectively for the six month and three month
periods ended July 31, 1994. The increased cost of sales percentage resulted
---------------
1 Includes Tops `N Bottoms
2.Comparable store sales includes stores opened for both periods in the current
format and location. A store is added to the comparable store base in its 13th
month of operation.
-5-
<PAGE>
principally from higher promotional activity as a result of increased
competitive pressures. Buying and occupancy costs for the six months and three
months ended July 31, 1995 were 23.6% and 22.6% of sales and for the comparable
periods in 1994 were 21.9% and 21.1% of sales. This percentage increase was a
result of a decrease in sales for the period.
The inventory turn-over rate was approximately 1.6 times during the six
months ended July 31, 1995 as compared to 1.3 times during the six months ended
July 31, 1994. Due to the comparability of these turns, the impact on profit
margins is not material.
Selling and administrative expenses for the six months and three months
ended July 31, 1995 decreased ($1,806,258) (8.6%) and ($1,248,217) (11.2%)
respectively over the comparable periods in 1994. The decrease in selling and
administrative expenses was principally due to a decrease in the number of
stores, a decrease in sales, and a continuing control over expenses. As a
percentage of net sales, these expenses were 23.6% and 23.3% respectively, for
the six month and three month periods ended July 31, 1995 as compared to 23.2%
and 23.5%, respectively, for the six month and three month periods ended July
31, 1994.
The decrease in depreciation and amortization expenses, ($39,299) and
($21,324), respectively, for the six month and three month periods ended July
31, 1995 over the comparable periods of 1994 was principally attributed to the
write-off of leasehold improvements of closed stores, net of the remodeling of
the Company's stores.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended July 31, 1995 and 1994, the Company funded
internally all of its operating needs, including capital expenditures for the
opening of new stores, remodeling of existing stores, and the acquisition of
Treasury stock. For the six months ended July 31, 1995, the Company used net
cash of $2,795,000 in operating activities as a result, principally, of the net
loss for the period, increased prepaid expenses, increased merchandise
inventories partially offset by increased trade accounts payable. The increase
in merchandise inventories for the six months ended July 31, 1995 was lower than
for the comparable six months ended July 31, 1994 principally due to the
reduction in the total number of stores in operation and the timing of the
purchase of inventory. For the six months ended July 31, 1994, the Company used
net cash of $12,051,000 in operating activities as a result, principally, of
increased purchases of merchandise inventory and amounts paid for income taxes
incurred during the fiscal year ended January 31, 1994 offset by an increase in
trade accounts payable. The Company realized a loss for the fiscal year ended
January 31, 1995 and the six months ended July 31, 1995 and no provision for
income taxes were required.
Net cash used in investing activities was $717,000 and $1,447,000 for
the six months ended July 31, 1995 and 1994, respectively. These funds were used
in the purchase of property, plant and equipment in the opening of new stores
and the remodeling of existing stores.
Net cash used in financing activities was $1,312,000 for the six months
ended July 31, 1995 and $18,021,000 for the six months ended July 31, 1994. For
the six months ended July 31, 1995 these funds were used for the payment of
dividends on preferred and common stock. For the six months ended July 31, 1994
these funds were principally used for the purchase of treasury stock and the
payment of dividends for preferred and common stock.
As of July 31, 1995, the Company had cash and cash equivalents of
approximately $45,787,000 compared with approximately $40,096,000 at July 31,
1994. Since fiscal 1993, the Company has trended toward lower sales and since
fiscal 1991 the Company has trended toward lower earnings and reported a loss
from operations for the fiscal year ended January 31, 1995, and these trends are
continuing into the third quarter of fiscal 1996. There are no known other
trends or commitments, events or other uncertainties that are reasonably
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<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Continued)
likely to result in the Company's liquidity increasing or decreasing in any
material way. The Company believes that internally generated funds will be
sufficient to meet its anticipated capital expenditures, none of which are
material, and current operating needs.
SEASONAL NATURE OF OPERATIONS
The following table shows the Company's net sales and net (loss) earnings per
quarter for the fiscal year ended January 31, 1995 on an unaudited basis.
Net Sales Net Income
---------------------------------------------------------
Amount % Amount %
------ --- ------ ---
(Dollars in Thousands)
----------------------
1st Quarter $ 43,316 21.3% ($1,605) ( 59.0%)
2nd Quarter 47,294 23.3 ( 1,002) ( 36.8 )
3rd Quarter 49,170 24.2 ( 2,313) ( 85.1 )
4th Quarter 63,158 31.2 2,201 80.9
-------- ----- ------- -----
TOTAL $202,938 100.0% ($2,719) 100.0%
======== ===== ======= =====
Approximately 55% and (4%) of the Company's net sales and net (loss) income,
respectively, for fiscal 1995 occurred during the last six months, which
includes the Back-to-School and Christmas selling seasons.
-7-
<PAGE>
PART II. OTHER INFORMATION
Items 1 - 3. NOT APPLICABLE
-----------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
------- ----------------------------------------------------
The annual meeting of the company was held on Wednesday, May 24,
1995. Total votes present either in person or by proxy was 11,966,906. The votes
were cast as follows for the election of directors:
FOR WITHHELD
--- --------
Marvin Rounick 11,941,272 25,634
Warren Weiner 11,942,182 24,724
Jack A. Rounick 11,942,182 24,724
Paul S. Bachow 11,942,182 24,724
Barry H. Feinberg 11,939,892 24,014
Barry H. Frank 11,942,182 24,724
There were no other matters voted on at the meeting.
Item 5. NOT APPLICABLE
-------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
------- ---------------------------------
(a) Exhibits
Exhibit No. Description of Document
----------- -----------------------
11 Computation of Earnings Per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended July 31, 1995.
-8-
<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.
DEB SHOPS, INC.
DATE: By /s/ Marvin Rounick
--------------------------------
Marvin Rounick
President
DATE: By /s/ Lewis Lyons
---------------------------------
Lewis Lyons
Vice President, Finance
Chief Financial Officer
-9-
<PAGE>
EXHIBIT 11
DEB SHOPS, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Six Months Ended July 31 Three Months Ended July 31
---------------------------------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 12,845,861 13,624,199 12,844,680 12,837,945
Net effect of dilutive stock
options and restricted incentive
stock based on the treasury stock
method using average market price 0 0 0 0
------------- ------------ ----------- ------------
12,845,861 13,624,199 12,844,680 12,837,945
============= =========== =========== ============
Net (Loss) Income ($ 3,951,535) ($2,607,876) ($1,652,208) ($ 1,002,494)
Preferred dividend paid 27,600 27,600 13,800 13,800
------------- ------------ ----------- ------------
($ 3,979,135) ($2,635,476) ($1,666,008) ($ 1,016,294)
============= ============ =========== ============
Per common share amount ($ .31) ($ .19) ($ .13) ($ .08)
============= ============ =========== ============
</TABLE>
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JUL-31-1995
<CASH> 45,786,810
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 31,664,412
<CURRENT-ASSETS> 84,002,848
<PP&E> 49,363,255
<DEPRECIATION> 30,728,134
<TOTAL-ASSETS> 104,470,694
<CURRENT-LIABILITIES> 20,351,964
<BONDS> 0
<COMMON> 156,883
460
0
<OTHER-SE> 76,379,035
<TOTAL-LIABILITY-AND-EQUITY> 104,470,694
<SALES> 81,418,237
<TOTAL-REVENUES> 82,688,383
<CGS> 48,158,917
<TOTAL-COSTS> 88,631,918
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,943,535)
<INCOME-TAX> (1,992,000)
<INCOME-CONTINUING> (3,951,535)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,951,535)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
