<PAGE>
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 July 31, 1997
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ------------------------
Commission File Number 0-12188
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DEB SHOPS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1913593
- --------------------------------------------------------------------------------
(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, 1997)
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
I N D E X
---------
<TABLE>
<CAPTION>
Page
PART I. Financial Information:
<S> <C> <C>
Consolidated Balance Sheets - 1
July 31, 1997 and January 31, 1997
Consolidated Statements of Operations Six Months and 2
Three Months Ended July 31, 1997 and July 31, 1996
Consolidated Statements of Cash Flows - 3
Six Months Ended July 31, 1997 and July 31, 1996
Notes to Consolidated Financial Statements - 4
July 31, 1997
Management's Discussion and Analysis of Financial
Condition and Results of Operations - July 31, 1997 5-9
PART II. Other Information 10
</TABLE>
<PAGE>
DEB SHOPS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1997 1997
--------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 44,910,395 $ 44,850,895
Merchandise inventories 30,502,043 22,907,072
Prepaid expenses and other 2,957,620 2,757,308
Current deferred income taxes 1,374,050 1,374,050
---------------- ----------------
Total Current Assets 79,744,108 71,889,325
---------------- ----------------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 150,000 150,000
Buildings 4,330,483 4,324,052
Leasehold improvements 29,256,129 29,131,896
Furniture and equipment 15,405,018 15,443,618
---------------- ----------------
49,141,630 49,049,566
Less accumulated depreciation
and amortization 33,134,996 31,745,736
---------------- ----------------
16,006,634 17,303,830
---------------- ----------------
OTHER ASSETS
Goodwill net of accumulated amortization
of $392,766 and $285,648, respectively 2,825,639 2,932,757
Long term deferred income taxes 1,237,290 1,237,290
Other 1,167,514 1,167,514
---------------- ----------------
5,230,443 5,337,561
---------------- ----------------
$ 100,981,185 $ 94,530,716
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities 21,187,444 $ 13,792,280
Trade accounts payable 5,635,991 4,897,409
---------------- ----------------
Accrued expenses 26,823,435 18,689,689
---------------- ----------------
Total Current Liabilities
1,729,125 1,826,787
---------------- ----------------
Capital Lease Obligation
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 - July 31, 1997:15,688,290;
January 31, 1997: 15,688,290 156,883 156,883
Additional paid in capital 5,541,944 5,541,944
Retained earnings 84,305,761 85,891,376
---------------- ----------------
90,005,048 91,590,663
Less common treasury shares, at cost -
July 31, 1997: 2,843,610;
January 31, 1997: 2,843,610 17,576,423 17,576,423
72,428,625 74,014,240
---------------- ----------------
$ 100,981,185 $ 94,530,716
================ ================
</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,
-------------------------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues
<S> <C> <C> <C> <C>
Net Sales $ 92,509,129 $ 86,498,960 $ 48,580,451 $ 48,459,959
---------------- ---------------- ----------------- ----------------
Costs and Expenses
Cost of Sales, including
buying and occupancy costs 71,936,582 72,072,423 35,993,390 40,599,623
Selling and administrative 19,808,473 19,230,703 10,170,551 9,986,565
Depreciation and amortization 2,118,441 1,743,466 1,064,577 931,861
---------------- ---------------- ----------------- ----------------
93,863,496 93,046,592 47,228,518 51,518,049
Operating Income (Loss) (1,354,367) (6,547,632) 1,351,933 (3,058,090)
Other income, principally interest 949,820 1,226,653 509,144 611,131
---------------- ---------------- ----------------- ----------------
Income (Loss) Before Income Taxes (404,547) (5,320,979) 1,861,077 (2,446,959)
Income Taxes (Benefit) (131,000) (1,730,000) 605,000 (795,000)
---------------- ---------------- ----------------- ----------------
Net Income (Loss) $ (273,547) $ (3,590,979) $ 1,256,077 $ (1,651,959)
================ ================ ================= ================
Net Income (Loss) Per Common Share $ (0.02) $ (0.28) $ 0.10 $ (0.13)
================ ================ ================= ================
Cash Dividend Declared
Per Common Share $ 0.10 $ 0.10 $ 0.05 $ 0.05
================ ================ ================= ================
Weighted Average Number of
Common Shares Outstanding 12,844,680 12,844,680 12,844,680 12,844,680
================ ================ ================= ================
</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,
-------------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net (Loss) $ (273,547) $ (3,590,979)
Adjustments to reconcile net (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,118,441 1,743,466
Loss on retirement of property, plant and equipment 274,922 180,137
Change in assets and liabilities:
(Increase) in merchandise inventories (7,594,971) (12,878,273)
(Increase) in prepaid expenses and other (200,312) (1,953,980)
Increase in trade accounts payable 7,395,164 15,153,470
Increase in accrued expenses 738,582 272,694
------------ ------------
Net cash provided by (used in) operating activities 2,458,279 (1,073,465)
------------ ------------
Cash flows (used in) investing activities:
Purchase of property, plant and equipment, net (989,049) (2,536,297)
------------ ------------
Net cash (used in) investing activities (989,049) (2,536,297)
------------ ------------
Cash flows (used in) financing activities:
Preferred Stock cash dividends paid (27,600) (27,600)
Common Stock cash dividends paid (1,284,468) (1,284,468)
Principal payment under capital lease obligations (97,662) (79,740)
------------ ------------
Net cash (used in) financing activities (1,409,730) (1,391,808)
------------ ------------
Increase (decrease) in cash and cash equivalents 59,500 (5,001,570)
Cash and cash equivalents at beginning of period 44,850,895 51,569,038
------------ ------------
Cash and cash equivalents at end of period $ 44,910,395 $ 46,567,468
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on capital lease obligation $ 177,000 $ 195,000
Income taxes, net $ 170,106 $ 121,302
</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, 1997
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, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending January 31, 1998. 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, 1997. The Balance
Sheet at January 31, 1997 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 basis 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 the time of recognition of overhead in inventory, deductibility
of certain liabilities and depreciation expense. The tax benefit for the six
months ended July 31, 1997 is included in prepaid expenses and other on the
accompanying consolidated balance sheet.
NOTE C - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which the Company is required to adopt for both interim and annual
periods ending after December 15, 1997. SFAS No. 128 simplifies the EPS
calculation by replacing primary EPS with basic EPS. Basic EPS is computed by
dividing reported earnings available to common shareholders by weighted average
shares outstanding. Fully diluted EPS, now called diluted EPS, is still
required. Early application is prohibited, although footnote disclosure of
proforma EPS amounts computed is required. Under SFAS 128, proforma basic EPS
and diluted EPS for the six and three months ended July 31, 1997 would not have
changed from the amount reported. All other EPS amounts for the periods
presented remain the same.
-4-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Deb Shops, Inc. (the "Company") operates 267 women's specialty apparel
retail stores offering moderately priced, fashionable, coordinated sportswear,
dresses, coats, lingerie, accessories and shoes for junior and plus sized women.
The Company also operates 10 Tops `N Bottoms stores which sell moderately priced
men's and women's apparel.
The Company also operates 15 Atlantic book stores. The book division
includes 10 "Atlantic Book Shops", which are small limited selection book
stores, generally open seasonally in Delaware, Maryland and New Jersey shore
resort towns. Atlantic Books also operates five much larger "Atlantic Book
Warehouses" which carry a full line of best sellers, new titles and magazines in
addition to remainder books. The Atlantic Book Warehouse stores are located in
Delaware, Maryland, New Jersey and Pennsylvania.
Results of operations for the Company for the six months ended July, 31
1997 and 1996, are presented on a consolidated basis and are discussed here on a
segmented basis to provide relevant information concerning the Company's retail
apparel store business, which is the Company's principal line of business, and
the retail book business.
Results of Operations - Consolidated
Consolidated net sales increased $6,010,000 (7.0%) and $120,000 (0.3%),
respectively, for the six and three months ended July 31, 1997, as compared to
an increase of $5,081,000 (6.2%) and $6,143,000 (14.5%) for the six and three
months ended July 31, 1996. The increase during the six months ended July 31,
1997, is primarily the result of increased sales in the apparel business and, to
a lesser extent, an increase in the number of book stores. The increase during
the three months ended July 31, 1997 is primarily the result of an increase in
the number of book stores offset by a decrease in apparel sales.
The change in net sales, cost of sales, selling and administrative
expense and net income (loss) are more fully described in the sections on
"Apparel Business" and "Book Business" that follow.
Other income, principally interest, decreased $277,000 (22.6%) and
$102,000 (16.7%), respectively, for the six and three months ended July 31, 1997
as compared to a decrease of $43,000 (3.4%) and $70,000 (10.7%), respectively,
for the six and three months ended July 31, 1996. The decreases in the six and
three months ended July 31, 1997 and 1996 are primarily attributable to an
increase in the losses incurred by the Company on disposition of fixed assets
incurred in connection with store closings.
Net (loss) before income taxes decreased $4,916,000 (92.4%) and
$4,308,000 (176.1%) , respectively, for the six and three months ended July 31,
1997 as compared to a decrease of $623,000 (10.5%) and $38,000 (1.5%),
respectively, for the six and three months ended July 31, 1996. The improvement
for the six months ended July 31, 1996 to 1997 is primarily comprised of an
increase in apparel business sales and apparel business margins. The improvement
for the three months ended July 31, 1996 to 1997 is primarily comprised of an
increase in apparel business margins.
Results of Operations - Apparel Business
Net sales increased to $86,075,000 from $81,920,000 or $4,156,000
(5.1%) in the six months ended July 31, 1997 and 1996, respectively, and
increased to $81,920,000 from $81,419,000 or $501,000 (0.6%) in the six months
ended July 31, 1996 and 1995 respectively. Net sales decreased to $44,658,000
from $45,592,000 or $934,000 (2.0%) in the three months ended July 31, 1997 and
1996, respectively, and increased to $45,592,000 from $48,867,000 or $3,275,000
(7.7%) in the three months ended July 31, 1996 and 1995, respectively.
-5-
<PAGE>
The increase in net sales for the six months ended July 31, 1997 was principally
attributable to a return of fashion direction in the woman's specialty apparel
industry, the Company's new focus on a younger customer, and improved visual
merchandising in the stores. The decrease in net sales for the three months
ended July 31, 1997 was principally attributable to the increase in average
sales per store being insufficient to offset the reduction in average number of
stores in operation. The increase in net sales for the six and three months
ended July 31, 1996 was principally attributable to the start-up of our "Plus
Size" business.
The following table sets forth certain per store information.
<TABLE>
<CAPTION>
Per Store Data(1) Per Store Data(1)
Six Months Ended July 31, Three Months Ended July 31,
--------------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Stores open at end of the period 277 299 277 299
Average number in operation during the period 279 301 279 301
Average net sales per store (in thousands) $309 $272 $160 $151
Average operating (loss) income per store (in thousands) ($ 7) ($ 23) $ 4 ($ 11)
Comparable Store Sales(2) - Percent Change 10.1% 9.2% 1.9% 18.3%
</TABLE>
Cost of sales, including buying and occupancy costs, decreased to
$67,492,000 from $68,988,000 or $1,496,000 (2.2%) in the six months ended July
31, 1997 and 1996, respectively, and increased to $68,988,000 from $67,382,000
or $1,606,000 (2.4%) in the six months ended July 31, 1996 and 1995,
respectively. Cost of sales, including buying and occupancy costs, decreased to
$33,225,000 from $38,631,000 or $5,406,000 (14.0%) in the three months ended
July 31, 1997 and 1996, respectively and increased to $38,631,000 from
$34,612,000 or $4,019,000 (11.6%) in the three months ended July 31, 1996 and
1995, respectively. The decrease in cost of sales, including buying and
occupancy costs, in the six months ended July 31, 1997 was primarily the result
of selling merchandise at higher margins in the three months ended July 31, 1997
and the increase in net sales during the period. The increase in cost of sales,
including buying and occupancy costs, in the six months ended July 31, 1996 was
primarily the result of a decrease in margins related to the start-up of the
"Plus Size" business. As a percentage of net sales, cost of sales, including
buying and occupancy costs, were 78.4% and 84.2% in the six months ended July
31, 1997 and 1996, respectively, and 74.4% and 84.7% in the three months ended
July 31, 1997 and 1996, respectively. As a percentage of net sales, buying and
occupancy costs were 19.3% and 21.3% in the six months ended July 31, 1997 and
1996, respectively, and 18.8% and 19.0% in the three months ended July 31, 1997
and 1996, respectively.
Selling and administrative expenses increased to $18,571,000 from
$18,327,000 or $244,000 (1.3%) in the six months ended July 31, 1997 and 1996,
respectively, and decreased to $18,327,000 from $19,248,000 or $921,000 (4.8%)
in the six months ended July 31, 1996 and 1995, respectively. Selling and
administrative expenses decreased to $9,454,000 from $9,500,000 or $46,000
(0.5%) in the three months ended July 31, 1997 and 1996, respectively, and
decreased to $9,500,000 from $9,856,000 or $356,000 (3.6%) in the three months
ended July 31, 1996 and 1995, respectively. The increase in selling and
administrative expenses for the six months ended July 31, 1997 was mainly due to
higher insurance costs. The decrease in selling and administrative expenses for
the six months ended July 31, 1996 was mainly due to cost controls and the
reduction in the number of stores in operation. As a percentage of net sales,
selling and administrative expenses
-6-
___________________________
1 Includes Tops 'N Bottoms stores
2 Comparable store sales include stores open for both periods in the current
location. A store is added to the comparable store base in its 13th month
of operation.
<PAGE>
were 21.6% and 22.4% in the six months ended July 31, 1997 and 1996,
respectively, and 21.2% and 20.8% in the three months ended July 31, 1997 and
1996, respectively.
Depreciation expenses increased $309,000 and $147,000 in the six and
three months ended July 31, 1997, respectively. The increase is principally
attributed to the accelerated write-off of leasehold improvements.
The operating loss decreased to $1,888,000 from $6,986,000 or
$5,098,000 (73.0%) in the six months ended July 31, 1997 and 1996, respectively
and decreased to $6,986,000 from $7,214,000 or $228,000 (3.2%) in the six months
ended July 31, 1996 and 1995, respectively. The operating income increased to
$1,030,000 from an operating loss of $3,340,000 or $4,370,000 (130.8%) in the
three months ended July 31, 1997 and 1996, respectively and the operating loss
increased to $3,340,000 from $3,166,000 or $174,000 (5.5%) in the three months
ended July 31, 1996 and 1995, respectively. As a percentage of net sales, the
operating income (loss) was (2.2%) and (8.5%) in the six months ended July 31,
1997 and 1996, respectively, and 2.3% and (7.3%) in the three months ended July
31, 1997 and 1996, respectively. The decrease in the operating loss for the six
months ended July 31, 1997 was primarily attributed to an increase in net sales
and an increase in margins. During the six months ended July 31, 1997 the
Company decreased the number of "Plus Size" selling units by almost 50%. This
reduction did not result in a commensurate reduction in sales and did result in
an improvement in "Plus Size" margins. The operating loss for the six months
ended July 31, 1996 was primarily attributable to lower margins as a result of
the start-up of the "Plus Size" business.
Results of Operations - Book Business
Fiscal year ended January 31, 1997 was the first full year the Company
operated its book business. The book business was acquired in 1995 and was
operated for four months during the fiscal year ended January 31, 1996.
Net sales increased to $6,434,000 from $4,579,000 or $1,855,000 (40.5%)
in the six months ended July 1997 and 1996, respectively, and increased to
$3,922,000 from $2,868,000 or $1,054,000 (36.8%) in the three months ended July
31, 1997 and 1996, respectively. The increase resulted primarily from the
addition of two warehouse stores in November 1996.
The following table sets forth certain per store information:
<TABLE>
<CAPTION>
Per Store Data Per Store Data
Six Months Ended July 31, Three Months Ended July 31,
------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Stores open at end of period-Resort Stores 10 10 10 10
Average number in operation during the period 10 10 10 10
Average net sales per Resort store (in thousands) $181 $ 144 $ 163 $ 126
Stores open at end of period - Warehouse Stores 5 3 5 3
Average number in operation during the period 5 3 5 3
Average net sales per Warehouse Store (in thousands)(1) $916 $1,021 $ 449 $ 510
Comparable Store Sales(2) - Percent Change(3) 3.5% N/A 4.1% N/A
</TABLE>
-7-
- -------------------------------------------------------------
1 The decrease in average net sales per Warehouse Store declined as a result
of the Montgomeryville location being disproportionately larger than the
other Warehouse Stores
2 Comparable store sales include stores open for both periods in the current
location. A store is added to the comparable store base in its 13th month
of operation
3 The "Percentage Change" for the six and three months ended July 31, 1996
is not shown since the Company did not own this business during the six
and three months ended July 31, 1995.
<PAGE>
Cost of sales, including buying and occupancy costs, increased to
$4,534,000 from $3,082,000 or $1,452,000 (47.1%) in the six months ended July
31, 1997 and 1996, respectively, and increased to $2,813,000 from $1,967,000 or
$846,000 (43.0%) in the three months ended July 31, 1997 and 1996, respectively.
As a percentage of net sales, cost of sales, including buying and occupancy
costs, were 70.5% and 67.3% in the six months ended July 31, 1997 and 1996,
respectively, and 71.7% and 68.6% in the three months ended July 31, 1997 and
1996, respectively. This increase for the six and three month periods is
primarily due to a change in the mix of products sold as a result of the two new
Warehouse stores. As a percentage of net sales, buying and occupancy costs were
15.9% and 14.5% in the six months ended July 31, 1997 and 1996, respectively,
and 16.7% and 15.4% in the three months ended July 31, 1997 and 1996,
respectively.
Selling and administrative expenses increased to $1,233,000 from
$898,000 or $335,000 (37.4%) in the six months ended July 31, 1997 and 1996,
respectively, and increased to $713,000 from $538,000 or $175,000 (32.5%) in the
three months ended July 31, 1997 and 1996, respectively. As a percentage of net
sales, selling and administrative expenses were 19.2% and 19.6% in the six
months ended July 31, 1997 and 1996, respectively, and 18.2% and 18.8% in the
three months ended July 31, 1997 and 1996, respectively.
Depreciation expense increased $36,000 in the six months ended July 31,
1997 and $24,000 in the three months ended July 31, 1997.
Operating income increased to $478,000 from $447,000 or $31,000 (6.9%)
in the six months ended July 31, 1997 and 1996, respectively, and increased to
$295,000 from $286,000 or $9,000 (3.1%) in the three months ended July 31, 1997
and 1996, respectively. As a percentage of net sales, operating income was 7.4%
and 9.8% in the six months ended July 31, 1997 and 1996, respectively, and 7.5%
and 10.0% in the three months ended July 31, 1997 and 1996, respectively. This
decrease for the six and three month periods is primarily due to the decrease in
margins during the period.
Liquidity and Capital Resources
During the three months and six months ended July 31, 1997 and 1996,
the Company funded internally all of its operating needs, including capital
expenditures for the remodeling of existing apparel and book stores. Total cash
provided by, or (used in), operating activities for the six months ended July
31, 1997 and 1996 was $2,458,000 and ($1,073,000), respectively. For the six
months ended July 31, 1997, cash provided by operations was the result of
increases in trade accounts payable, accrued expenses and non-cash charges for
depreciation and amortization partially offset by the net loss and an increase
in merchandise inventories. For the six months ended July 31, 1996, cash used in
operations resulted from the net loss, increased prepaid expenses, and
merchandise inventories, partially offset by an increase in trade accounts
payable and non-cash charges for depreciation and amortization. The inventory
turn-over rate for the apparel business was approximately 1.5 times during the
six months ended July 31, 1997 and 1.6 times during the six months ended July
31, 1996. The inventory turn-over rate for the book business was approximately
0.7 times during the six months ended July 31, 1997 and 0.9 times during the six
months ended July 31, 1996.
Net cash used in investing activities was $989,000 and $2,536,000 for
the six months ended July 31, 1997 and 1996, respectively. The decrease in net
cash used in investing activities was principally due to the purchase of a
building for a warehouse book store in 1996.
Net cash used in financing activities was $1,410,000 and $1,392,000 for
the six months ended July 31, 1997 and 1996, respectively. For the six months
ended July 31, 1997 and 1996, these funds were principally used for the payment
of dividends on preferred and common stock.
As of July 31, 1997, the Company had cash and cash equivalents of
$44,910,000 compared with $46,567,000 at July 31, 1996. The Company opened a
plus sized operation during April 1996 in approximately one-third of its stores.
This required the hiring of a buying staff, the remodeling of certain locations,
and the purchase of inventory. At the end of the first quarter of fiscal 1998,
the Company reduced the
-8-
<PAGE>
size of the plus operation by approximately 50%. As of June 30, 1996, the
Company terminated its private label credit card program. The Company paid a
termination fee to the bank, which assumed all future obligations associated
with the portfolio. The Company continues to accept third party credit cards at
all of its stores.
The Company's present intention is to expand the book store business
primarily by opening additional warehouse stores. Opening a warehouse book store
is capital intensive, because of the leasehold improvements and initial
inventory required. It is anticipated that the funds to finance this expansion
will come from the cash and cash equivalents on hand. The Company currently has
commitments for the opening of one additional warehouse store and one additional
resort store. During fiscal 1997, the Company opened two additional warehouse
stores. One of those locations was purchased in May 1996 for approximately
$2,100,000. It is not the Company's intention to purchase store locations;
however, when the location and the economics are suitable, such transactions
will be evaluated. Other than these items there are no known other trends or
commitments, events or other uncertainties that are reasonably 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.
Forward-Looking Statements
The Company has made in this report, and from time to time may
otherwise make, "forward-looking statements" (as that term is defined under
Federal Securities Laws) concerning the Company's future operations,
performance, profitability, revenues, expenses and financial condition. This
report includes, in particular, forward-looking statements regarding store
openings, closings and other matters. Such forward-looking statements are
subject to various risks and uncertainties. Actual results could differ
materially from those currently anticipated due to a number of factors. Such
factors may include, but are not limited to, the Company's ability to improve
margins, respond to changes in fashion, the Company's ability to retain key
management personnel and find suitable retail locations. Such factors may also
include other risks and uncertainties detailed in the Company's filings with the
Securities and Exchange Commission, including the Company's Quarterly Report on
Form 10-K for the fiscal year ended January 31, 1997.
SEASONAL NATURE OF OPERATIONS
The following table shows the Company's net sales and net earnings per quarter
for the fiscal year ended January 31, 1997 on an unaudited basis.
<TABLE>
<CAPTION>
Net Sales Net Income
---------------------------------------------------------------
Amount % Amount %
------ - ------ -
(Dollars in Thousands)
<S> <C> <C> <C> <C>
1st Quarter $ 38,039 20.3% ($1,939) ( 50.3%)
2nd Quarter 48,460 25.9% ( 1,652) ( 42.8%)
3rd Quarter 46,386 24.7% ( 2,458) ( 63.8%)
4th Quarter 54,608 29.1% 2,194 56.9%
----------- ------ --------- -------
TOTAL $187,493 100.0% ($3,855) 100.0%
=========== ====== ======== =======
</TABLE>
Approximately 54% and (7%) of the Company's net sales and net (loss),
respectively, for fiscal 1997 occurred during the last six months, which
includes the Back-to-School and Christmas selling seasons.
-9-
<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 Friday, May 30,
1997. Total votes present either in person or by proxy was 12,467,583. The votes
were cast as follows for the election of directors:
FOR WITHHELD
--- --------
Marvin Rounick 12,392,531 19,310
Warren Weiner 12,393,441 18,400
Jack A. Rounick 12,393,441 18,400
Paul S. Bachow 12,350,900 20,941
Barry H. Feinberg 12,392,531 19,310
Barry H. Frank 12,392,531 19,310
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, 1997.
-10-
<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: September , 1997 By /s/ Marvin Rounick
-------------------------
Marvin Rounick
President
DATE: September , 1997 By /s/ Lewis Lyons
----------------------
Lewis Lyons
Vice President, Finance
Chief Financial Officer
<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
------------------------------------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
PRIMARY
<S> <C> <C> <C> <C>
Average shares outstanding 12,844,680 12,844,680 12,844,680 12,844,680
Net effect of dilutive stock
options and restricted incentive
stock based on the treasury
stock method using average
market price 0 0 0 0
------------ ------------ ------------ ------------
12,844,680 12,844,680 12,844,680 12,844,680
============ ============ ============ ============
Net (Loss) Income ($ 273,547) ($ 3,590,979) $ 1,256,077 ($ 1,651,959)
Preferred dividend paid 27,600 27,600 13,800 13,800
------------ ------------ ------------ ------------
($ 301,147) ($ 3,618,579) $ 1,242,277 ($ 1,665,759)
============ ============ ============ ============
Per common share amount ($ .02) ($ .28) $ .10 ($ .13)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-31-1997
<CASH> 44,910,395
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 30,502,043
<CURRENT-ASSETS> 77,990,135
<PP&E> 49,141,630
<DEPRECIATION> 33,134,996
<TOTAL-ASSETS> 96,822,408
<CURRENT-LIABILITIES> 22,664,459
<BONDS> 0
460
0
<COMMON> 156,883
<OTHER-SE> 89,847,705
<TOTAL-LIABILITY-AND-EQUITY> 96,822,408
<SALES> 92,509,129
<TOTAL-REVENUES> 93,458,949
<CGS> 54,425,685
<TOTAL-COSTS> 93,863,496
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (404,547)
<INCOME-TAX> (131,000)
<INCOME-CONTINUING> (273,547)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (273,547)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
