<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 October 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.
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(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
- ------------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
(215) 676-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
------------------------------------------------------------------------------
(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 October 31, 1997)
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
I N D E X
Page
----
PART I. Financial Information:
Consolidated Balance Sheets - 1
October 31, 1997 and January 31, 1997
Consolidated Statements of Operations - Nine and 2
Three Months Ended October 31, 1997 and October 31, 1996
Consolidated Statements of Cash Flows - Nine 3
Months Ended October 31, 1997 and October 31, 1996
Notes to Consolidated Financial Statements - 4
October 31, 1997
Management's Discussion and Analysis of Financial
Condition and Results of Operations - October 31, 1997 5-9
PART II.Other Information 9
<PAGE>
DEB SHOPS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1997 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $45,088,718 $44,850,895
Merchandise inventories 25,667,905 22,907,072
Prepaid expenses and other 1,210,718 2,757,308
Current deferred income taxes 1,374,050 1,374,050
----------- -----------
Total Current Assets 73,341,391 71,889,325
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 150,000 150,000
Buildings 4,330,603 4,324,052
Leasehold improvements 29,238,838 29,131,896
Furniture and equipment 15,290,367 15,443,618
----------- -----------
49,009,808 49,049,566
Less accumulated depreciation
and amortization 33,859,919 31,745,736
----------- -----------
Total Property, Plant and Equipment 15,149,889 17,303,830
----------- -----------
OTHER ASSETS
Goodwill net of accumulated amortization
of $446,325 and $285,648, respectively 2,772,080 2,932,757
Long term deferred income taxes 1,457,290 1,237,290
Other 1,167,514 1,167,514
----------- -----------
5,396,884 5,337,561
----------- -----------
$93,888,164 $94,530,716
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable 13,600,448 $13,792,280
Accrued expenses 5,857,244 4,897,409
----------- -----------
Total Current Liabilities 19,457,692 18,689,689
----------- -----------
Capital Lease Obligation 1,680,294 1,826,787
----------- -----------
Shareholders' Equity
Series A Preferred Stock, par value $1.00 per
share:
Authorized - 5,000,000 shares
Issued and outstanding - 460 shares
liquidation value $460,000 460 460
Common Stock, par value $.01 per share;
Authorized - 25,000,000 shares
Issued Shares - October 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 84,627,314 85,891,376
----------- -----------
90,326,601 91,590,663
Less common treasury shares, at cost -
October 31, 1997: 2,843,610;
January 31, 1997: 2,843,610 17,576,423 17,576,423
----------- -----------
72,750,178 74,014,240
----------- -----------
$93,888,164 $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>
Nine Months Ended October 31, Three Months Ended October 31,
------------------------------------------------------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
Revenues
<S> <C> <C> <C> <C>
Net Sales $ 144,918,407 $ 132,885,380 $ 52,409,278 $ 46,386,420
------------- ------------- ------------- -------------
Costs and Expenses
Cost of Sales, including
buying and occupancy costs 112,143,055 110,958,924 40,206,473 38,886,501
Selling and administrative 30,008,634 29,894,795 10,200,161 10,664,092
Depreciation and amortization 3,247,391 2,622,555 1,128,950 879,089
------------- ------------- ------------- -------------
145,399,080 143,476,274 51,535,584 50,429,682
------------- ------------- ------------- -------------
Operating Income (Loss) (480,673) (10,590,894) 873,694 (4,043,262)
Other income, principally interest 1,523,713 1,628,828 573,893 402,175
------------- ------------- ------------- -------------
Income (Loss) Before Income Taxes 1,043,040 (8,962,066) 1,447,587 (3,641,087)
Income Taxes (Benefit) 339,000 (2,913,000) 470,000 (1,183,000)
------------- ------------- ------------- -------------
Net Income (Loss) $ 704,040 $ (6,049,066) $ 977,587 $ (2,458,087)
============= ============= ============= =============
Net Income (Loss) Per Common Share $ 0.05 $ (0.47) $ 0.07 $ (0.19)
============= ============= ============= =============
Cash Dividend Declared
Per Common Share $ 0.15 $ 0.15 $ 0.05 $ 0.05
============= ============= ============= =============
Weighted Average Number of
Common Shares Outstanding 12,947,341 12,844,680 12,967,093 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>
Nine Months Ended October 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net Income (Loss) $ 704,040 $ (6,049,066)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,247,391 2,622,555
Deferred income tax (benefit) (220,000)
Loss on retirement of property, plant and equipment 463,432 306,075
Change in assets and liabilities:
(Increase) in merchandise inventories (2,760,833) (12,680,689)
Decrease in prepaid expenses and other 1,546,590 8,173
(Decrease) Increase in trade accounts payable
(191,832) 7,266,984
Increase in accrued expenses 959,835 249,296
------------ ------------
Net cash provided by (used in) operating activities 3,748,623 (8,276,672)
------------ ------------
Cash flows (used in) investing activities:
Purchase of property, plant and equipment (1,396,205) (2,937,959)
------------ ------------
Net cash (used in) investing activities (1,396,205) (2,937,959)
------------ ------------
Cash flows (used in) financing activities:
Preferred Stock cash dividends paid (41,400) (41,400)
Common Stock cash dividends paid (1,926,702) (1,926,702)
Principal payment under capital lease obligations (146,493) (119,610)
------------ ------------
Net cash (used in) financing activities (2,114,595) (2,087,712)
------------ ------------
Increase (decrease) in cash and cash equivalents 237,823 (13,302,343)
Cash and cash equivalents at beginning of period 44,850,895 51,569,038
------------ ------------
Cash and cash equivalents at end of period $ 45,088,718 $ 38,266,695
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on capital lease obligation $ 266,000 $ 300,000
Income taxes, net $ 1,110,795 $ 150,368
</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)
OCTOBER 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 nine months
ended October 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 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 the time of recognition of overhead in
inventory, deductibility of certain liabilities and depreciation expense. The
tax benefit for the nine and three months ended October 31, 1996 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 stockholders by weighted
average shares outstanding. Fully diluted EPS, now called diluted EPS, is
still required. Early application is prohibited, although footnote disclosure
of pro forma EPS amounts computed is required. Under SFAS 128, pro forma basic
EPS and diluted EPS for the nine and three months ended October 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 265 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 nine months ended
October, 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 $12,033,000 (9.1%) and $6,023,000
(13.0%), respectively, for the nine and three months ended October 31, 1997,
as compared to an increase of $9,795,000 (8.0%) and $4,715,000 (11.3%) for the
nine and three months ended October 31, 1996. The increase during the nine and
three months ended October 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 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 $105,000 (6.5%) for the
nine months ended October 31, 1997 and increased $172,000 (42.7%), for the
three months ended October 31, 1997 as compared to a decrease of $93,000
(5.4%) and $49,000 (10.9%), respectively, for the nine and three months ended
October 31, 1996. The decreases in the nine months ended October 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 income before income taxes increased $10,005,000 (111.6%) and
$5,089,000 (139.8%), respectively, for the nine and three months ended October
31, 1997. Net loss before income taxes decreased $623,000 (10.5%) and $38,000
(1.5%), respectively, for the nine and three months ended October 31, 1996.
The improvement for the nine and three months ended October 31, 1996 to 1997
is comprised of an increase in apparel business sales and apparel business
margins.
Results of Operations - Apparel Business
Net sales increased to $134,470,000 from $125,435,000 or $9,035,000
(7.2%) in the nine months ended October 31, 1997 and 1996, respectively, and
increased to $125,435,000 from $122,485,000 or $2,950,000 (2.4%) in the nine
months ended October 31, 1996 and 1995 respectively. Net sales increased to
$48,395,000 from $43,516,000 or $4,879,000 (11.2%) in the three months ended
October 31, 1997 and 1996, respectively, and increased to $43,516,000 from
$41,067,000 or $2,449,000 (6.0%) in the three months ended October 31, 1996
and 1995, respectively. The increase in net sales for the nine and three
months ended October 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 increase in net sales for the nine and three months ended October 31, 1996
was principally attributable to the start-up of our "Plus Size" business.
-5-
<PAGE>
The following table sets forth certain per store information.
<TABLE>
<CAPTION>
Per Store Data(1) Per Store Data(1)
Nine Months Ended October 31, Three Months Ended October 31,
----------------------------- ------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Stores open at end of the period 275 299 275 299
Average number in operation during the period 279 301 278 299
Average net sales per store (in thousands) $ 482 $ 417 $ 174 $ 146
Average operating (loss) income per store
(in thousands) ($ 5) ($ 38) $ 2 ($ 15)
Comparable Store Sales(2) - Percent Change 11.7% 11.0% 14.7% 14.7%
</TABLE>
Cost of sales, including buying and occupancy costs, decreased to
$104,911,000 from $105,939,000 or $1,028,000 (1.0%) in the nine months ended
October 31, 1997 and 1996, respectively, and increased to $105,939,000 from
$102,494,000 or $3,445,000 (3.4%) in the nine months ended October 31, 1996
and 1995, respectively. Cost of sales, including buying and occupancy costs,
increased to $37,419,000 from $36,951,000 or $468,000 (1.3%) in the three
months ended October 31, 1997 and 1996, respectively and increased to
$36,951,000 from $35,112,000 or $1,839,000 (5.2%) in the three months ended
October 31, 1996 and 1995, respectively. The decrease in cost of sales,
including buying and occupancy costs, in the nine months ended October 31,
1997 was primarily the result of selling merchandise at higher margins in the
six months ended October 31, 1997, partially offset by the increase in net
sales during the period. The increase in cost of sales, including buying and
occupancy costs, in the nine months ended October 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 78.0% and 84.5% in the nine months ended October 31,
1997 and 1996, respectively, and 77.3% and 84.9% in the three months ended
October 31, 1997 and 1996, respectively. As a percentage of net sales, buying
and occupancy costs decreased to 18.5% from 20.8% in the nine months ended
October 31, 1997 and 1996, respectively, and decreased to 17.2% from 19.9% in
the three months ended October 31, 1997 and 1996, respectively, primarily due
to an increase in sales.
Selling and administrative expenses decreased to $28,058,000 from
$28,475,000 or $418,000 (0.9%) in the nine months ended October 31, 1997 and
1996, respectively, and decreased to $28,475,000 from $28,887,000 or $412,000
(1.4%) in the nine months ended October 31, 1996 and 1995, respectively.
Selling and administrative expenses decreased to $9,486,000 from $10,148,000
or $661,000 (6.5%) in the three months ended October 31, 1997 and 1996,
respectively, and increased to $10,148,000 from $9,640,000 or $508,000 (5.2%)
in the three months ended October 31, 1996 and 1995, respectively. The
decrease in selling and administrative expenses for the nine months ended
October 31, 1997 was primarily due to a one-time cost of $560,000 for the
termination of our private label credit card program in the prior period,
offset by increased insurance costs. The decrease in selling and
administrative expenses for the nine months ended October 31, 1996 was
primarily due to cost controls offset by the one-time charge of $560,000 for
the termination of our private label credit card program. As a percentage of
net sales, selling and administrative expenses decreased to 20.9% from 22.7%
in the nine months ended October 31, 1997 and 1996, respectively, and
decreased to 19.6% from 23.3% in the three months ended October 31, 1997 and
1996, respectively, primarily due to an increase in sales.
Depreciation expenses increased $512,000 and $203,000 in the nine and
three months ended October 31, 1997, respectively. The increase is principally
attributed to the accelerated write-off of leasehold improvements.
The operating loss decreased to $1,404,000 from $11,373,000 or
$9,969,000 (87.7%) in the nine months ended October 31, 1997 and 1996,
respectively and decreased to $11,373,000 from $11,895,000 or $522,000 (4.4%)
in the nine months ended October 31, 1996 and 1995, respectively. The
operating income increased to $484,000 from an operating loss of $4,386,000 or
$4,870,000 (111.0%) in the three months ended October 31, 1997 and 1996,
respectively and the operating loss decreased to $4,386,000 from $4,681,000 or
$295,000 (6.3%) in the three months ended October 31, 1996 and 1995,
respectively. As a percentage of net sales, the operating income (loss) was
(1.0%) and (9.1%) in the nine months ended October 31, 1997 and 1996,
respectively, and 1.0% and (10.1%) in the three months ended October 31, 1997
and 1996, respectively. The decrease in the operating loss for the nine months
ended October 31, 1997 was primarily attributed to an
- --------------------------
1 Includes Tops 'N Bottoms stores
2 Comparable store sales include stores open for both periods in the current
format and location. A store is added to the comparable store base in its
13th month of operation.
-6-
<PAGE>
increase in net sales and an increase in margins. During the nine months ended
October 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 nine months ended October 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 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 fiscal 1996.
Net sales increased to $10,448,000 from $7,450,000 or $2,998,000
(40.2%) in the nine months ended October 1997 and 1996, respectively, and
increased to $4,015,000 from $2,871,000 or $1,144,000 (39.8%) in the three
months ended October 31, 1997 and 1996, respectively. The increase resulted
primarily from the addition of two warehouse stores and the increase in size
of a resort store.
The following table sets forth certain per store information:
<TABLE>
<CAPTION>
Per Store Data Per Store Data
Nine Months Ended Three Months Ended October
October 31, 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) $ 356 $ 273 $ 175 $ 129
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) $1,361 $1,536 $ 445 $ 516
Comparable Store Sales(1) - Percent Change 3.3% N/A 3.7% N/A
</TABLE>
Cost of sales, including buying and occupancy costs, increased to
$7,367,000 from $5,015,000 or $2,352,000 (46.9%) in the nine months ended
October 31, 1997 and 1996, respectively, and increased to $2,833,000 from
$1,933,000 or $900,000 (46.6%) in the three months ended October 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 nine months ended
October 31, 1997 and 1996, respectively, and 70.6% and 67.3% in the three
months ended October 31, 1997 and 1996, respectively. As a percentage of net
sales, buying and occupancy costs were 16.1% and 14.5% in the nine months
ended October 31, 1997 and 1996, respectively, and 16.3% and 14.6% in the
three months ended October 31, 1997 and 1996, respectively.
Selling and administrative expenses increased to $1,945,000 from
$1,413,000 or $533,000 (37.7%) in the nine months ended October 31, 1997 and
1996, respectively, and increased to $712,000 from $515,000 or $197,000
(38.3%) in the three months ended October 31, 1997 and 1996, respectively. As
a percentage of net sales, selling and administrative expenses were 18.6% and
19.0% in the nine months ended October 31, 1997 and 1996, respectively, and
17.8% and 18.0% in the three months ended October 31, 1997 and 1996,
respectively.
Depreciation expense increased $68,000 in the nine months ended
October 31, 1997 and $32,000 in the three months ended October 31, 1997.
- -------------------------------------------------------------------------------
1 Comparable store sales include stores open for both periods in the current
format and location.
A store is added to the comparable store base in its 13th month of operation.
The "Percentage Change" for the nine and three months ended October 31, 1996
is not shown since the Company did not own this business during the nine and
three months ended October 31, 1995.
-7-
<PAGE>
Operating income increased to $839,000 from $794,000 or $45,000
(5.7%) in the nine months ended October 31, 1997 and 1996, respectively, and
increased to $361,000 from $347,000 or $14,000 (4.1%) in the three months
ended October 31, 1997 and 1996, respectively. As a percentage of net sales,
operating income was 8.0% and 10.7% in the nine months ended October 31, 1997
and 1996, respectively, and 9.0% and 12.1% in the three months ended October
31, 1997 and 1996, respectively.
Liquidity and Capital Resources
During the three months and nine months ended October 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 nine months
ended October 31, 1997 and 1996 was $3,749,000 and ($8,277,000), respectively.
For the nine months ended October 31, 1997, cash provided by operations was
the result of the net income, a decrease in prepaid expenses and other, an
increase in accrued expenses, and non-cash charges for depreciation and
amortization, partially offset by an increase in merchandise inventories. For
the nine months ended October 31, 1996, cash used in operations resulted from
the net loss and an increase in 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 2.2 times during the nine months ended October 31, 1997 and 2.4
times during the nine months ended October 31, 1996. The inventory turn-over
rate for the book business was approximately 1.1 times during the nine months
ended October 31, 1997 and 1.4 times during the nine months ended October 31,
1996.
Net cash used in investing activities was $1,396,000 and $2,938,000
for the nine months ended October 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 $2,115,000 and $2,088,000
for the nine months ended October 31, 1997 and 1996, respectively. These funds
were principally used for the payment of dividends on preferred and common
stock.
As of October 31, 1997, the Company had cash and cash equivalents of
$45,089,000 compared with $38,267,000 at October 31, 1996. The Company opened
a "Plus Size" 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 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 is in the process of evaluating its Year 2000 issue along
with evaluating its enterprise software. Any expenditures resulting from this
evaluation will be paid from internally generated funds and is not expected to
be material.
The Company's present intention is to expand the book store business
primarily by opening additional warehouse stores. Opening a warehouse 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 warehouse
stores. One of the 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 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 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 Annual Report on
Form 10-K for the fiscal year ended January 31, 1997.
-8-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Continued)
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 (Loss)
------------------------ ---------------------------
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.
PART II. OTHER INFORMATION
Items 1 - 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 October 31, 1997.
-9-
<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: December 15, 1997 By /s/ Marvin Rounick
-------------------------
Marvin Rounick
President
DATE: December 15, 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>
Nine Months Ended October 31, Three Months Ended October 31,
-------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY
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 102,661 0 122,413 0
------------ ------------ ------------ ------------
12,947,341 12,844,680 12,967,093 12,844,680
============ ============ ============ ============
Net (Loss) Income $ 704,040 ($ 6,049,066) $ 977,587 ($ 2,458,087)
Preferred dividend paid 41,400 13,800 41,400 13,800
------------ ------------ ------------ ------------
$ 662,640 ($ 6,090,466) $ 963,787 ($ 2,471,887)
============ ============ ============ ============
Per common share amount $ 0.05 ($ 0.47) $ 0.07 ($ 0.19)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-1998
<PERIOD-END> OCT-31-1997
<CASH> 45,088,718
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 25,667,905
<CURRENT-ASSETS> 73,341,391
<PP&E> 49,009,808
<DEPRECIATION> 33,859,919
<TOTAL-ASSETS> 93,888,164
<CURRENT-LIABILITIES> 19,457,692
<BONDS> 0
460
0
<COMMON> 156,883
<OTHER-SE> 90,169,258
<TOTAL-LIABILITY-AND-EQUITY> 93,888,164
<SALES> 144,918,407
<TOTAL-REVENUES> 146,442,120
<CGS> 85,712,018
<TOTAL-COSTS> 59,687,063
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,043,039
<INCOME-TAX> 339,000
<INCOME-CONTINUING> 704,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 704,039
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
