<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 April 30, 1998
-------------------------------------------------
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 13,024,770
- ---------------------------- -----------------------------------
(Class) (Outstanding at April 30, 1998)
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
INDEX
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Page
----
PART I. Financial Information:
Consolidated Balance Sheets - 1
April 30, 1998 and January 31, 1998
Consolidated Statements of Operations 2
Three Months Ended April 30, 1998 and April 30, 1997
Consolidated Statements of Cash Flows - 3
Three Months Ended April 30, 1998 and April 30, 1997
Notes to Consolidated Financial Statements - 4
April 30, 1998
Management's Discussion and Analysis of Financial Condition
and Results of Operations - April 30, 1998 6-10
PART II. Other Information 10
<PAGE>
DEB SHOPS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1998 1998
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $55,630,789 $57,912,689
Merchandise inventories 24,867,919 22,107,228
Prepaid expenses and other 2,426,274 1,488,748
Current deferred income taxes 1,323,600 1,307,600
----------- -----------
Total Current Assets 84,248,582 82,816,265
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 150,000 150,000
Buildings 4,338,863 4,338,863
Leasehold improvements 29,048,488 29,068,033
Furniture and equipment 15,655,424 15,399,733
----------- -----------
49,192,775 48,956,629
-----------
Less accumulated depreciation
and amortization 34,521,399 34,168,084
----------- -----------
14,671,376 14,788,545
----------- -----------
OTHER ASSETS
Goodwill, net of accumulated amortization
of $339,207 and $285,648, respectively 2,664,962 2,718,521
Long term deferred income taxes 2,095,740 2,003,740
Other 1,167,514 1,167,514
----------- -----------
Total Other Assets 5,928,216 5,889,775
----------- -----------
104,848,174 103,494,585
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $18,897,127 $16,098,296
Accrued expenses 5,964,770 5,879,551
Income taxes payable 56,437 1,858,179
----------- -----------
Total Current Liabilities 24,918,334 23,836,226
-----------
Capital Lease Obligation 1,571,661 1,631,463
----------- -----------
Commitments and Contingencies
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 - April 30, 1998: 15,688,290;
January 31, 1998: 15,688,290 156,883 156,883
Additional paid in capital 5,541,944 5,541,944
Retained earnings 89,122,179 89,904,032
----------- -----------
94,821,466 95,603,319
Less common treasury shares, at cost -
April 30, 1998: 2,663,520;
January 31, 1998: 2,843,610 16,463,287 17,576,423
----------- -----------
78,358,179 78,026,896
----------- -----------
$104,848,174 $103,494,585
============ ============
</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>
Three Months Ended April 30,
----------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues
Net Sales $ 49,759,163 $43,928,678
------------ -----------
Costs and Expenses
Cost of Sales, including buying and occupancy costs 38,373,835 35,943,192
Selling and administrative 10,510,313 9,637,922
Depreciation and amortization 934,469 1,053,864
------------ -----------
49,818,617 46,634,978
------------ -----------
Operating Loss ( 59,454) ( 2,706,300)
Other income, principally interest 678,734 440,676
------------ -----------
Income (Loss) Before Income Taxes 619,280 ( 2,265,624)
Income Taxes (Benefit) 217,000 ( 736,000)
------------ ------------
Net Income (Loss) $ 402,280 ($ 1,529,624)
============ ============
Net Income (Loss) Per Common Share
Basic $ 0.03 ($ 0.12)
============ ============
Diluted $ 0.03 ($ 0.12)
============ ============
Cash Dividend Declared Per Common Share $ 0.05 $ 0.05
============ ============
Weighted Average Number of Common
Shares Outstanding
Basic 12,914,725 12,844,680
============ ============
Diluted 13,158,097 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>
Three Months Ended April 30,
-----------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows (used in) provided by operating activities:
Net Income (Loss) 402,280 ($ 1,529,624)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 934,469 1,053,864
Deferred income tax (benefit) ( 108,000) (736,000)
Loss on retirement of property, plant and equipment 75,191 174,922
Change in assets and liabilities:
(Increase) decrease in merchandise inventories ( 2,760,691) 265,953
(Increase) in prepaid expenses and other ( 937 526) ( 6,786)
Increase in trade accounts payable 2,798,831 1,241,150
Increase in accrued expenses 85,219 786,736
(Decrease) in income taxes payable ( 1,801,942) --
------------- -----------
Net cash (used in) provided by operating activities ( 1,312,169) 1,250,215
------------- -----------
Cash flows (used in) investing activities:
Purchase of property, plant and equipment, net ( 838,932) ( 463,057)
------------- -----------
Net cash (used in) investing activities ( 838,932) ( 463,057)
------------- -----------
Cash flows (used in) financing activities:
Preferred Stock cash dividends paid ( 13,800) ( 13,800)
Common Stock cash dividends paid ( 651,239) ( 642,234)
Proceeds from stock options exercised 594,042 --
Principal payment under capital lease obligations ( 59,802) ( 48,831)
------------- -----------
Net cash (used in) financing activities ( 130,799) ( 704,865)
------------- -----------
(Decrease) increase in cash and cash equivalents ( 2,281,900) 82,293
Cash and cash equivalents at beginning of period 57,912,689 44,850,895
------------- -----------
Cash and cash equivalents at end of period $55,630,789 $44,933,188
============= ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on capital lease obligation $ 77,700 $ 88,700
Income taxes, net $ 2,127,932 $ 16,236
</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)
APRIL 30, 1998
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 three months
ended April 30, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending January 31, 1999. 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, 1998. The Balance Sheet at January 31, 1998 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 three months ended April 30, 1997 is included in prepaid
expenses and other on the accompanying consolidated balance sheet.
NOTE C - NET INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." This statement established new standards for computing and presenting
earnings per share and requires the restatement of prior years amounts. The
Company adopted SFAS No. 128 effective January 31, 1998. Basic net income
(loss) per common share was computed by dividing net income (loss) applicable
to common shareholders by the weighted average number of shares of common
stock outstanding during the periods presented. Diluted net income (loss) per
common share has been presented based upon the weighted average common shares
outstanding during each period including the dilutive effect of stock options
and restricted incentive stock, if any.
-4-
<PAGE>
The table below sets forth the reconciliation of the numerators and
denominators of the basic and diluted net income (loss) per common share
computations. As required by SFAS No. 128 all prior-period per share data has
been restated to conform with the provisions of this statement.
<TABLE>
<CAPTION>
Three Months Ended April 30,
-------------------------------------------------------------------------------------------
1998 1997
---- ----
-------------------------------------------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amount (Loss) Shares Amount
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $402,280 ($1,529,624)
Dividends on preferred stock (13,800) (13,800)
-------- -----------
Basic income (loss) available
to common shareholders 388,480 12,914,725 $.03 (1,543,424) 12,844,680 ($.12)
Effect of dilutive securities - 243,372 - - - -
-------- ---------- ----- ----------- ---------- ----
Dilutive income (loss) available
to common shareholders $388,480 13,158,097 $.03 ($1,543,424) 12,844,680 ($.12)
======== ========== ===== =========== ========== ====
</TABLE>
As of April 30, 1997, 390,000 common stock options were outstanding
but were not included in the computation of diluted net (loss) per common
share because their effect would be anti-dilutive as a result of the Company's
losses incurred during those years.
NOTE D - REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting of Comprehensive
Income." This statement requires companies to classify items of other
comprehensive income by their nature in the financial statements and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in-capital in the equity section of a statement
of financial position. SFAS No. 130 is effective for financial statements
issued for fiscal years beginning after December 15, 1997. The Company
believes that SFAS No. 130 does not have a material effect on its financial
statements.
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, and the Company's ability to attract
and retain key management personnel. 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, 1998.
Overview
Deb Shops, Inc. (the "Company") operates 270 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 17 Atlantic book stores. The book division
includes 11 "Atlantic Book Shops", which are small limited selection book
stores, generally open seasonally in Delaware, Maryland, New Jersey and
Pennsylvania resort towns. Atlantic Books also operates six 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, Minnesota, New Jersey and
Pennsylvania.
Results of operations for the Company for the three months ended
April 30, 1998 and 1997, are presented on a consolidated basis and divisional
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 $5,830,000 (13.3%) for the three
months ended April 30, 1998 from the three months ended April 30, 1997, and
increased of $5,890,000 (15.5%) for the three months ended April 30, 1997 from
the three months ended April 30, 1996. The increase during the three months
ended April 30, 1998 and 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 changes 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, increased $238,000 (54.0%) for
the three months ended April 30, 1998 from the three months ended April 30,
1997, and decreased of $175,000 (28.4%) for the three months ended April 30,
1997 from the three months ended April 30, 1996. Interest income is offset by
losses on the disposition of fixed assets. The increase in the three months
ended April 30, 1998 is the result of earnings on higher cash balances and
decreased write-offs from the disposition of fixed assets. The decrease in the
three months ended April 30, 1997 is primarily attributable to an increase in
the losses incurred by the Company on disposition of fixed assets which were
incurred in connection with store closings.
-6-
<PAGE>
Net income before income taxes increased $2,885,000 (127.3%) for the
three months ended April 30, 1998 from the three months ended April 30, 1997.
Net (loss) before income taxes decreased $608,000 (21.2%) for the three months
ended April 30, 1997 from the three months ended April 30, 1996. The
improvement for the three months ended April 30, 1998 is comprised of an
increase in the apparel business sales and apparel business margins. The
improvement for the three months ended April 30, 1997 is comprised of an
increase in the apparel business sales partially offset by a decline in the
apparel business margins.
Results of Operations - Apparel Business
Net sales increased to $46,776,000 from $41,418,000 or $5,358,000
(12.9%) in the three months ended April 30, 1998 and 1997, respectively, and
to $41,418,000 from $36,328,000 or $5,090,000 (14.0%) in the three months
ended April 30, 1997 and 1996, respectively. The increase in net sales in the
three months ended April 30, 1998 and 1997, was principally attributable to a
continued 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 following table sets forth certain per store information.
Per Store Data(1)
Three Months Ended April 30,
--------------------------------
1998 1997
---- ----
Stores open at end of the period 280 279
Average number in operation during the period 278 282
Average net sales per store (in thousands) $168 $147
Average operating (loss) per store (in thousands) ($ 1) ($ 10)
Comparable Store Sales(2) - Percent Change 10.9% 20.7%
- ------------------
(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.
Cost of sales, including buying and occupancy costs, increased to
$36,351,000 from $34,267,000 or $2,084,000 (6.1%) in the three months ended
April 30, 1998 and 1997, respectively, and to $34,267,000 from $30,358,000 or
$3,909,000 (12.9%) in the three months ended April 30, 1997 and 1996,
respectively. The increase in the three months ended April 30, 1998 and 1997
in cost of sales, including buying and occupancy costs, was principally due to
the increase in sales during the period. As a percentage of net sales, these
costs were 77.7% during the three months ended April 30, 1998, and 82.7%
during the three month period ended April 30, 1997. For the three months ended
April 30, 1998, the decreased cost of sales percentage resulted primarily from
increased margins. For the three months ended April 30, 1997, the decreased
cost of sales percentage resulted primarily from decreased buying and
occupancy costs partially offset by declining margins. Buying and occupancy
costs were 18.9% and 19.7% of sales for the three months ended April 30, 1998
and 1997, respectively. The percentage decrease in the three months ended
April 30, 1998 as compared to the three months ended April 30, 1997, resulted
principally from an increase in sales for the period.
-7-
<PAGE>
Selling and administrative expenses increased to $9,887,000 from
$9,117,000 or $760,000 (8.3%) in the three months ended April 30, 1998 and
1997, respectively, and to $9,117,000 from $8,827,000 or $290,000 (3.3%) in
the three months ended April 30, 1997 and 1996, respectively. The increase in
selling and administrative costs for the three months ended April 30, 1998,
was mainly due to an increase in store operating costs. The increase in
selling and administrative costs for the three months ended April 30, 1997 was
mainly due to higher costs for insurance. As a percentage of net sales, these
expenses were 21.1% during the three months ended April 30, 1998, and 22.0%
during the three months ended April 30, 1997. The percentage decrease in the
three months ended April 30, 1998 was the result of an increase in sales for
the period.
Depreciation expense decreased $141,000 in the three months ended
April 30, 1998, and increased $162,000 in the three months ended April 30,
1997. The decrease for the three months ended April 30, 1998 is principally
attributed to a reduction in the number of stores to be closed and the
write-offs associated with them. The increase for the three months ended April
30, 1997 is principally attributed to the write-of of leasehold improvements
of closed stores
The operating (loss) decreased to $262,000 from $2,918,000 or
$2,656,000 (91.0%) in the three months ended April 30, 1998 and 1997,
respectively, and to $2,918,000 from $3,646,000 or $728,000 (20.0%) in the
three months ended April 30, 1997 and 1996, respectively. As a percentage of
sales, the operating loss was (.6%) in the three months ended April 30, 1998,
and (7.0%) in the three months ended April 30, 1997. The decrease in operating
loss for the three months ended April 30, 1998 was primarily attributable to
the increase in sales and an increase in margins, partially offset by an
increase in selling and administrative expenses. The decrease in the operating
loss for the three months ended April 30, 1997, was primarily attributed to
the decrease in total sales and was partially offset by lower margins.
Results of Operations - Book Business
Net sales increased to $2,983,000 from $2,511,000 or $472,000 (18.8%)
in the three months ended April 30, 1998 and 1997, respectively and to
$2,511,000 from $1,711,000 or $800,000 (46.7%) in the three months ended April
30, 1997 and 1996, respectively. The increase in net sales in the three months
ended April 30, 1998 resulted primarily from the addition of one warehouse
store. The increase in net sales in the three months ended April 30, 1997
resulted primarily from the addition of two warehouse stores.
The following table sets forth certain per store information:
Per Store Data
Three Months Ended April 30,
--------------------------------
1998 1997
---- ----
Stores open at end of period-Resort Stores 11 11
Average number in operation during the period 11 10
Average net sales per Resort store (in thousands) $ 36 $ 18
Stores open at end of period - Warehouse Stores 6 5
Average number in operation during the period 6 5
Average net sales per Warehouse Store (in thousands) $ 415 $ 467
Comparable Store Sales(1) - Percent Change ( 5.1%) 2.8%
- ---------------------
(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
-8-
<PAGE>
Cost of sales, including buying and occupancy costs, increased to
$2,068,000 from $1,721,000 or $347,000 (20.2%) in the three months ended April
30, 1998 and 1997, respectively and to $1,721,000 from $1,115,000 or $606,000
(54.3%) in the three months ended April 30, 1997 and 1996, respectively. The
increase in the three months ended April 30, 1998 and 1997 is primarily the
result of increased sales as the result of additional stores. As a percentage
of net sales, cost of sales, buying and occupancy costs were 69.3% in the
three months ended April 30, 1998 and 68.5% in the three months ended April
30, 1997. As a percentage of net sales, buying and occupancy costs were 15.7%
in the three months ended April 30, 1998 and 14.8% in the three months ended
April 30, 1997. The change in percentage from year-to-year is not material.
Selling and administrative expenses increased to $634,000 from
$520,000 or $114,000 (21.9%) in the three months ended April 30, 1998 and
1997, respectively and to $520,000 from $359,000 or $161,000 (44.7%) in the
three months ended April 30, 1997 and 1996, respectively. The increase in the
three months ended April 30, 1998 and 1997 is primarily the result of
additional stores. As a percentage of net sales, selling and administrative
costs were 21.2% in the three months ended April 30, 1998 and 20.7% in the
three months ended April 30, 1997. The change in percentage from year-to-year
is not material.
Depreciation and amortization expense increased $22,000 and $12,000 in
the three months ended April 30, 1998 and 1997, respectively. The increase is
primarily the result of additional stores.
Operating income decreased to $172,000 from $183,000 or $11,000 (5.7%)
in the three months ended April 30, 1998 and 1997, respectively and increased to
$183,000 from $161,000 or $22,000 (13.6%) in the three months ended April 30,
1997 and 1996, respectively. The change in operating income for the three months
ended April 30, 1998 and 1997, which the Company believes are not material, are
primarily the result of the factors described above. As a percentage of net
sales, operating income represents 5.0% in the three months ended April 30,
1998, and 7.3% in the three months ended April 30, 1997.
Liquidity and Capital Resources
During the three months ended April 30, 1998 and 1997, the Company
funded internally all of its operating needs, including capital expenditures for
the opening of new apparel stores and for the remodeling of existing apparel and
book stores. Total cash (used in), or provided by, operating activities for the
three months ended April 30, 1998 and 1997 was ($1,312,000) and $1,250,000,
respectively. For the three months ended April 30, 1998, cash used in operations
resulted from an increase in merchandise inventories, prepaid expenses and a
decrease in income taxes payable, partially offset by net income, non-cash
charges for depreciation and amortization and an increase in trade accounts
payable. For the three months ended April 30, 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 deferred income tax benefit. The inventory turn-over
rate for the apparel business was approximately 0.8 times during the three
months ended April 30, 1998 and 1997. The inventory turn-over rate for the book
business was approximately 0.3 times during the three months ended April 30,
1998 and 1997.
Net cash (used in) investing activities was $839,000 and $463,000 for
the three months ended April 30, 1998 and 1997, respectively. The increase in
net cash used in investing activities was principally due to the remodeling of
existing stores and the opening of new stores.
Net cash (used in) financing activities was $131,000 and $705,000 for
the three months ended April 30, 1998 and 1997, respectively. For the three
months ended April 30, 1998, these funds were principally used for the payment
of dividends on preferred and common stock, partially offset by the proceeds
from incentive stock options exercised. For the three months ended April 30,
1997, these funds were principally used for the payment of dividends or
preferred and common stock.
-9-
<PAGE>
As of April 30, 1998, the Company had cash and cash equivalents of
$55,631,000 compared with $44,933,000 at April 30, 1997. In February 1998, the
Company purchased nine stores from Petrie Retail, Inc. and subsidiaries, for
$720,000. These locations were made available as a result of Petrie's ongoing
bankruptcy proceedings. The stores are located in regional malls and were opened
during the quarter ended April 30, 1998. At the end of the first quarter of
fiscal 1998, the Company reduced the size of the plus sized operation by
approximately 50%.
The operation of the Company's business is dependent, in part, on its
computer software programs and operating systems (collectively, "Programs and
Systems"). The Programs and Systems are used in several key areas of the
Company's business, including merchandising, inventory management, pricing,
sales, distribution, financial reporting, as well as in various administrative
functions. The Company has been evaluating its Programs and Systems to identify
potential Year 2000 compliance issues. These actions are necessary to ensure
that the Programs and Systems will recognize and process in the Year 2000 and
beyond. It is anticipated that replacement of most of the Company's Programs and
Systems will be necessary to make such Programs and Systems Year 2000 compliant.
Based on present information, the Company believes that it will be able
to achieve such Year 2000 compliance through the replacement of most Programs
and Systems with new Programs and Systems that are already Year 2000 compliant.
However, no assurance can be given that these efforts will be successful. The
Company estimates that the expenses and capital expenditures associated with
achieving Year 2000 compliance will be approximately $2,000,000, all of which
will be paid from internally generated funds. Although the Company is not
currently aware of material Year 2000 compliance issues relating to systems of
other companies with which the Company does business, there is no assurance that
the Company will not be adversely affected by such issues affecting the systems
of such other companies.
The Company's intention is to expand the book store business. 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
expansion will come from the cash and cash equivalents on hand. As of the
balance sheet date, there were no commitments for the opening of any additional
warehouse stores, however, the opening of one resort store is planned. 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.
-10-
<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, 1998 on an unaudited basis.
Net Sales Net Income (Loss)
--------------------------------------------------
Amount % Amount %
------ --- ------ ---
(Dollars in Thousands)
----------------------
1st Quarter $ 43,929 21.4% ($1,530) ( 23.0%)
2nd Quarter 48,580 23.7% 1,256 18.9%
3rd Quarter 52,409 25.6% 978 14.7%
4th Quarter 60,148 29.3% 5,933 89.4%
-------- ----- ------- -------
TOTAL $205,066 100.0% $6,637 100.0%
======== ====== ======= =======
Approximately 55% and 104% of the Company's net sales and net income,
respectively, for fiscal 1998 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
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
during the quarter ended April 30, 1998.
-11-
<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: June 15, 1998 By /s/ Marvin Rounick
-------------------------
Marvin Rounick
President
DATE: June 15, 1998 By /s/ Lewis Lyons
-------------------------
Lewis Lyons
Vice President, Finance
Chief Financial Officer
<TABLE> <S> <C>
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<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> APR-30-1998
<CASH> 55,630,780
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 24,867,919
<CURRENT-ASSETS> 84,248,582
<PP&E> 49,192,775
<DEPRECIATION> 34,521,399
<TOTAL-ASSETS> 104,848,174
<CURRENT-LIABILITIES> 24,918,334
<BONDS> 0
460
0
<COMMON> 156,883
<OTHER-SE> 78,200,836
<TOTAL-LIABILITY-AND-EQUITY> 104,848,174
<SALES> 49,759,163
<TOTAL-REVENUES> 50,437,897
<CGS> 29,115,734
<TOTAL-COSTS> 49,818,617
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 619,280
<INCOME-TAX> 217,000
<INCOME-CONTINUING> 402,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402,280
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
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