<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 October 31, 1999
----------------------------------------------
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
- --------------------------------------------------------------------------------
(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 13,243,400
- ---------------------------- ---------------------------------
(Class) (Outstanding at October 31, 1999)
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
I N D E X
Page
PART I. Item 1. Financial Information:
Consolidated Balance Sheets - 1
October 31, 1999 and January 31, 1999
Consolidated Statements of Operations - Three Months and 2
Nine Months Ended October 31, 1999 and October 31, 1998
Consolidated Statements of Cash Flows - 3
Nine Months Ended October 31, 1999 and October 31, 1998
Notes to Consolidated Financial Statements - 4
October 31, 1999
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - October 31, 1999 5-11
Item 3. Quantitative and Qualitative Disclosures About 12
Market Risk
PART II. Other Information 12
<PAGE>
DEB SHOPS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1999 1999
------------ ------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 76,256,830 $ 70,228,227
Merchandise inventories 25,470,769 23,934,155
Prepaid expenses and other 1,827,011 2,083,285
Deferred income taxes 2,046,050 1,706,050
------------ ------------
Total Current Assets 105,600,660 97,951,717
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 150,000 150,000
Buildings 4,347,697 4,338,863
Leasehold improvements 33,774,768 29,416,173
Furniture and equipment 17,129,030 16,649,890
------------ ------------
55,401,495 50,554,926
------------ ------------
Less accumulated depreciation
and amortization 37,003,601 36,202,184
------------ ------------
18,397,894 14,352,742
------------ ------------
OTHER ASSETS
Goodwill, net of accumulated amortization
of $874,797 and $714,120, respectively 2,343,608 2,504,285
Deferred income taxes 3,075,290 2,505,290
Other 1,712,223 1,712,223
------------ ------------
Total Other Assets 7,131,121 6,721,798
------------ ------------
$131,129,675 $119,026,257
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 16,047,200 $ 16,090,608
Accrued expenses 8,407,199 6,658,918
Income taxes payable 1,898,794 2,727,892
------------ ------------
Total Current Liabilities 26,353,193 25,477,418
------------ ------------
Capital Lease Obligation 1,172,538 1,392,255
------------ ------------
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 - 50,000,000 shares
Issued Shares - 15,688,290 156,883 156,883
Additional paid in capital 5,541,944 5,541,944
Retained earnings 113,016,592 101,844,410
------------ ------------
118,715,879 107,543,697
Less common treasury shares, at cost -
October 31, 1999: 2,444,890;
January 31, 1999: 2,489,410 15,111,935 15,387,113
------------ ------------
103,603,944 92,156,584
------------ ------------
$131,129,675 $119,026,257
============ ============
</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 October 31, Nine Months Ended October 31,
------------------------------------ ---------------------------------
1999 1998 1999 1998
------------- ------------ ------------- -----------
Revenues
<S> <C> <C> <C> <C>
Net Sales $ 67,724,965 $ 60,007,204 $193,952,782 $168,254,026
------------ ------------ ------------ ------------
Costs and Expenses
Cost of Sales, including
buying and occupancy costs 47,884,092 44,350,323 133,704,907 123,757,904
Selling and administrative 13,165,931 11,553,550 38,179,086 33,592,529
Depreciation and amortization 1,074,786 940,392 3,026,705 2,815,079
------------ ------------ ------------ ------------
62,124,809 56,844,265 174,910,698 160,165,512
------------ ------------ ------------ ------------
Operating Income 5,600,156 3,162,939 19,042,084 8,088,512
Other income, principally interest 982,312 669,038 2,517,495 2,229,628
------------ ------------ ------------ ------------
Income Before Income Taxes 6,582,468 3,831,977 21,559,579 10,318,140
Income Taxes 2,502,000 1,341,000 8,193,000 3,611,000
------------ ------------ ------------ ------------
Net Income $ 4,080,468 $ 2,490,977 $ 13,366,579 $ 6,707,140
============ ============ ============ ============
Net Income Per Common Share
Basic $ 0.31 $ 0.19 $ 1.01 $ 0.51
============ ============ ============ ============
Diluted $ 0.30 $ 0.19 $ 0.99 $ 0.51
============ ============ ============ ============
Cash Dividend Declared
Per Common Share $ 0.05 $ 0.05 $ 0.15 $ 0.15
============ ============ ============ ============
Weighted Average Number of
Common Shares Outstanding
Basic 13,243,400 13,118,430 13,220,015 13,025,968
============ ============ ============ ============
Diluted 13,530,371 13,255,390 13,481,373 13,172,141
============ ============ ============ ============
</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,
------------------------------------
1999 1998
------------ -------------
Cash flows provided by operating activities:
<S> <C> <C>
Net income $13,366,579 $ 6,707,140
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 3,026,705 2,815,049
Deferred income tax (benefit) (910,000) (1,555,000)
Loss on retirement of property, plant and equipment 201,027 146,282
Change in assets and liabilities:
(Increase) in merchandise inventories (1,536,614) (4,173,428)
Decrease (Increase) in prepaid expenses and other 256,274 (623,966)
(Decrease) increase in trade accounts payable (43,408) 985,711
Increase in accrued expenses 1,748,281 603,102
(Decrease) in income taxes payable (829,098) (363,379)
------------ -------------
Net cash provided by operating activities 15,279,746 4,541,511
------------ ------------
Cash flows used in investing activities:
Purchase of property, plant and equipment, net (7,112,207) (2,809,312)
------------ -------------
Net cash used in investing activities (7,112,207) (2,809,312)
------------ -------------
Cash flows used in financing activities:
Preferred stock cash dividends paid (41,400) (41,400)
Common stock cash dividends paid (1,984,284) (1,962,457)
Proceeds from exercise of stock options 106,465 918,750
Principal payments under capital lease obligations (219,717) (179,406)
Other investing activities 0 (544,709)
------------ -------------
Net cash used in financing activities (2,138,936) (1,809,222)
------------ -------------
Increase (decrease) in cash and cash equivalents 6,028,603 (77,023)
Cash and cash equivalents at beginning of period 70,228,227 57,912,689
------------ ------------
Cash and cash equivalents at end of period $76,256,830 $57,835,666
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on capital lease obligation $ 192,783 $ 233,094
Income taxes, net $ 9,930,843 $ 5,799,412
</TABLE>
The notes to consolidated financial statements are an
integal part of these financial statements.
-3-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1999
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, 1999 are
not necessarily indicative of the results that may be expected for the fiscal
year ending January 31, 2000. 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, 1999. The Balance
Sheet at January 31, 1999 has been derived from the audited financial statements
at that date.
NOTE B - NET INCOME PER SHARE
The table below sets forth the reconciliation of the numerators and
denominators of the basic and diluted net income 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 October 31, Nine Months Ended October 31,
------------------------------ ------------------------------
1999 1998 1999 1998
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net income $4,080,468 $2,490,977 $13,366,579 $6,707,140
Dividends on preferred stock (13,800) (13,800) (41,400) (41,400)
---------- ---------- --------- ----------
Income available to
Common shareholders $4,066,668 $2,477,177 $13,325,179 $6,665,740
========== ========== =========== ==========
Basic weighted average
Number of common
Shares outstanding 13,243,400 13,118,430 13,220,015 13,025,968
Effect of dilutive stock options 286,971 136,960 261,358 146,173
---------- ---------- --------- ----------
Diluted weighted average
Number of common
Shares outstanding 13,530,371 13,255,390 13,481,373 13,172,141
========== ========== ========== ==========
</TABLE>
-4-
<PAGE>
Item 2.
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, 1999.
Overview
Deb Shops, Inc. (the "Company") operates 273 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 eight Tops `N Bottoms stores which sell moderately
priced men's and women's apparel.
The Company also operates 18 Atlantic book stores. The book division
includes 12 "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 and nine months
ended October 31, 1999 and 1998, 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 $25,699,000 (15.3%) to $193,953,000 in
the nine months ended October 31, 1999 from $168,254,000 in the nine months
ended October 31, 1998, and increased $12,033,000 (9.1%) in the nine months
ended October 31, 1998 from the nine months ended October 31, 1997. Consolidated
net sales increased $7,718,000 (12.9%) to $67,725,000 in the three months ended
October 31, 1999 from $60,007,000 in the three months ended October 31, 1998 and
increased $6,023,000 (13.0%) in the three months ended October 31, 1998 from the
three months ended October 31, 1997. The increases in the nine and three month
periods ended October 31, 1999 were primarily the result of increased comparable
store sales in the apparel division. The increases in the nine and three month
periods ended October 31, 1998 were 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 are more fully described in the sections on "Apparel
Business" and "Book Business" that follow.
Other income, principally interest, increased $288,000 (12.9%) to
$2,517,000 in the nine months ended October 31, 1999 from $2,230,000 in the nine
months ended October 31, 1998 and decreased ($105,000) (6.5%) in the nine months
ended October 31, 1998 from the nine months ended October 31, 1997. Other
income,
-5-
<PAGE>
principally interest, increased $313,000 (46.8%) to $982,000 in the three months
ended October 31, 1999 from $669,000 in the three months ended October 31, 1998
and decreased ($93,000) (5.4%) in the three months ended October 31, 1998 from
the three months ended October 31, 1997. Interest income is offset by losses on
the disposition of fixed assets. The increases during the nine and three months
ended October 31, 1999 were primarily the result of earnings on higher cash
balances and decreased write-offs from the disposition of fixed assets. The
decreases in the nine and three months ended October 31, 1998 were primarily the
result of losses on disposition of fixed assets and lower interest rates
Net income before income taxes increased $11,241,000 (108.9%) to
$21,560,000 in the nine months ended October 31, 1999 from $10,318,000 in the
nine months ended October 31, 1998 and increased $10,005,000 (111.6%) in the
nine months ended October 31, 1998 from the nine months ended October 31, 1997.
Net income before income taxes increased $2,750,000 (71.8%) to $6,582,000 in the
three months ended October 31, 1999 from $3,832,000 in the three months ended
October 31, 1998 and increased $5,089,000 (138.9%) in the three months ended
October 31, 1998 from the three months ended October 31, 1997. The increases for
the nine and three months ended October 31, 1999 and 1998, were primarily the
result of increased sales and margins in the apparel business.
Results of Operations - Apparel Business
Net sales increased $25,617,000 (16.4%) to $181,378,000 in the nine
months ended October 31, 1999 from $155,761,000 in the nine months ended October
31, 1998 and increased $21,291,000 (15.8%) in the nine months ended October 31,
1998 from the nine months ended October 31, 1997. Net sales increased $7,722,000
(14.0%) to $62,791,000 in the three months ended October 31, 1999 from
$55,070,000 in the three months ended October 31, 1998 and increased $6,675,000
(13.8%) in the three months ended October 31, 1998 from the three months ended
October 31, 1997. The increases in net sales for the nine and three months ended
October 31, 1999 resulted primarily from increasing customer acceptance of the
Company's products, which the Company believes is attributable to its continual
refining of its focus on its younger customers, in addition to its continuing
efforts to improve visual merchandising. The increases in net sales for the nine
and three months ended October 31, 1998 resulted primarily from a continued
return of fashion direction in the woman's specialty apparel industry, the
Company's focus on its younger customers, and improved visual merchandising the
stores.
The following table sets forth certain store information.
<TABLE>
<CAPTION>
Three Months Ended October 31,(1) Nine Months Ended October 31,(1)
--------------------------------- --------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Stores open at end of the period 281 278 281 278
Average number in operation during the period 279 278 275 278
Average net sales per store (in thousands) $225 $198 $660 $560
Average operating income per store (in thousands) $ 18 $ 9 $ 66 $ 25
Comparable Store Sales(2)- Percent Change 11.3% 10.0% 14.2% 12.3%
</TABLE>
- --------
(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>
Cost of sales, including buying and occupancy costs, increased
$9,773,000 (8.5%) to $124,965,000 in the nine months ended October 31, 1999 from
$115,191,000 in the nine months ended October 31, 1998 and increased $10,280,000
(9.8%) in the nine months ended October 31, 1998 from the nine months ended
October 31, 1997. Cost of sales, including buying and occupancy costs, increased
$3,547,000 (8.7%) to $44,544,000 in the three months ended October 31, 1999 from
$40,997,000 in the three months ended October 31, 1998 and increased $3,578,000
(9.6%) in the three months ended October 31, 1998 from the three months ended
October 31, 1997. The increases in cost of sales, including buying and occupancy
costs, in the nine and three months ended October 31, 1999 and 1998 were
principally due to the increase in sales during the periods. As a percentage of
net sales, these costs were 68.9% and 74.0% during the nine months ended October
31, 1999 and 1998, respectively, and 70.9% and 74.4% during the three months
ended October 31, 1999 and 1998, respectively. For the nine and three months
ended October 31, 1999 and 1998, the decreased percentages resulted primarily
from increased margins. Buying and occupancy costs were 15.8% and 17.3% of sales
for the nine months ended October 31, 1999 and 1998. respectively, and 14.6% and
16.1% of net sales for the three months ended October 31, 1999 and 1998,
respectively. The percentage decreases for the nine and three months ended
October 31, 1999 as compared to the nine and three months ended October 31,
1998, resulted principally from an increase in sales during the periods.
Selling and administrative expenses increased $4,404,000 (14.1%) to
$35,673,000 in the nine months ended October 31, 1999 from $31,269,000 in the
nine months ended October 31, 1998 and increased $3,211,000 (11.4%) in the nine
months ended October 31, 1998 from the nine months ended October 31, 1997.
Selling and administrative expenses increased $1,560,000 (14.5%) to $12,290,000
in the three months ended October 31, 1999 from $10,729,000 in the three months
ended October 31, 1998 and increased $1,709,000 (13.5%) in the three months
ended October 31, 1998 from the three months ended October 31, 1997. The
increase in selling and administrative costs for the nine and three months ended
October 31, 1999 was primarily due to increased store operating costs and
increased administrative costs. The increase in selling and administrative costs
for the nine and three months ended October 31, 1998 was primarily due to
increased store operating costs. As a percentage of net sales, these expenses
were 19.7% and 20.1% in the nine months ended October 31, 1999 and 1998,
respectively, and 19.6% and 19.5% in the three months ended October 31, 1999 and
1998, respectively. The percentage decrease in the nine months ended October 31,
1999 was primarily the result of an increase in sales for the period. Selling
and administrative expenses as a percentage of sales for the three months ended
October 31, 1999 and 1998 were essentially unchanged.
Depreciation expense increased $204,000 to $2,643,000 in the nine
months ended October 31, 1999 from $2,439,000 in the nine months ended October
31, 1998 and decreased ($466,000) in the nine months ended October 31, 1998 from
the nine months ended October 31, 1997. Depreciation expense increased $132,000
to $946,000 in the three months ended October 31, 1999 from $813,000 in the
three months ended October 31, 1998 and decreased ($192,000) in the three months
ended October 31, 1998 from the three months ended October 31, 1997. The
increases for the nine and three months ended October 31, 1999 were primarily
attributable to new store openings and remodeling of existing stores. The
decreases for the nine and three months ended October 31, 1998 were principally
attributable to a reduction in the number of stores to be closed and the
write-offs associated with them.
Operating income was $18,096,000 in the nine months ended October 31,
1999 as compared to operating income of $6,861,000 in the nine months ended
October 31, 1998 and an operating (loss) of ($1,404,000) in the nine months
ended October 31, 1997. Operating income was $5,012,000 in the three months
ended October 31, 1999 as compared to operating income of $2,530,000 in the
three months ended October 31, 1998 and $484,000 in the three months ended
October 31, 1997. As a percentage of sales, operating income was 10.0% and 4.4%
in the nine months ended October 31, 1999 and 1998, respectively, and 8.0% and
4.6% in the three months ended October 31, 1999 and 1998, respectively. The
increases in operating income for the nine and three months ended October 31,
1999 and 1998 were primarily attributable to the increases in sales and margins,
partially offset by increases in selling and administrative expenses.
-7-
<PAGE>
Results of Operations - Book Business
Net sales increased $82,000 (0.7%) to $12,575,000 in the nine months
ended October 31, 1999 from $12,493,000 in the nine months ended October 31,
1998 and increased $2,045,000 (19.6%) in the nine months ended October 31, 1998
from the nine months ended October 31, 1997. Net sales decreased ($4,000) (0.1%)
to $4,933,000 in the three months ended October 31, 1999 from $4,937,000 in the
three months ended October 31, 1998 and increased $922,000 (23.0%) in the three
months ended October 31, 1998 from the three months ended October 31, 1997. The
increase in the nine months ended October 31, 1999 was lower than in prior
periods and the decrease in the three months ended October 31, 1999 are
primarily as a result of increased competition. The increases in the nine and
three months ended October 31, 1998 resulted primarily from the addition of one
warehouse store.
The following table sets forth certain store information:
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------ -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Resort Stores:
Stores open at end of period 12 12 12 12
Average number in operation during the period 12 11 12 12
Average net sales per store (in thousands) $ 190 $ 201 $ 415 $ 376
Warehouse Stores:
Stores open at end of period 6 6 6 6
Average number in operation during the period 6 6 6 6
Average net sales per store (in thousands) $ 443 $ 448 $1,266 $1,304
Comparable Store Sales(1) - Percent Change 1.7% Flat Flat 3.3%
</TABLE>
- --------
(1) Comparable store sales include resort and warehouse 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 $174,000
(2.0%) to $8,875,000 in the nine months ended October 31, 1999 from $8,702,000
in the nine months ended October 31, 1998 and increased $1,335,000 (18.1%) in
the nine months ended October 31, 1998 from the nine months ended October 31,
1997. Cost of sales, including buying and occupancy costs, decreased ($14,000)
(0.4%) to $3,385,000 in the three months ended October 31, 1999 from $3,398,000
in the three months ended October 31, 1998 and increased $565,000 (19.9%) in the
three months ended October 31, 1998 from the three months ended October 31,
1997. The increase during the nine months ended October 31, 1999 was primarily
the result of increased sales and increased occupancy costs offset by improved
inventory management. The decrease during the three months ended October 31,
1999 was primarily the result of the winding down of business at one warehouse
store. The increases during the nine and three months ended October 31, 1998
were primarily attributable to increased sales resulting from the addition of
one warehouse store.
Selling and administrative expenses increased $186,000 (8.0%) to
$2,502,000 in the nine months ended October 31, 1999 from $2,316,000 in the nine
months ended October 31, 1998 and increased $371,000 (19.1%) in the nine months
ended October 31, 1998 from the nine months ended October 31, 1997. Selling and
administrative expenses increased $54,000 (6.6%) to $876,000 in the three months
ended October 31, 1999 from $822,000 in the three months ended October 31, 1998
and increased $110,000 (15.4%) in the three months ended October 31, 1998 from
the three months ended October 31, 1997. The increases in the nine and three
months ended October 31, 1999 were primarily the result of higher administrative
costs. The increases in the nine and three months ended October 31, 1998 were
primarily the result of additional stores.
-8-
<PAGE>
Depreciation and amortization expense increased $8,000 to $338,000 in
the nine months ended October 31, 1999 from $330,000 in the nine months ended
October 31, 1998 and increased $33,000 in the nine months ended October 31, 1998
from the nine months ended October 31, 1997. Depreciation and amortization
increased $2,000 to $114,000 in the three months ended October 31, 1999 from
$112,000 in the three months ended October 31, 1998 and increased $4,000 in the
three months ended October 31, 1998 from the three months ended October 31,
1997. The increases are primarily the result of additional stores.
Operating income decreased ($286,000) (24.9%) to $859,000 in the nine
months ended October 31, 1999 from $1,145,000 in the nine months ended October
31, 1998 and increased $306,000 (36.5%) in the nine months ended October 31,
1998 from the nine months ended October 31, 1997. Operating income decreased
($47,000) (7.7%) to $558,000 in the three months ended October 31, 1999 from
$605,000 in the three months ended October 31, 1998 and increased $244,000
(67.6%) in the three months ended October 31, 1998 from the three months ended
October 31, 1997. The changes in operating income for the nine and three months
ended October 31, 1999 and 1998, which the Company believes are not material,
are primarily the result of the factors described above. As a percentage of
sales, operating income represented 6.8% and 9.2% in the nine months ended
October 31, 1999 and 1998, respectively, and 11.3% and 12.3% in the three months
ended October 31, 1999 and 1998, respectively.
Liquidity and Capital Resources - Consolidated
During the nine months ended October 31, 1999, and 1998, 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 provided by operating activities for the nine months
ended October 31, 1999 and 1998 was $15,280,000 and $4,542,000, respectively.
For the nine months ended October 31, 1999, cash provided by operations was the
result of net income, increases in accrued expenses and non-cash charges for
depreciation and amortization partially offset by decreases in merchandise
inventories. For the nine months ended October 31, 1998, cash provided by
operations was the result of net income, increases in trade accounts payable,
and non-cash charges for depreciation and amortization partially offset by
deferred income tax benefit decreases in income taxes payable and an increase in
merchandise inventories. The inventory turn-over rate for the apparel business
was approximately 2.5 times during the nine months ended October 31, 1999 and
2.4 times during the nine months ended October 31, 1998. The inventory turn-over
rate for the book business was approximately 0.9 times during the nine months
ended October 31, 1999 and 1.0 times during the nine months ended October 31,
1998.
Net cash used in investing activities was $7,112,000 and $2,809,000 for
the nine months ended October 31, 1999 and 1998, respectively. For the nine
months ended October 31, 1999 and 1998, the increase in net cash used in
investing activities was principally due to the opening of new stores and the
remodeling of existing stores. The nine months ended October 31, 1999 also
included the cost of a new roof on the distribution center for approximately
$1,200,000.
Net cash used in financing activities was $2,1390,000 and $1,809,000
for the nine months ended October 31, 1999 and 1998, respectively. For the nine
months ended October 31, 1999, these funds were principally used for the payment
of dividends on preferred and common stock . For the nine months ended October
31, 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.
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 bankruptcy proceedings. The stores are located in regional
malls, and were opened during the Company's fiscal quarter ended April 30, 1998.
-9-
<PAGE>
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 October 31, 1999, there were no commitments for the opening of
additional resort stores; however, one warehouse store opened at the end of the
third quarter of the current fiscal year. 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.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue exists because many software programs, computer
hardware, operating systems and microprocessor-based embedded controls in
automated equipment use two-digit date fields to designate a year. As the
century date change occurs, date-sensitive systems may recognize the year 2000
as the year 1900, or not at all. This inability to recognize or properly treat
the year 2000 may cause systems to process financial and operational information
incorrectly or fail to operate.
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, point-of-sale, 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 dates and
process information in the Year 2000 and beyond. It is anticipated that
remediation of some of the Company's Programs and Systems and replacement of
some of the Company's Programs and Systems will be necessary to make such
Programs and Systems Year 2000 compliant. As part of its evaluation, the Company
reviewed both Information Technology ("IT") and non-"IT" systems. The Company
has concluded that non-"IT" systems are not significant to the ongoing operation
of its business. 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
materially adversely affected by such issues affecting the systems of such other
companies.
As of October 31, 1999 the Company's believes that it has completed its
YEAR 2000 compliance projects at an approximate cost of $875,000. These projects
were funded from internally generated funds. The Company believes that it has
achieved Year 2000 compliance through the remediation of some Programs and
Systems and through the replacement of other Programs and Systems. However, no
assurance can be given that these efforts are successful, or that the Company
will not be materially adversely affected by any failures of these remediation
and replacement projects.
Management of the Company believes that it has an effective program in
place and has resolved the Year 2000 issue in a timely manner. As noted above,
the Company has completed all necessary phases of its Year 2000 plan. Because of
the range of possible issues and the large number of variables involved, it is
impossible to quantify the potential cost of problems should the Company or its
trading partners not properly complete their Year 2000 plans or become Year 2000
compliant. Such costs and any failure of compliance efforts could have a
material adverse effect on the Company. The Company believes that the most
likely risks of serious Year 2000 business disruption are from outside parties,
such as utility companies, financial institutions, telecommunications and
transportation services. In the event the Company is affected by the disruption
of outside services, the Company could be unable to conduct its business. In
addition, disruptions in the economy generally resulting from Year 2000 issues
could have a material adverse effect on the Company.
The Company has not developed contingency plans. Development of such
plans will be considered if the Company determines that the inability of third
parties to complete their Year 2000 resolution process will materially affect
the Company.
-10-
<PAGE>
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, 1999 on an unaudited basis.
<TABLE>
<CAPTION>
Net Sales Net Income
---------------------- ------------------------
Amount % Amount %
-------- ------ ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
1st Quarter $ 49,759 21.2% $ 402 2.6%
2nd Quarter 58,488 24.9% 3,814 24.6%
3rd Quarter 60,007 25.6% 2,491 16.1%
4th Quarter 66,470 28.3% 8,789 56.7%
-------- ------ ------- -------
TOTAL $234,724 100.0% $15,496 100.0%
======== ====== ======= =======
</TABLE>
Approximately 54% and 73% of the Company's net sales and net income,
respectively, for fiscal 1999 occurred during the last six months, which
includes the Back-to-School and Christmas selling seasons.
-11-
<PAGE>
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of October 31, 1999, the Company had cash and cash equivalents of
$76,256,000 compared to $57,836,000 as of October 31, 1998, and $45,089,000 as
of October 31, 1997. These funds are invested primarily in money market funds
and short-term municipal bonds, all of which are fully insured or guaranteed by
letters-of-credit. The Company does not invest for trading purposes.
Accordingly, the Company does not believe it has significant exposure to market
risk with respect to its investments.
PART II. OTHER INFORMATION
Items 1 - 3. NOT APPLICABLE
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
As disclosed in Form 10-Q, for the quarterly period
ending July 31, 1999, at its annual meeting the Company's
directors were elected. At that meeting the shareholders
authorized the increase in the number of authorized shares of
common stock from 25,000,000 to 50,000,000. Total votes
present, either in person or by proxy, were 12,951,102. The
votes were cast as follows:
FOR 12,792,723
AGAINST 148,658
ABSTAIN 9,721
Item 5. NOT APPLICABLE
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
during the quarter ended October 31, 1999.
-12-
<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.
ATE: December 14, 1999 By /s/Marvin Rounick
---------------------------------
Marvin Rounick
President
ATE: December 14, 1999 By /s/Lewis Lyons
---------------------------------
Lewis Lyons
Vice President, Finance
Chief Financial Officer
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> OCT-31-1999
<CASH> 76,256,830
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 25,470,769
<CURRENT-ASSETS> 105,600,660
<PP&E> 55,401,495
<DEPRECIATION> 37,003,601
<TOTAL-ASSETS> 131,129,675
<CURRENT-LIABILITIES> 26,353,193
<BONDS> 0
0
460
<COMMON> 156,883
<OTHER-SE> 103,603,944
<TOTAL-LIABILITY-AND-EQUITY> 131,129,675
<SALES> 193,952,782
<TOTAL-REVENUES> 196,470,277
<CGS> 103,096,226
<TOTAL-COSTS> 174,910,698
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,559,579
<INCOME-TAX> 8,193,000
<INCOME-CONTINUING> 13,366,579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,366,579
<EPS-BASIC> 1.01
<EPS-DILUTED> .99
</TABLE>
