<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, 2000
--------------------------------------------------
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
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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
--------------------------------------------------------------------------------
(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 1934 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 13,385,900
---------------------------- ------------------------------------
(Class) (Outstanding at October 31, 2000)
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
I N D E X
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Page
----
PART I. Item 1. Financial Information:
Consolidated Balance Sheets - 1
October 31, 2000 and January 31, 2000
Consolidated Statements of Operations - Nine Months and 2
Three Months Ended October 31, 2000 and 1999
Consolidated Statements of Cash Flows - 3
Nine Months Ended October 31, 2000 and 1999
Notes to Consolidated Financial Statements - 4
October 31, 2000
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - October 31, 2000 5-9
Item 3. Quantitative and Qualitative Disclosures About 10
Market Risk
PART II. Other Information 11-12
<PAGE>
DEB SHOPS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
OCTOBER 31, JANUARY 31,
2000 2000
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 98,429,072 $ 90,307,234
Merchandise inventories 26,682,856 26,550,433
Prepaid expenses and other 2,807,167 4,219,237
Deferred income taxes 2,577,066 2,234,691
------------ ------------
Total Current Assets 130,496,161 123,311,595
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 150,000 150,000
Buildings 4,347,697 4,347,697
Leasehold improvements 34,986,179 33,312,055
Furniture and equipment 17,768,040 17,521,878
------------ ------------
57,251,916 55,331,630
------------ ------------
Less accumulated depreciation
and amortization 39,381,947 37,608,972
------------ ------------
17,869,969 17,722,658
------------ ------------
OTHER ASSETS
Goodwill, net of accumulated amortization
of $1,089,033 and $928,356, respectively 2,129,372 2,290,049
Deferred income taxes 3,717,591 3,234,966
Other 1,712,223 1,712,223
------------ ------------
Total Other Assets 7,559,186 7,237,238
------------ ------------
$155,925,316 $148,271,491
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 18,442,672 $ 17,495,977
Accrued expenses 9,906,373 10,932,950
Income taxes payable 2,690,213 3,925,540
------------ ------------
Total Current Liabilities 31,039,258 32,354,467
------------ ------------
Capital Lease Obligation 830,213 1,099,299
------------ ------------
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 - 50,000,000 shares
Issued Shares - 15,688,290 156,883 156,883
Additional paid in capital 5,864,790 5,864,790
Retained earnings 132,312,784 123,390,856
------------ ------------
138,334,917 129,412,989
Less common treasury shares, at cost -
October 31, 2000: 2,302,390;
January 31, 2000: 2,353,390 14,279,072 14,595,264
------------ ------------
124,055,845 114,817,725
------------ ------------
$155,925,316 $148,271,491
============ ============
See notes to consolidated financial statements.
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<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended October 31, Three Months Ended October 31,
------------------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net Sales $204,250,874 $193,952,782 $ 73,247,623 $ 67,724,965
------------ ------------ ------------ ------------
Costs and Expenses
Cost of sales, including
buying and occupancy costs 144,538,914 133,704,907 52,470,939 47,896,755
Selling and administrative 42,258,519 38,179,086 14,507,690 13,153,267
Depreciation and amortization 3,325,689 3,026,705 1,114,189 1,074,786
------------ ------------ ------------ ------------
190,123,122 174,910,698 68,092,818 62,124,808
------------ ------------ ------------ ------------
Operating income 14,127,752 19,042,084 5,154,805 5,600,157
Other income, principally interest 3,797,153 2,517,495 1,262,375 982,312
------------ ------------ ------------ ------------
Income before income taxes 17,924,905 21,559,579 6,417,180 6,582,469
Income taxes 6,901,000 8,193,000 2,471,000 2,502,000
------------ ------------ ------------ ------------
Net income $ 11,023,905 $ 13,366,579 $ 3,946,180 $ 4,080,469
============ ============ ============ ============
Net income per common share
Basic $ 0.82 $ 1.01 $ 0.29 $ 0.31
============ ============ ============ ============
Diluted $ 0.81 $ 0.99 $ 0.29 $ 0.30
============ ============ ============ ============
Cash dividend declared
per common share $ 0.15 $ 0.15 $ 0.05 $ 0.05
============ ============ ============ ============
Weighted average number of
common shares outstanding
Basic 13,373,100 13,220,015 13,385,900 13,243,400
============ ============ ============ ============
Diluted 13,522,766 13,481,373 13,507,556 13,530,371
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
-------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 11,023,905 $ 13,366,579
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,325,689 3,026,705
Deferred income tax (benefit) (825,000) (910,000)
Loss on retirement of property, plant and equipment 253,485 210,027
Change in operating assets and liabilities:
(Increase) in merchandise inventories (132,423) (1,536,614)
Decrease in prepaid expenses and other 1,412,070 256,274
Increase (decrease) in trade accounts payable 946,695 (43,408)
(Decrease) increase in accrued expenses (1,026,577) 1,748,281
(Decrease) in income taxes payable (1,235,327) (829,098)
------------ ------------
Net cash provided by operating activities 13,742,517 15,279,746
------------ ------------
Cash flows used in investing activities:
Purchase of property, plant and equipment, net (3,565,808) (7,112,207)
------------ ------------
Net cash used in investing activities (3,565,808) (7,112,207)
------------ ------------
Cash flows used in financing activities:
Preferred stock cash dividends paid (41,400) (41,400)
Common stock cash dividends paid (2,006,635) (1,984,284)
Proceeds from exercise of stock options 262,250 106,465
Principal payments on capital lease obligations (269,086) (219,717)
------------ ------------
Net cash used in financing activities (2,054,871) ( 2,138,936)
------------ -------------
Increase in cash and cash equivalents 8,121,838 6,028,603
Cash and cash equivalents at beginning of period 90,307,234 70,228,227
------------ ------------
Cash and cash equivalents at end of period $ 98,429,072 $ 76,256,830
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on capital lease obligation $ 143,413 $ 192,783
Income taxes, net $ 8,998,411 $ 9,930,843
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the first quarter and the third quarter, cost of goods sold and inventories are
estimated based on the use of the gross profit method. 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 and nine months ended October 31, 2000 are not necessarily indicative of
the results that may be expected for the fiscal year ending January 31, 2001.
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, 2000. The Balance Sheet at January 31, 2000 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.
<TABLE>
<CAPTION>
Nine Months Ended October 31, Three Months Ended October 31,
------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 11,023,905 $ 13,366,579 $ 3,946,180 $ 4,080,469
Dividends on preferred stock (41,400) (41,400) (13,800) (13,800)
------------ ------------ ------------ ------------
Income available to
common shareholders $ 10,982,505 $ 13,325,179 $ 3,932,380 $ 4,066,669
============ ============ ============ ============
Basic weighted average
number of common
shares outstanding 13,373,100 13,220,015 13,385,900 13,243,400
Effect of dilutive stock options 149,666 261,358 121,656 286,971
------------ ------------ ------------ ------------
Diluted weighted average
number of common
shares outstanding 13,522,766 13,481,373 13,507,556 13,530,371
============ ============ ============ ============
</TABLE>
NOTE C - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views regarding the
application of generally accepted accounting principles to revenue recognition
in financial statements. In June 2000, the SEC amended SAB 101 to require
companies with fiscal years beginning after December 15, 1999 to implement the
provisions of SAB 101 no later than the fourth fiscal quarter. The Company will
adopt the provisions of SAB 101 in the fiscal quarter ending January 31, 2001.
The Company is currently in the process of evaluating the impact, if any, that
SAB 101 will have on its consolidated financial position and results of
operations.
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<PAGE>
Item 2.
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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, 2000.
Overview
Deb Shops, Inc. (the "Company") operates 283 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 17 Atlantic bookstores. The book division
includes 11 "Atlantic Book Shops," which are small limited selection book
stores, generally open seasonally in Delaware, Maryland and New Jersey resort
towns. The book division 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, 2000 and 1999, are discussed below 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 $10,298,000 (5.3%) to $204,251,000 in
the nine months ended October 31, 2000 from $193,953,000 in the nine months
ended October 31, 1999, and increased $25,699,000 (15.3%) in the nine months
ended October 31, 1999 from the nine months ended October 31, 1998. Consolidated
net sales increased $5,523,000 (8.2%) to $73,248,000 in the three months ended
October 31, 2000 from $67,725,000 in the three months ended October 31, 1999 and
increased $7,718,000 (12.9%) in the three months ended October 31, 1999 from the
three months ended October 31, 1998. The increase in the nine month period ended
October 31, 2000 was primarily the result of sales in stores open less than one
year in the apparel division. The increase in the three month period ended
October 31, 2000 was primarily the result of sales in stores open less than one
year and to a lesser extent increased comparable store sales in the apparel
division. 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 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 $1,280,000 (50.8%) to
$3,797,000 in the nine months ended October 31, 2000 from $2,517,000 in the nine
months ended October 31, 1999 and increased $288,000 (12.9%) in the nine months
ended October 31, 1999 from the nine months ended October 31, 1998. Other
income, principally interest, increased $280,000 (28.5%) to $1,262,000 in the
-5-
<PAGE>
three months ended October 31, 2000 from $982,000 in the three months ended
October 31, 1999 and increased $313,000 (46.8%) in the three months ended
October 31, 1999 from the three months ended October 31, 1998. Interest income
is offset by losses on the disposition of fixed assets. The increases in the
nine and three months ended October 31, 2000 were primarily the result of
earnings on higher cash balances, gradually rising interest rates and, to a
lesser extent, decreased write-offs from the disposition of fixed assets. The
increases in 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.
Income before income taxes decreased $3,635,000 (16.9%) to $17,925,000
in the nine months ended October 31, 2000 from $21,560,000 in the nine months
ended October 31, 1999 and increased $11,241,000 (108.9%) in the nine months
ended October 31, 1999 from the nine months ended October 31, 1998. Income
before income taxes decreased ($165,000) (2.5%) to $6,417,000 in the three
months ended October 31, 2000 from $6,582,000 in the three months ended October
31, 1999 and increased $2,750,000 (71.8%) in the three months ended October 31,
1999 from the three months ended October 31, 1998. The decrease for the nine
months ended October 31, 2000 was primarily the result of decreased comparable
store sales and margins in the apparel business during the second quarter of the
fiscal year. The decrease for the three months ended October 31, 2000 was
primarily the result of increased store operating costs and to a lesser extent
the lack of leverage of sales against buying and occupancy costs. The increases
for the nine and three months ended October 31, 1999 were primarily the result
of increased sales and margins in the apparel business.
Results of Operations - Apparel Business
Net sales increased $9,819,000 (5.4%) to $191,197,000 in the nine
months ended October 31, 2000 from $181,378,000 in the nine months ended October
31, 1999 and increased $25,617,000 (16.4%) in the nine months ended October 31,
1999 from the nine months ended October 31, 1998. Net sales increased $5,464,000
(8.7%) to $68,256,000 in the three months ended October 31, 2000 from
$62,791,000 in the three months ended October 31, 1999 and increased $7,722,000
(14.0%) in the three months ended October 31, 1999 from the three months ended
October 31, 1998. The increase in net sales for the nine months ended October
31, 2000 resulted primarily from sales in stores open less than one year and
partially offset by the slow down in sales of summer merchandise which, the
Company believes, was primarily attributable to the cool wet weather in the
Mid-Atlantic and Mid-West parts of the country. The increase in net sales for
the three months ended October 31, 2000 resulted primarily from the sales in
stores open less than one year. The increases in net sales for the nine and
three months ended October 31, 1999 resulted primarily from increased customer
acceptance of the Company's products, which was attributable to the Company's
continual refining of its focus on its younger customers, in addition to its
continuing efforts to improve visual merchandising.
The following table sets forth certain store information:
<TABLE>
<CAPTION>
Nine Months Ended October 31,(1) Three Months Ended October 31,(1)
-------------------------------- ---------------------------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Stores open at end of the period 291 281 291 281
Average number in operation during the period 290 275 291 279
Average net sales per store (in thousands) $ 659 $ 660 $ 235 $ 225
Average operating income per store (in thousands) $ 47 $ 66 $ 17 $ 18
Comparable Store Sales(2)- Percent Change (0.2)% 14.2% 2.9% 11.3%
</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.
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<PAGE>
Cost of sales, including buying and occupancy costs, increased
$10,192,000 (8.2%) to $135,156,000 in the nine months ended October 31, 2000
from $124,965,000 in the nine months ended October 31, 1999 and increased
$9,773,000 (8.5%) in the nine months ended October 31, 1999 from the nine months
ended October 31, 1998. Cost of sales, including buying and occupancy costs,
increased $4,239,000 (9.5%) to $48,784,000 in the three months ended October 31,
2000 from $44,544,000 in the three months ended October 31, 1999 and increased
$3,547,000 (8.7%) in the three months ended October 31, 1999 from the three
months ended October 31, 1998. The increases in cost of goods sold, including
buying and occupancy costs, in the nine and three months ended October 31, 2000
were primarily due to the increases in sales and the decreases in margins. The
increases in cost of sales, including buying and occupancy costs in the nine and
three months ended October 31, 1999 were principally due to the increases in
sales during the periods. As a percentage of net sales, these costs were 70.7%
and 68.9% during the nine months ended October 31, 2000 and 1999, respectively,
and 71.5% and 70.9% during the three months ended October 31, 2000 and 1999,
respectively. The percentage increase for the nine months ended October 31, 2000
as compared to the nine months ended October 31, 1999, resulted primarily from
decreased margins. The percentage increase for the three months ended October
31, 2000 as compared to the three months ended October 31, 1999, resulted
primarily from increased buying and occupancy costs. Buying and occupancy costs
were 16.1% and 15.8% of net sales for the nine months ended October 31, 2000 and
1999, respectively, and 15.2% and 14.6% of net sales for the three months ended
October 31, 2000 and 1999, respectively. The percentage increases for the nine
and three months ended October 31, 2000 as compared to the nine and three months
ended October 31, 1999, resulted principally from smaller increases in sales
during the periods than in the comparable periods in the prior fiscal year.
Selling and administrative expenses increased $3,927,000 (11.0%) to
$40,000,000 in the nine months ended October 31, 2000 from $35,673,000 in the
nine months ended October 31, 1999 and increased $4,404,000 (14.1%) in the nine
months ended October 31, 1999 from the nine months ended October 31, 1998.
Selling and administrative expenses increased $1,287,000 (10.5%) to $13,577,000
in the three months ended October 31, 2000 from $12,290,000 in the three months
ended October 31, 1999 and increased $1,560,000 (14.5%) in the three months
ended October 31, 1999 from the three months ended October 31, 1998. The
increase in selling and administrative costs for the nine and three months ended
October 31, 2000 was primarily due to increased store operating costs. 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. As a percentage of net sales, these expenses
were 20.7% and 19.7% in the nine months ended October 31, 2000 and 1999,
respectively, and 19.9% and 19.6% in the three months ended October 31, 2000 and
1999, respectively. The percentage increase in the nine months ended October 31,
2000 was primarily the result of a decrease in comparable store sales for the
periods. The percentage increase in the three months ended October 31, 2000 was
primarily the result of a slowdown in comparable store sales growth.
Depreciation expense increased $264,000 to $2,908,000 in the nine
months ended October 31, 2000 from $2,643,000 in the nine months ended October
31, 1999 and increased $204,000 in the nine months ended October 31, 1999 from
the nine months ended October 31, 1998. Depreciation expense increased $27,000
to $973,000 in the three months ended October 31, 2000 from $946,000 in the
three months ended October 31, 1999 and increased $132,000 in the three months
ended October 31, 1999 from the three months ended October 31, 1998. The
increases for the nine and three months ended October 31, 2000 and 1999 were
primarily attributable to new store openings and remodeling of existing stores.
Operating income was $13,533,000 in the nine months ended October 31,
2000 as compared to operating income of $18,096,000 in the nine months ended
October 31, 1999 and $6,861,000 in the nine months ended October 31, 1998.
Operating income was $4,922,000 in the three months ended October 31, 2000 as
compared to operating income of $5,012,000 in the three months ended October 31,
1999 and $2,530,000 in the three months ended October 31, 1998. As a percentage
of sales, operating income was 7.1% and 10.0% in the nine months ended October
31, 2000 and 1999, respectively, and 7.2% and 8.0% in the three months ended
October 31, 2000 and 1999, respectively. The decrease in operating income for
the nine months ended October 31, 2000 was primarily attributable to decreases
in comparable same store sales and margins and increases in selling and
-7-
<PAGE>
administrative expenses. The decrease in operating income for the three months
ended October 31, 2000 was primarily attributable to increases in selling and
administrative expenses and buying and occupancy costs. The increases in
operating income for the nine and three months ended October 31, 1999 were
primarily attributable to the increases in sales and margins, partially offset
by increases in selling and administrative expenses.
Results of Operations - Book Business
Net sales increased $479,000 (3.8%) to $13,054,000 in the nine months
ended October 31, 2000 from $12,575,000 in the nine months ended October 31,
1999 and increased $82,000 (0.7%) in the nine months ended October 31, 1999 from
the nine months ended October 31, 1998. Net sales increased $59,000 (1.2%) to
$4,992,000 in the three months ended October 31, 2000 from $4,933,000 in the
three months ended October 31, 1999 and decreased ($4,000) (0.1%) in the three
months ended October 31, 1999 from the three months ended October 31, 1998. The
increases in the nine and three months ended October 31, 2000 were lower than in
the prior periods primarily as a result of increased competition. 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 the result
of increased competition.
The following table sets forth certain store information:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended October
October 31, 31,
--------------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Resort Stores:
Stores open at end of period 11 12 11 12
Average number in operation during the period 11 12 11 12
Average net sales per store (in thousands) $471 $415 $209 $190
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) $1,312 $1,266 $449 $443
Comparable Store Sales(1) - Percent Change 4.1% Flat 0.8% 1.7%
</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 $601,000
(6.8%) to $9,477,000 in the nine months ended October 31, 2000 from $8,875,000
in the nine months ended October 31, 1999 and increased $174,000 (2.0%) in the
nine months ended October 31, 1999 from the nine months ended October 31, 1998.
Cost of sales, including buying and occupancy costs, increased $294,000 (8.6%)
to $3,691,000 in the three months ended October 31, 2000 from $3,397,000 in the
three months ended October 31, 1999 and decreased ($14,000) (0.4%) in the three
months ended October 31, 1999 from the three months ended October 31, 1998. The
increases during the nine and three months ended October 31, 2000 were primarily
the result of increased sales and increased occupancy costs partially offset by
improved inventory management. The increase during the nine months ended October
31, 1999 was primarily the result of increased sales and increased occupancy
costs partially 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.
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<PAGE>
Selling and administrative expenses increased $146,000 (5.8%) to
$2,648,000 in the nine months ended October 31, 2000 from $2,502,000 in the nine
months ended October 31, 1999 and increased $186,000 (8.0%) in the nine months
ended October 31, 1999 from the nine months ended October 31, 1998. Selling and
administrative expenses increased $64,000 (7.5%) to $928,000 in the three months
ended October 31, 2000 from $864,000 in the three months ended October 31, 1999
and increased $54,000 (6.6%) in the three months ended October 31, 1999 from the
three months ended October 31, 1998. The increases in the nine and three months
ended October 31, 2000 and 1999 were primarily the result of higher
administrative costs.
Depreciation and amortization expense increased $16,000 to $354,000 in
the nine months ended October 31, 2000 from $338,000 in the nine months ended
October 31, 1999 and increased $8,000 in the nine months ended October 31, 1999
from the nine months ended October 31, 1998. Depreciation and amortization
increased $6,000 to $120,000 in the three months ended October 31, 2000 from
$114,000 in the three months ended October 31, 1999 and increased $2,000 in the
three months ended October 31, 1999 from the three months ended October 31,
1998. The increases are primarily the result of opening new stores partially
offset by the effect of closing existing stores.
Operating income decreased ($285,000) (33.2%) to $575,000 in the nine
months ended October 31, 2000 from $859,000 in the nine months ended October 31,
1999 and decreased ($286,000) (24.9%) in the nine months ended October 31, 1999
from the nine months ended October 31, 1998. Operating income decreased
($305,000) (54.7%) to $253,000 in the three months ended October 31, 2000 from
$558,000 in the three months ended October 31, 1999 and decreased ($47,000)
(7.7%) in the three months ended October 31, 1999 from the three months ended
October 31, 1998. The changes in operating income for the nine and three months
ended October 31, 2000 and 1999, are primarily the results of the factors
described above. As a percentage of sales, operating income represented 4.4% and
6.8% in the nine months ended October 31, 2000 and 1999, respectively, and 5.1%
and 11.3% in the three months ended October 31, 2000 and 1999, respectively.
Liquidity and Capital Resources - Consolidated
During the nine months ended October 31, 2000, and 1999, 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, 2000 and 1999 was $13,743,000 and $15,280,000, respectively.
For the nine months ended October 31, 2000, cash provided by operations was the
result of net income, increases in trade accounts payable, decreases in prepaid
expenses and other and non-cash charges for depreciation and amortization
partially offset by increases in merchandise inventories and decreases in
accrued expenses and income taxes payable. For the nine months ended October 31,
1999, cash provided by operations was the result of net income, increases in
accrued expenses, non-cash charges for depreciation and amortization partially
offset by increases in merchandise inventories and income taxes payable. The
inventory turnover rate for the apparel business was approximately 2.4 times
during the nine months ended October 31, 2000 and 2.5 times during the nine
months ended October 31, 1999. The inventory turnover rate for the book business
was approximately 1.0 times during the nine months ended October 31, 2000 and
0.9 times during the nine months ended October 31, 1999.
Net cash used in investing activities was $3,566,000 and $7,112,000 for
the nine months ended October 31, 2000 and 1999, respectively. Net cash used in
investing activities was principally for the opening of new stores and the
remodeling of existing stores and during the nine months ended October 31, 1999
included the cost of a new roof on the distribution center for approximately
$1,200,000.
Net cash used in financing activities was $2,055,000 and $2,139,000 for
the nine months ended October 31, 2000 and 1999, respectively. For the nine
months ended October 31, 2000 and 1999, these funds were principally used for
the payment of dividends on preferred and common stock.
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.
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<PAGE>
Item 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of October 31, 2000, the Company had cash and cash equivalents of
$98,429,000 compared to $76,257,000 as of October 31, 1999, and $57,836,000 as
of October 31, 1998. 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 - 5. NOT APPLICABLE
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
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(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, 2000.
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DEB SHOPS, INC.
DATE: December 13, 2000 By /s/ Marvin Rounick
------------------------
Marvin Rounick
President
DATE: December 13, 2000 By /s/ Lewis Lyons
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Lewis Lyons
Vice President, Finance
Chief Financial Officer
