<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 July 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
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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 13,385,900
---------------------------- ------------------------------------
(Class) (Outstanding at July 31, 2000)
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
I N D E X
---------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. Item 1, Financial Information:
Consolidated Balance Sheets - 1
July 31, 2000 and January 31, 2000
Consolidated Statements of Operations - Six Months and 2
Three Months Ended July 31, 2000 and 1999
Consolidated Statements of Cash Flows - 3
Six Months Ended July 31, 2000 and July 31, 1999
Notes to Consolidated Financial Statements - 4
July 31, 2000
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - July 31, 2000 5-11
Item 3. Quantitative and Qualitative Disclosures About 11
Market Risk
PART II. Other Information 11-12
</TABLE>
<PAGE>
DEB SHOPS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
2000 2000
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 92,662,863 $ 90,307,234
Merchandise inventories 35,048,766 26,550,433
Prepaid expenses and other 2,787,498 4,219,237
Deferred income taxes 2,462,941 2,234,691
------------ ------------
Total Current Assets 132,962,068 123,311,595
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 150,000 150,000
Buildings 4,347,697 4,347,697
Leasehold improvements 34,444,522 33,312,055
Furniture and equipment 17,770,427 17,521,878
------------ ------------
56,712,646 55,331,630
------------ ------------
Less accumulated depreciation
and amortization 38,628,947 37,608,972
------------ ------------
18,083,699 17,722,658
------------ ------------
OTHER ASSETS
Goodwill, net of accumulated amortization
of $1,035,474 and $928,356, respectively 2,182,931 2,290,049
Deferred income taxes 3,556,716 3,234,966
Other 1,712,223 1,712,223
------------ ------------
Total Other Assets 7,451,870 7,237,238
------------ ------------
$158,497,637 $148,271,491
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 23,738,705 $ 17,495,977
Accrued expenses 10,063,862 10,932,950
Income taxes payable 2,982,402 3,925,540
------------ ------------
Total Current Liabilities 36,784,969 32,354,467
------------ ------------
Capital Lease Obligation 919,908 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 129,049,599 123,390,856
------------ ------------
135,071,732 129,412,989
Less common treasury shares, at cost -
July 31, 2000: 2,302,390;
January 31, 2000: 2,353,390 14,278,972 14,595,264
------------ ------------
120,792,760 114,817,725
------------ ------------
$158,497,637 $148,271,491
============ ============
</TABLE>
See notes to consolidated financial statements are an integral part of these
financial statements.
-1-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31, Three Months Ended July 31,
------------------------------------------ --------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net Sales $131,003,251 $126,227,817 $66,018,736 $66,710,424
-------------- ------------ ------------ -----------
Costs and Expenses
Cost of Sales, including
Buying and occupancy costs 92,067,975 85,820,815 44,659,660 42,109,022
Selling and administrative 27,750,829 25,013,155 14,346,098 12,788,227
Depreciation and amortization 2,211,500 1,951,919 1,155,344 988,050
------------ ------------ ----------- -----------
122,030,304 112,785,889 60,161,102 55,885,299
------------ ------------ ----------- -----------
Operating Income 8,972,947 13,441,928 5,857,634 10,825,125
Other income, principally interest 2,534,778 1,535,183 1,403,632 692,538
------------ ------------ ----------- -----------
Income Before Income Taxes 11,507,725 14,977,111 7,261,266 11,517,663
Income Taxes 4,430,000 5,691,000 2,795,000 4,444,000
------------ ------------ ----------- -----------
Net Income $ 7,077,725 $ 9,286,111 $ 4,466,266 $ 7,073,663
============ ============ =========== ===========
Net Income Per Common Share
Basic $ 0.53 $ 0.70 $ 0.33 $ 0.53
============ ============ =========== ===========
Diluted $ 0.52 $ 0.69 $ 0.33 $ 0.52
============ ============ =========== ===========
Cash Dividend Declared
Per Common Share $ 0.10 $ 0.10 $ 0.05 $ 0.05
============ ============= =========== ===========
Weighted Average Number of
Common Shares Outstanding
Basic 13,367,614 13,209,671 13,377,933 13,217,765
============ ============ =========== ===========
Diluted 13,531,284 13,464,381 13,503,869 13,492,866
============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements are an integral part of these
financial statements.
-2-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
----------------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows provided by operating activities:
Net income 7,077,725 9,286,111
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,211,500 1,951,919
Deferred income tax (benefit) ( 550,000) ( 370,000)
Loss on retirement of property, plant and equipment 152,594 211,447
Change in operating assets and liabilities:
Increase in merchandise inventories ( 8,498,333) ( 8,123,903)
Decrease in prepaid expenses and other 1,431,739 189 794
Increase in trade accounts payable 6,242,728 4,357,499
(Decrease) increase in accrued expenses ( 869,088) 1,681,258
(Decrease) increase in income taxes payable ( 943,138) 526,062
-------------- ------------
Net cash provided by operating activities 6,255,727 9,710,187
-------------- ------------
Cash flows (used in) investing activities:
Purchase of property, plant and equipment, net ( 2,618,017) ( 4,567,780)
------------- -------------
Net cash used in investing activities ( 2,618,017) ( 4,567,780)
------------- -------------
Cash flows (used in) financing activities:
Preferred stock cash dividends paid ( 27,600) ( 27,600)
Common stock cash dividends paid ( 1,337,340) ( 1,322,114)
Proceeds from exercise of stock options 262,250 106,464
Principal payments under capital lease obligations ( 179,391) ( 146,478)
------------- -------------
Net cash used in financing activities ( 1,282,081) ( 1,389,728)
------------- -------------
Increase in cash and cash equivalents 2,355,629 3,752,679
Cash and cash equivalents at beginning of period 90,307,234 70,228,227
-------------- ------------
Cash and cash equivalents at end of period $92,662,863 $73,980,906
============== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on capital lease obligation $ 95,609 $ 128,522
Income taxes, net $ 5,889,743 $ 5,535,919
</TABLE>
See notes to consolidated financial statements are an integral part of these
financial statements.
-3-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 31, 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 six months
ended July 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>
Six Months Ended July 31, Three Months Ended July 31,
------------------------- ----------------------------
2000 1999 2000 1999
----------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Net income $ 7,077,725 $ 9,286,111 $ 4,466,266 $ 7,073,662
Dividends on preferred stock (27,600) (27,600) (13,800) (13,800)
----------- ----------- ----------- -----------
Income available to
common shareholders $ 7,050,125 $ 9,258,511 $ 4,452,466 $ 7,059,862
=========== =========== =========== ===========
Basic weighted average
number of common
shares outstanding 13,367,614 13,209,671 13,377,933 13,217,765
Effect of dilutive stock options 163,670 254,710 125,936 275,101
----------- ----------- ----------- -----------
Diluted weighted average
number of common
shares outstanding 13,531,284 13,464,381 13,503,869 13,492,866
=========== =========== =========== ===========
</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 between December 16, 1999 and March 15,
2000 to implement the provisions of SAB 101 no later than December 31, 2000. The
Company will adopt the provisions of SAB 101 as of 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.
-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, 2000.
Overview
Deb Shops, Inc. (the "Company") operates 282 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 six months
ended July 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 $4,775,000 (3.8%) to $131,003,000 in
the six months ended July 31, 2000 from $126,228,000 in the six months ended
July 31, 1999, and increased $17,981,000 (16.6%) in the six months ended July
31, 1999 from the six months ended July 31, 1998. Consolidated net sales
decreased ($692,000) (1.0%) to $66,019,000 in the three months ended July 31,
2000 from $66,710,000 in the three months ended July 31, 1999 and increased
$8,223,000 (14.1%) in the three months ended July 31, 1999 from the three months
ended July 31, 1998. The increase in the six month period ended July 31, 2000
was primarily the result of increased comparable store sales in the apparel
division during the first quarter of fiscal 2001. The decrease in the three
month period ended July 31, 2000 was primarily the result of decreased
comparable store sales in the apparel division. The increases in the three and
six month periods ended July 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 $1,000,000 (65.1%) to
$2,535,000 in the six months ended July 31, 2000 from $1,535,000 in the six
months ended July 31, 1999 and decreased ($25,000) (1.6%) in the six months
ended July 31, 1999 from the six months ended July 31, 1998. Other income,
principally interest, increased $711,000 (102.7%) to $1,404,000 in the three
months ended July 31, 2000 from $693,000 in the three months ended July 31, 1999
and decreased ($189,000) (21.5%) in the three months ended July 31, 1999 from
-5-
<PAGE>
the three months ended July 31, 1998. Interest income is offset by losses on the
disposition of fixed assets. The increases during the six and three months ended
July 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 decreases in the six and three months
ended July 31, 1999 were primarily the result of losses on disposition of fixed
assets and lower interest rates.
Income before income taxes decreased ($3,469,000) (23.2%) to
$11,508,000 in the six months ended July 31, 2000 from $14,977,000 in the six
months ended July 31, 1999 and increased $8,491,000 (130.9%) in the six months
ended July 31, 1999 from the six months ended July 31, 1998. Income before
income taxes decreased ($4,256,000) (37.0%) to $7,261,000 in the three months
ended July 31, 2000 from $11,518,000 in the three months ended July 31, 1999 and
increased $5,561,000 (96.3%) in the three months ended July 31, 1999 from the
three months ended July 31, 1998. The decreases for the six and three months
ended July 31, 2000 were primarily the result of decreased comparable store
sales and margins in the apparel business. The increases for the six and three
months ended July 31, 1999 were primarily the result of increased sales and
margins in the apparel business.
Results of Operations - Apparel Business
Net sales increased $4,355,000 (3.7%) to $122,941,000 in the six months
ended July 31, 2000 from $118,586,000 in the six months ended July 31, 1999 and
increased $17,896,000 (17.8%) in the six months ended July 31, 1999 from the six
months ended July 31, 1998. Net sales decreased ($1,043,000) (1.7%) to
$60,949,000 in the three months ended July 31, 2000 from $61,992,000 in the
three months ended July 31, 1999 and increased $8,077,000 (15.0%) in the three
months ended July 31, 1999 from the three months ended July 31, 1998. The
increases in net sales for the six months ended July 31, 2000 resulted primarily
from the increased sales in the quarter ended April 30, 2000. The decrease in
net sales for the three months ended July 31, 2000 resulted primarily from 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 increases in net sales for the six and three months
ended July 31, 1999 resulted primarily from increased customer acceptance of the
Company's products, which was attributed 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>
Six Months Ended July 31,(1) Three Months Ended July 31,(1)
-------------------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Stores open at end of the period 290 276 290 276
Average number in operation during the period 288 275 290 275
Average net sales per store (in thousands) $427 $431 $210 $225
Average operating income per store (in thousands) $ 30 $ 48 $ 19 $ 38
Comparable Store Sales(2)- Percent Change (1.8)% 15.8% (6.9)% 13.5%
</TABLE>
Cost of sales, including buying and occupancy costs, increased
$5,952,000 (7.4%) to $86,372,000 in the six months ended July 31, 2000 from
$80,420,000 in the six months ended July 31, 1999 and increased $6,226,000
(8.4%) in the six months ended July 31, 1999 from the six months ended July 31,
1998. Cost of sales, including buying and occupancy costs, increased $2,415,000
(6.2%) to $41,159,000 in the three months ended July 31, 2000 from $38,744,000
in the three months ended July 31, 2000 and increased $900,000 (2.4%) in the
three months ended July 31, 1999 from the three months ended July 31, 1998. The
increases in cost of goods
------------------------
(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>
sold, including buying and occupancy costs, in the six and three months ended
July 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 six and three months ended July 31, 1999 were principally due to the
increases in sales during the periods. As a percentage of net sales, these costs
were 70.3% and 67.8% during the six months ended July 31, 2000 and 1999,
respectively, and 67.5% and 62.5% during the three months ended July 31, 2000
and 1999, respectively. The percentage increases for the six and three months
ended July 31, 2000 as compared to the six and three months ended July 31, 1999,
resulted primarily from decreased margins. Buying and occupancy costs were 16.6%
and 16.5% of net sales for the six months ended July 31, 2000 and 1999,
respectively, and 17.0% and 16.6% of net sales for the three months ended July
31, 2000 and 1999, respectively. The percentage increases for the six and three
months ended July 31, 2000 as compared to the six and three months ended July
31, 1999, resulted principally from a decrease in sales during the periods.
Selling and administrative expenses increased $2,639,000 (11.3%) to
$26,023,000 in the six months ended July 31, 2000 from $23,384,000 in the six
months ended July 31, 1999 and increased $2,844,000 (13.8%) in the six months
ended July 31, 1999 from the six months ended July 31, 1998. Selling and
administrative expenses increased $1,491,000 (12.5%) to $13,378,000 in the three
months ended July 31, 2000 from $11,887,000 in the three months ended July 31,
1999 and increased $1,224,000 (11.5%) in the three months ended July 31, 1999
from the three months ended July 31, 1998. The increase in selling and
administrative costs for the six and three months ended July 31, 2000 was
primarily due to increased store operating costs. The increase in selling and
administrative costs for the six and three months ended July 31, 1999 was
primarily due to increased store operating costs and increased administrative
costs. As a percentage of net sales, these expenses were 21.2% and 19.7% in the
six months ended July 31, 2000 and 1999, respectively, and 22.0% and 19.2% in
the three months ended July 31, 2000 and 1999, respectively. The percentage
increases in the six and three months ended July 31, 2000 were primarily the
result of a decrease in comparable store sales for the periods.
Depreciation expense increased $237,000 to $1,935,000 in the six months
ended July 31, 2000 from $1,698,000 in the six months ended July 31, 1999 and
increased $72,000 in the six months ended July 31, 1999 from the six months
ended July 31, 1998. Depreciation expense increased $157,000 to $1,016,000 in
the three months ended July 31, 2000 from $859,000 in the three months ended
July 31, 1999 and increased $44,000 in the three months ended July 31, 1999 from
the three months ended July 31, 1998. The increases for the six and three months
ended July 31, 2000 and 1999 were primarily attributable to new store openings
and remodeling of existing stores.
Operating income was $8,611,000 in the six months ended July 31, 2000
as compared to operating income of $13,084,000 in the six months ended July 31,
1999 and $4,330,000 in the six months ended July 31, 1998. Operating income was
$5,395,000 in the three months ended July 31, 2000 as compared to operating
income of $10,502,000 in the three months ended July 31, 1999 and $4,592,000 in
the three months ended July 31, 1998. As a percentage of sales, operating income
was 7.0% and 11.0% in the six months ended July 31, 2000 and 1999, respectively,
and 8.9% and 16.9% in the three months ended July 31, 2000 and 1999,
respectively. The decreases in operating income for the six and three months
ended July 31, 2000 were primarily attributable to decreases in comparable same
store sales and margins and increases in selling and administrative expenses.
The increases in operating income for the six and three months ended July 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 $420,000 (5.5%) to $8,062,000 in the six months
ended July 31, 2000 from $7,642,000 in the six months ended July 31, 1999 and
increased $85,000 (1.1%) in the six months ended July 31, 1999 from the six
months ended July 31, 1998. Net sales increased $352,000 (7.5%) to $5,070,000 in
the three months ended July 31, 2000 from $4,718,000 in the three months ended
July 31, 1999 and increased $146,000 (3.2%) in the three months ended July 31,
1999 from the three months ended July 31, 1998. The increases in the six and
three months ended July 31, 2000 and 1999 were lower than in the prior periods
primarily as a result of increased competition.
-7-
<PAGE>
The following table sets forth certain store information:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
July 31, July 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) $262 $222 $215 $183
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) $863 $821 $451 $418
Comparable Store Sales(1) - Percent Change 6.3% (4.2%) 8.2% (3.8%)
</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 $295,000
(5.4%) to $5,786,000 in the six months ended July 31, 2000 from $5,491,000 in
the six months ended July 31, 1999 and increased $187,000 (3.5%) in the six
months ended July 31, 1999 from the six months ended July 31, 1998. Cost of
sales, including buying and occupancy costs, increased $135,000 (4.0%) to
$3,546,000 in the three months ended July 31, 2000 from $3,410,000 in the three
months ended July 31, 1999 and increased $175,000 (5.4%) in the three months
ended July 31, 1999 from the three months ended July 31, 1998. The increases
during the six and three months ended July 31, 2000 and 1999 were primarily the
result of increased sales and increased occupancy costs partially offset by
improved inventory management.
Selling and administrative expenses increased $94,000 (5.8%) to
$1,720,000 in the six months ended July 31, 2000 from $1,626,000 in the six
months ended July 31, 1999 and increased $132,000 (8.8%) in the six months ended
July 31, 1999 from the six months ended July 31, 1998. Selling and
administrative expenses increased $64,000 (7.1%) to $964,000 in the three months
ended July 31, 2000 from $900,000 in the three months ended July 31, 1999 and
increased $40,000 (4.6%) in the three months ended July 31, 1999 from the three
months ended July 31, 1998. The increases in the six and three months ended July
31, 2000 and 1999 were primarily the result of higher administrative costs.
Depreciation and amortization expense increased $10,000 to $234,000 in
the six months ended July 31, 2000 from $224,000 in the six months ended July
31, 1999 and increased $6,000 in the six months ended July 31, 1999 from the six
months ended July 31, 1998. Depreciation and amortization increased $4,000 to
$118,000 in the three months ended July 31, 2000 from $114,000 in the three
months ended July 31, 1999 and increased $4,000 in the three months ended July
31, 1999 from the three months ended July 31, 1998. The increases are primarily
the result of opening new stores partially offset by the effect closing existing
stores.
Operating income increased $22,000 (7.2%) to $323,000 in the six months
ended July 31, 2000 from $301,000 in the six months ended July 31, 1999 and
decreased ($239,000) (44.3%) in the six months ended July 31, 1999 from the six
months ended July 31, 1998. Operating income increased $148,000 (50.2%) to
$442,000 in the three months ended July 31, 2000 from $295,000 in the three
months ended July 31, 1999 and decreased ($73,000) (19.9%) in the three months
ended July 31, 1999 from the three months ended July 31, 1998. The changes in
operating income for the six and three months ended July 31, 2000 and 1999, are
primarily the results of the factors described above. As a percentage of sales,
operating income represented 4.0% and 3.9% in the six months ended July 31, 2000
and 1999, respectively, and 8.7% and 6.2% in the three months ended July 31,
2000 and 1999, respectively.
-8-
<PAGE>
Liquidity and Capital Resources - Consolidated
During the six months ended July 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 six months
ended July 31, 2000 and 1999 was $6,256,000 and $9,710,000, respectively. For
the six months ended July 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 six months ended July 31,
1999, cash provided by operations was the result of net income, increases in
trade accounts payable, accrued expenses, income taxes payable and non-cash
charges for depreciation and amortization partially offset by increases in
merchandise inventories. The inventory turnover rate for the apparel business
was approximately 1.6 times during the six months ended July 31, 2000 and 1.7
times during the six months ended July 31, 1999. The inventory turnover rate for
the book business was approximately 0.6 times during the six months ended July
31, 2000 and 0.7 times during the six months ended July 31, 1999.
Net cash used in investing activities was $2,618,000 and $4,568,000 for
the six months ended July 31, 2000 and 1999, respectively. The decrease in net
cash used in investing activities was principally due to the timing of the
opening of new stores and the remodeling of existing stores.
Net cash used in financing activities was $1,282,000 and $1,390,000 for
the six months ended July 31, 2000 and 1999, respectively. For the six months
ended July 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.
- 9 -
<PAGE>
Item 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of July 31, 2000, the Company had cash and cash equivalents of
$92,663,000 compared to $73,981,000 as of July 31, 1999, and $60,290,000 as of
July 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 - 3. NOT APPLICABLE
-----------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
------ ----------------------------------------------------
The annual meeting of the Company was held on Wednesday, May
17, 2000. Total votes present either in person or by proxy were 13,127,859.
Votes were cast as follows for the election of directors:
FOR WITHHELD
---------- --------
Marvin Rounick 12,455,216 672,643
Warren Weiner 12,455,216 672,643
Jack A. Rounick 12,455,216 672,643
Barry H. Feinberg 12,454,616 673,243
Barry H. Frank 12,455,216 672,643
Ivan Inerfeld 12,455,216 672,643
Votes were cast as follows for the approval of the Amended and
Restated Deb Shops, Inc. 1995 Incentive Stock option Plan:
For 11,204,919
Against 1,874,901
Abstain 48,039
There were no other matters voted on at the meeting.
Item 5. NOT APPLICABLE
------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
------ --------------------------------
(a) Exhibits
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 July 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: September 13, 2000 By /s/ Marvin Rounick
------------------------
Marvin Rounick
President
DATE: September 13, 2000 By /s/ Lewis Lyons
------------------------
Lewis Lyons
Vice President, Finance
Chief Financial Officer
