<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended April 30, 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
--------------------------------------------------------------------------------
(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 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 13,360,900
---------------------------- ------------------------------------
(Class) (Outstanding at April 30, 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
April 30, 2000 and January 31, 2000
Consolidated Statements of Operations 2
Three Months Ended April 30, 2000 and 1999
Consolidated Statements of Cash Flows - 3
Three Months Ended April 30, 2000 and 1999
Notes to Consolidated Financial Statements - 4
April 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - April 30, 2000 5-10
Item 3. Quantitative and Qualitative Disclosures About 10
Market Risk
PART II. Other Information 11
</TABLE>
<PAGE>
DEB SHOPS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
APRIL 30, JANUARY 31,
2000 2000
-------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $92,818,108 $90,307,234
Merchandise inventories 26,952,120 26,550,433
Prepaid expenses and other 3,154,951 4,219,237
Deferred income taxes 2,340,691 2,234,691
------------ ------------
Total Current Assets 125,265,870 123,311,595
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 150,000 150,000
Buildings 4,347,697 4,347,697
Leasehold improvements 34,063,689 33,312,055
Furniture and equipment 17,524,575 17,521,878
------------ ------------
56,085,961 55,331,630
Less accumulated depreciation
and amortization 38,018,750 37,608,972
------------ ------------
18,067,211 17,722,658
------------ ------------
OTHER ASSETS
Goodwill, net of accumulated amortization
of $767,679 and $714,120, respectively 2,236,490 2,290,049
Deferred income taxes 3,383,966 3,234,966
Other 1,712,223 1,712,223
------------ ------------
Total Other Assets 7,332,679 7,237,238
------------ ------------
$150,665,760 $148,271,491
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $19,333,566 $17,495,977
Accrued expenses 10,017,195 10,932,950
Income taxes payable 3,470,806 3,925,540
------------ ------------
Total Current Liabilities 32,821,567 32,354,467
------------ ------------
Capital Lease Obligation 1,009,604 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 - April 30, 2000: 15,688,290;
January 31, 2000: 15,688,290 156,883 156,883
Additional paid in capital 5,864,790 5,864,790
Retained earnings 125,246,473 123,390,856
------------ ------------
131,268,606 129,412,989
Less common treasury shares, at cost -
April 30, 2000: 2,327,390;
January 31, 2000: 2,353,390 14,434,017 14,595,264
------------ ------------
116,834,589 114,817,725
------------ ------------
$150,665,760 $148,271,491
============ ============
See notes to consolidated financial statements.
-1-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended April 30,
----------------------------------
2000 1999
---- ----
Net Sales $ 64,984,515 $ 59,517,393
------------ ------------
Costs and Expenses
Cost of Sales, Including
Buying and Occupancy Costs 47,408,315 43,711,793
Selling and Administrative 13,404,731 12,224,928
Depreciation and Amortization 1,056,156 963,869
------------ ------------
61,869,202 56,900,590
------------ ------------
Operating Income 3,115,313 2,616,803
Other Income, Principally Interest 1,131,146 842,645
------------ ------------
Income Before Income Taxes 4,246,459 3,459,448
Income Taxes 1,635,000 1,247,000
------------ ------------
Net Income $ 2,611,459 $ 2,212,448
============ ============
Net Income Available Per Common Share
Basic $ 0.19 $ 0.17
============ ============
Diluted $ 0.19 $ 0.16
============ ============
Cash Dividend Declared
Per Common Share $ 0.05 $ 0.05
============ ============
Weighted Average Number of
Common Shares Outstanding
Basic 13,358,113 13,198,880
============ ============
Diluted 13,559,518 13,427,809
============ ============
See notes to consolidated financial statements.
-2-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended April 30,
----------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows provided by operating activities:
Net income 2,611,459 2,212,448
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,056,156 963,869
Deferred income tax (benefit) ( 255,000) ( 200,000)
Loss on retirement of property, plant and equipment 99,678 16,281
Change in assets and liabilities:
(Increase) in merchandise inventories ( 401,687) ( 1,525,693)
Decrease (increase) in prepaid expenses and other 1,064,286 ( 4,802)
Increase in trade accounts payable 1,837,589 1,447,813
(Decrease) in accrued expenses ( 915,755) ( 15,952)
(Decrease) in income taxes payable ( 454,734) ( 1,249,641)
----------- -----------
Net cash provided by operating activities 4,641,992 1,644,323
----------- -----------
Cash flows (used in) investing activities:
Purchase of property, plant and equipment, net ( 1,446,828) ( 2,317,109)
----------- -----------
Net cash (used in) investing activities ( 1,446,828) ( 2,317,109)
----------- -----------
Cash flows (used in) financing activities:
Preferred stock cash dividends paid ( 13,800) ( 13,800)
Common stock cash dividends paid ( 668,045) ( 659,944)
Proceeds from exercise of stock options 87,250 ---
Principal payments under capital lease obligations ( 89,695) ( 73,239)
----------- -----------
Net cash (used in) financing activities ( 684,290) ( 746,983)
----------- -----------
Increase (decrease) in cash and cash equivalents 2,510,874 ( 1,419,769)
Cash and cash equivalents at beginning of period 90,307,234 70,228,227
----------- -----------
Cash and cash equivalents at end of period $92,818,108 $68,808,458
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on capital lease obligation $ 47,804 $ 64,261
Income taxes, net $ 2,089,734 $ 2,697,402
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 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 months ended April 30, 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.
Three Months Ended April 30,
2000 1999
----------------------------
Net income $2,611,459 $2,212,448
Dividends on preferred stock (13,800) (13,800)
---------- ----------
Income available to
common shareholders $2,597,659 $2,198,648
========== ==========
Basic weighted average
number of common
shares outstanding 13,358,113 13,198,880
Effect of dilutive stock options 201,405 228,929
---------- ----------
Diluted weighted average
number of common
shares outstanding 13,559,518 13,427,809
========== ==========
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 March 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 June 30, 2000. The
Company will adopt the provisions of SAB 101 as of the fiscal quarter ending
July 31, 2000. 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, find suitable retail locations 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 280 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. Atlantic Books also operates six much larger "Atlantic Book Warehouses"
which carry a full line of best sellers, new titles and magazines in addition to
remainder books. The Atlantic Book Warehouse stores are located in Delaware,
Maryland, Minnesota, New Jersey and Pennsylvania.
Results of operations for the Company for the three months ended April
30, 2000 and 1999, are presented on a consolidated basis and divisional basis to
provide relevant information concerning the Company's retail apparel store
business, which is the Company's principal line of business, and the retail book
business.
Results of Operations - Consolidated
Consolidated net sales increased $5,467,000 (9.2%) to $64,985,000 in
the three months ended April 30, 2000 from $59,517,000 in the three months ended
April 30, 1999, and increased $9,758,000 (19.6%) in the three months ended April
30, 1999 from the three months ended April 30, 1998. The increases during the
three months ended April 30, 2000 and 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 (loss) are more fully described in the sections on
"Apparel Business" and "Book Business" that follow.
Other income, principally interest, increased $289,000 (34.2%) to
$1,131,000 in the three months ended April 30, 2000 from $843,000 in the three
months ended April 30, 1999 and increased $164,000 (24.1%) for the three months
ended April 30, 1999 from the three months ended April 30, 1998. Interest income
is offset by losses on the disposition of fixed assets. The increases in the
three months ended April 30, 2000 and 1999 were primarily the result of earnings
on higher cash balances.
-5-
<PAGE>
Income before income taxes increased $787,000 (22.7%) to $4,246,000 in
the three months ended April 30, 2000 from $3,459,000 in the three months ended
April 30, 1999 and increased $2,840,000 (458.6%) for the three months ended
April 30, 1999 from the three months ended April 30, 1998. The improvements for
the three months ended April 30, 2000 and 1999 were primarily comprised of an
increase in the apparel business sales and apparel business margins.
Results of Operations - Apparel Business
Net sales increased $5,398,000 (9.5%) to $61,993,000 in the three
months ended April 30, 2000 from $56,594,000 in the three months ended April 30,
1999 and increased $9,818,000 (21.0%) in the three months ended April 30, 1999
from the three months ended April 30, 1998. The increases in net sales in the
three months ended April 30, 2000 and 1999 resulted primarily from increased
customer acceptance of the Company's products, which is attributed to the
Company's continual refining of its focus on its younger customers, in addition
to continuing efforts to improve visual merchandising
The following table sets forth certain store information.
Store Data(1)
Three Months Ended April 30,
----------------------------
2000 1999
---- ----
Stores open at end of the period 288 275
Average number in operation during the period 281 275
Average net sales per store (in thousands) $221 $206
Average operating income $ 11 $ 9
per store (in thousands)
Comparable Store Sales(2) - Percent Change 3.8% 18.3%
Cost of sales, including buying and occupancy costs, increased
$3,537,000 (8.5%) to $45,213,000 in the three months ended April 30, 2000 from
$41,676,000 in the three months ended April 30, 1999 and increased $5,326,000
(14.7%) in the three months ended April 30, 1999 from the three months ended
April 30, 1998. The increases in the three months ended April 30, 2000 and 1999
in cost of sales, including buying and occupancy costs, were principally due to
the increase in sales during the period. As a percentage of net sales, these
costs were 72.9% during the three months ended April 30, 2000, and 73.6% during
the three-month period ended April 30, 1999. For the three months ended April
30, 2000 and April 30, 1999, the decreased cost of sales percentage resulted
primarily from increased margins. Buying and occupancy costs were 16.2% and
16.3% of sales for the three months ended April 30, 2000 and 1999, respectively.
Buying and occupancy costs, as a percentage of sales, were essentially unchanged
for the three months ended April 30, 2000 and April 30, 1999.
--------
(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>
Selling and administrative expenses increased $1,148,000 (10.0%) to
$12,645,000 in the three months ended April 30, 2000 from $11,497,000 in the
three months ended April 30, 1999 and increased $1,620,000 (16.4%) in the three
months ended April 30, 1999 from the three months ended April 30, 1998. The
increases in selling and administrative costs for the three months ended April
30, 2000 and 1999 were primarily due to increased store operating costs and
increased administrative costs. As a percentage of net sales, these expenses
were 20.4% during the three months ended April 30, 2000, and 20.3% during the
three months ended April 30, 1999. Selling and administrative expenses, as a
percentage of sales, were essentially unchanged for the three months ended April
30, 2000 and 1999.
Depreciation expense increased $81,000 to $919,000 in the three months
ended April 30, 2000 from $838,000 in the three months ended April 30, 1999 and
increased $28,000 in the three months ended April 30, 1999 from the three months
ended April 30, 1998. The increase for the three months ended April 30, 2000 and
1999 were principally attributed to new store openings and remodeling of
existing stores.
Operating income was $3,215,000 in the three months ended April 30,
2000 as compared to operating income of $2,583,000 in the three months ended
April 30, 1999 and an operating (loss) of ($262,000) in the three months ended
April 30, 1998. As a percentage of sales, operating income was 5.2% in the three
months ended April 30, 2000, and 4.6% in the three months ended April 30, 1999.
The increases in operating income for the three months ended April 30, 2000 and
1999 were primarily attributable to the increase in sales and an increase in
margins, partially offset by an increase in selling and administrative expenses.
Results of Operations - Book Business
Net sales increased $69,000 (2.0%) to $2,992,000 in the three months
ended April 30, 2000 from $2,923,000 in the three months ended April 30, 1999
and decreased ($60,000) (2.0%) in the three months ended April 30, 1999 from the
three months ended April 30, 1998. The increase in net sales in the three months
ended April 30, 2000 resulted primarily from a change in the store mix of the
warehouse stores and the improved performance of the resort stores. The decrease
in net sales in the three months ended April 30, 1999 resulted primarily from
increasing competition as evidenced by the reduction in same store sales.
The following table sets forth certain store information:
Store Data
Three Months Ended April 30,
----------------------------
2000 1999
---- ----
Resort Stores:
Stores open at end of period 11 12
Average number in operation during the period 11 12
Average net sales per store (in thousands) $ 46 $ 39
Warehouse Stores:
Stores open at end of period 6 6
Average number in operation during the period 6 6
Average net sales per store (in thousands) $415 $409
Comparable Store Sales(1) - Percent Change 0.3% (4.9%)
----------
(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.
-7-
<PAGE>
Cost of sales, including buying and occupancy costs, increased $160,000
(7.7%) to $2,240,000 in the three months ended April 30, 2000 from $2,080,000 in
the three months ended April 30, 1999 and increased $12,000 (0.6%) in the three
months ended April 30, 1999 from the three months ended April 30, 1998. The
increase in the three months ended April 30, 2000 was primarily the result of
decreased margins resulting from competitive pressures and increased buying and
occupancy costs. The increase in the three months ended April 30, 1999 was
primarily the result of lower sales and increased occupancy costs offset by
improved inventory management. As a percentage of net sales, cost of sales,
buying and occupancy costs were 74.9% in the three months ended April 30, 2000
and 71.2% in the three months ended April 30, 1999. As a percentage of net
sales, buying and occupancy costs were 19.8% in the three months ended April 30,
2000 and 18.0% in the three months ended April 30, 1999.
Selling and administrative expenses increased $30,000 (4.1%) to
$756,000 in the three months ended April 30, 2000 from $726,000 in the three
months ended April 30, 1999 and increased $92,000 (14.5%) in the three months
ended April 30, 1999 from the three months ended April 30, 1998. The increases
in the three months ended April 30, 2000 and 1999 were primarily the result of
higher administrative costs. As a percentage of net sales, selling and
administrative costs were 25.3% in the three months ended April 30, 2000 and
24.8% in the three months ended April 30, 1998.
Depreciation and amortization expense increased $5,000 to $116,000 in
the three months ended April 30, 2000 from $110,000 in the three months ended
April 30, 1999 and increased $1,000 in the three months ended April 30, 1999
from the three months ended April 30, 1998. The increases were primarily the
result of additional stores.
Operating (loss) was ($120,000) in the three months ended April 30,
2000 as compared to operating income of $7,000 in the three months ended April
30, 1999 and $172,000 in the three months ended April 30, 1998. The decreases in
operating income for the three months ended April 30, 2000 and 1999, were
primarily the result of the factors described above. As a percentage of net
sales, operating (loss) represents (4.0%) in the three months ended April 30,
2000, and operating income represents 0.2% in the three months ended April 30,
1999.
Liquidity and Capital Resources - Consolidated
During the three months ended April 30, 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 three months
ended April 30, 2000 and 1999 was $4,642,000 and $1,644,000, respectively. For
the three months ended April 30, 2000, cash provided by operations was the
result of net income, increases in accounts payable, decreases in prepaid
expenses and non-cash charges for depreciation and amortization, partially
offset by decreases in merchandise inventories and increases in accrued expenses
and income taxes payable. For the three months ended April 30, 1999, 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 decreases in merchandise inventories and increases in income taxes payable.
The inventory turnover rate for the apparel business was approximately 0.8 times
during the three months ended April 30, 2000 and 0.9 times during the three
months ended April 30, 1999. The inventory turnover rate for the book business
was approximately 0.2 times during the three months ended April 30, 2000 and
1999.
Net cash (used in) investing activities was $1,447,000 and $2,317,000
for the three months ended April 30, 2000 and 1999, respectively. The increase
in net cash used in investing activities was principally due to the opening of
new stores and the remodeling of existing stores.
-8-
<PAGE>
Net cash (used in) financing activities was $684,000 and $747,000 for
the three months ended April 30, 2000 and 1999, respectively. For the three
months ended April 30, 2000 and 1999, these funds were principally used for the
payment of dividends on preferred and common stock.
As of April 30, 2000, the Company had cash and cash equivalents of
$92,818,000 compared with $68,808,000 at April 30, 1999.
Opening a warehouse bookstore is capital intensive, because of the
leasehold improvements and initial inventory required. It is anticipated that
the funds to finance expansion will come from the cash and cash equivalents on
hand. As of the balance sheet date, there were no commitments for the opening of
any additional resort stores or warehouse stores. 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.
-9-
<PAGE>
Item 3.
-------
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of April 30, 2000, the Company had cash and cash equivalents of
$92,818,000 compared to $68,808,000 as of April 30, 1999, and $55,631,000 as of
April 30, 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
------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
------- ---------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during
the quarter ended April 30, 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: June 13, 2000 By /s/ Marvin Rounick
------------------------------
Marvin Rounick
President
DATE: June 13, 2000 By /s/ Lewis Lyons
------------------------------
Lewis Lyons
Vice President, Finance
Chief Financial Officer
