SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 25, 1998 Commission file number 0-11736
THE DRESS BARN, INC.
(Exact name of registrant as specified in its charter)
Connecticut 06-0812960
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 Dunnigan Drive, Suffern, New York 10901
(Address of principal executive offices) (Zip Code)
(914) 369-4500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock $.05 par value
Indicate 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in the definitive proxy incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X].
As of October 16, 1998, 22,741,616 shares of common shares were outstanding. The
aggregate market value of the common shares (based upon the October 16, 1998
closing price of $14.875 on the NASDAQ Stock Market) of The Dress Barn, Inc.
held by non-affiliates was approximately $276.6 million. For the purposes of
such calculation, all outstanding shares of Common Stock have been considered
held by non-affiliates, other than the 4,148,055 shares beneficially owned by
Directors and Officers of the registrant. In making such calculation, the
registrant does not determine the affiliate or non-affiliate status of any
shares for any other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on December 14, 1998 are incorporated into Parts I and
III of this Form 10-K.
Page 1 of Cover Page
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THE DRESS BARN, INC.
FORM 10-K
FISCAL YEAR ENDED JULY 25, 1998
TABLE OF CONTENTS
<CAPTION>
PART I PAGE
<S> <C>
Item 1 Business
General 3
Company Strengths and Strategies 3
Merchandising 5
Buying and Distribution 6
Store Locations and Properties 7
Store Development, Operations and Management 9
Management Information Systems 10
Trademarks 10
Employees 11
Seasonality 11
Forward-Looking Statement and Factors Affecting Future Performance 11
Item 2 Properties 13
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 4A Executive Officers of the Registrant 15
PART II
Item 5 Market for Registrant's Common Stock and 16
Related Security Holders Matters
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and Analysis of 18
Financial Condition and Results of Operations
Item 8 Financial Statement and Supplementary Data 21
Item 9 Changes in and Disagreements with Accountants 21
on Accounting and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant 21
Item 11 Executive Compensation 21
Item 12 Security Ownership of Certain Beneficial Owners 21
and Management
Item 13 Certain Relationships and Related Transactions 21
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 22
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PART I
ITEM 1. BUSINESS
General
Dress Barn operates a national chain of value-priced specialty stores
offering in-season, moderate to better quality career apparel and accessories to
the fashion-conscious working woman. In addition, the Company's stores carry a
broad assortment of casual wear to suit its customers' total lifestyle needs.
Over the past several years, the Company has evolved from an off-price chain to
a value-priced specialty retailer. The Company distinguishes itself from (i)
off-price retailers by its carefully edited selection of in-season,
first-quality merchandise, service-oriented salespeople and its comfortable
shopping environment, (ii) department stores by its value pricing and convenient
locations and (iii) other specialty apparel retailers by its continuous focus on
Dress Barn's target customer for more than 35 years. As part of this focus, the
Company has successfully developed its own line of private brands, which
constituted approximately 65% of net sales for the fiscal year ended July 25,
1998 ("fiscal 1998").
The Company's stores operate primarily under the names Dress Barn and Dress
Barn Woman, the latter featuring larger sizes of styles similar to those found
in the Dress Barn stores. The Company also operates combination Dress Barn/Dress
Barn Woman stores ("Combo Stores"), which carry both Dress Barn and Dress Barn
Woman merchandise. As of July 25, 1998, the Company operated 669 stores in 43
states and the District of Columbia, consisting of 341 Dress Barn stores, 68
Dress Barn Woman stores and 260 Combo Stores. The Dress Barn and Dress Barn
Woman stores average approximately 4,500 and approximately 4,000 square feet,
respectively, and the Combo Stores average approximately 9,000 square feet.
Based on the success of its Combo Stores, the Company is focusing its expansion
strategy on opening new Combo Stores and converting existing Dress Barn and
Dress Barn Woman stores to the combination format. The Company plans to open
approximately 60 additional Combo Stores by the end of its fiscal year ending
July 31, 1999 ("fiscal 1999").
Company Strengths and Strategies
Dress Barn is one of the largest national specialty store chains offering
women's career fashions at value prices. Dress Barn attributes its success to
its: (i) strong name recognition and loyal customer base; (ii) long-standing
relationships with vendors of quality merchandise; (iii) experienced management
team; (iv) commitment to technology; (v) strong, consistent customer focus; (vi)
low cost operating structure; and (vii) strong balance sheet.
Since the Company's formation in 1962, Dress Barn has established and
reinforced its image as a source of fashion and value for the working woman. The
Company's 669 store locations in 43 states and the District of Columbia provide
it with a nationally recognized name. In addition, the Company believes it has
developed high awareness among its target customers through on-going advertising
and local marketing activities.
The Company has developed and maintains strong and lasting relationships
with its domestic and offshore vendors, often being one of the vendors' largest
accounts. These relationships, along with the Company's buying power and strong
credit profile, enable the Company to receive favorable purchase terms,
exclusive merchandise and expedited delivery times.
<PAGE>
The three senior members of the Company's merchandising team have worked
together at Dress Barn for over 15 years, with each having substantial previous
fashion retailing experience. This team engineered the Company's evolution from
an off-price retailer to a value-priced specialty store. The Company's executive
officers have an average tenure at Dress Barn of 16 years. The stability of its
management has enabled the Company to develop a shared culture and vision and to
maintain its focus on growing and refining its business.
Dress Barn has used technology to improve merchandising and customer
service, reduce costs and enhance productivity. The Company continues to enhance
its management information systems, which include an IBM AS/400 integrated
financial system and IBM 4694 point-of-sale system. The enhanced point-of-sale
system allows the Company to provide better service to customers by reducing
paperwork and decreasing the average transaction processing time. This enables
sales associates to spend more time assisting customers. The Company continues
to enhance its laptop system that delivers up-to-date store related information
to its regional sales managers. The Company's distribution center systems
continue to be refined, further reducing per-unit distribution costs.
All aspects of Dress Barn's business are designed to be responsive to the
Dress Barn customer. Since 1962, the Company has been consistent in targeting
price-conscious and fashion-minded working women. The convenient locations of
the Company's stores primarily in strip and outlet centers, carefully edited
merchandise arranged for ease of shopping, comfortable store environment and
friendly customer service embody Dress Barn's strong focus on its customers.
Dress Barn's comprehensive training program encourages its sales associates to
assist customers in a low-key and friendly manner. The Company believes it
enhances its customers' shopping experience by avoiding aggressive sales tactics
that would result from a commission-based compensation structure.
The Company continually seeks to reduce costs in all aspects of its
operations and to create cost-consciousness at all levels. The Company believes
that its highly liquid balance sheet and internally generated funds provide a
competitive advantage that enables the Company to pursue its long-term
strategies regarding new stores, capital expenditures and acquisitions. The
Company has an ongoing strategy of supplementing the Company's growth and
enhancing shareholder value through expansion into related businesses, including
through acquisitions. The Company considers three types of acquisition
opportunities: (i) real estate oriented acquisitions to gain access to
attractive sites and favorable lease terms; (ii) other retail operations that
could benefit from Dress Barn's management and expertise, and (iii) alternate
channels of distribution, such as mail order catalogs. The Company is currently
developing its own mail order catalog, with the first mailing planned for Fall,
1999.
The Company's objective is to become the leading national chain of
value-priced specialty apparel stores offering career fashions to the moderate
income working woman. The Company has developed the following strategies to
achieve this goal: (i) further development of Dress Barn's private brands; (ii)
maintenance of Dress Barn's merchandise focus; (iii) continuation of the Combo
Store roll-out; (iv) further development of customer targeted marketing; and (v)
further improvement of customer service.
The Company has gradually increased the percentage of sales from goods
manufactured under Dress Barn's private brands, as well as goods produced by
national brand manufacturers exclusively for Dress Barn, to approximately 65%
and 10%, respectively, of the Company's net sales for fiscal 1998. While the
Company intends to continue to offer a balanced mix of both national brand name
and private brand merchandise, it plans to continue to increase the percentage
of private brand merchandise sold by its stores, including its successful
Westport(R) Princeton Club(R), Atrium(R) brands, as well as its Dress Barn(R)
label. Dress Barn's private brands typically provide more value for its
customers.
<PAGE>
The Company's stores carry a broad assortment of career wear, including
dresses, suits, separates, blouses, sweaters and other knitwear, as well as
casual wear items, that are carefully edited to suit the lifestyle needs of its
target customer. Dress Barn does not seek to dictate fashion trends; rather it
offers current styles but avoids fashion-forward merchandise that is subject to
rapidly changing trends. While career fashions remain the Company's primary
focus, it continues to adapt to the evolving definition of "career," such as
casual Fridays. In addition, the Company seeks to broaden its appeal by
expanding its merchandise mix.
Based on the success of its larger size Combo Stores, the Company expects
most future store openings to be Combo Stores between 9,000 and 10,000 square
feet. Combo Stores provide the Company with greater presence in shopping
centers, give the Company more leverage in negotiating lease terms, enable the
Company to achieve lower operating cost ratios and offer increased flexibility
in merchandise presentation. Of the approximately 80 additional Combo units
which the Company plans to open by the end of fiscal 1999, 60 are expected to be
new stores and 20 are expected to be conversions from existing Dress Barn or
Dress Barn Woman stores. The Company expects to continue to open stores
primarily in strip centers, while also seeking downtown locations.
In conjunction with its strategy of adding Combo Stores, the Company
continues to close or relocate its underperforming locations and expects to
close approximately 40 such locations during fiscal 1999, compared to 60 closed
in fiscal 1998. The Company has the option under a substantial number of its
store leases to terminate the lease at little or no cost if specified sales
volumes are not achieved, affording the Company greater flexibility to close
certain underperforming stores. The Company's continued opening of new Combo
Stores, net of store closings, is expected to result in an approximately 8%
increase in the Company's aggregate store square footage for fiscal 1999.
The Company uses several marketing tools, such as transactional analyses
through point-of-sale systems and customer surveys, in order to determine the
preferences of its target customers, working women ages 25-55. The Company
continues to collect data from its credit card program and is developing a
marketing program utilizing such data. Management believes that these tools will
further improve the Company's ability to align its operations with the demands
of its target customers on a consistent basis.
Dress Barn continually seeks to improve the customer's shopping experience.
For example, the Company's enhanced management information systems enables store
managers and sales associates to spend more time serving customers. The Company
utilizes an ongoing video-training program to improve customer service and sales
associates' product knowledge and selling skills.
Merchandising
In addition to the Company's broad assortment of career wear and casual
wear, the Company offers other wardrobe items including accessories, jewelry,
hosiery and shoes. Dress Barn and Dress Barn Woman are organized as separate
divisions, each with a separate merchandising team.
<PAGE>
A key component of the Company's merchandising strategy is to increase the
percentage of its sales derived from private brands. Private brands allow the
Company to differentiate itself from other retailers by providing an assortment
of merchandise that is not available elsewhere and to improve the Company's
control over the flow of merchandise into its stores by enabling the Company to
better specify quantities, styles, colors, size breaks and delivery dates. In
addition, the Company believes private brands provide it with more flexibility
in the marketing process by allowing for higher initial mark-ons and limiting
the ability of customers to compare prices with competing retailers. The Company
believes it has the expertise to execute its private brand strategy due to its
extensive experience sourcing goods, primarily overseas, its position as a
merchandiser of established fashions and its already successful line of private
brands. The percentage of the Company's sales generated from private brands has
increased to approximately 65% in fiscal 1998 from 55% in fiscal 1997, and 40%
in fiscal 1996.
The Company continues to expand its successful shoes and petite-size
departments. As of July 25, 1998, 194 stores had shoe departments and 75 stores
featured petites. The Company expects to add another approximately 100 shoe
departments and approximately 25 petite departments in fiscal 1999.
Virtually all merchandising decisions affecting the Company's stores are
made centrally. Merchandising policy is under the direction of the Chairman, the
President and six merchandise managers. Prices and markdowns are determined
centrally but may be adjusted locally in response to competitive situations.
Generally, the majority of the merchandise sold by the Company is uniformly
carried by all stores, with a percentage varied by management according to
regional or consumer tastes or the size of particular stores. To keep
merchandise seasonal and in current fashion, inventory is reviewed weekly and
markdowns are taken as appropriate to expedite selling. The Company's stores
offer first-quality current merchandise, with approximately half of the
Company's sales volume derived from sportswear, and the remainder consisting of
dresses, suits, blazers and accessories.
Buying and Distribution
Buying is conducted on a departmental basis for each of the Dress Barn and
Dress Barn Woman divisions by the Company's staff of over 35 buyers and
assistant buyers supervised by the President and six merchandise managers. The
Company also uses independent buying representatives in New York and overseas.
The Company obtains its nationally branded merchandise from approximately 350
vendors and its private brand merchandise from more than 50 vendors. Typical
lead times for the Company in making purchases from its vendors range from
approximately one month for items such as t-shirts, socks and hosiery to
approximately six months for items such as suits and dresses. Generally, lead
times do not vary significantly between the Company's private brands and
nationally branded merchandise.
The Company has in the past always been able to purchase sufficient
quantities of first-quality domestic merchandise at attractive prices from
vendors who typically sell to department and specialty stores, and management
believes that there will continue to be an adequate supply of such merchandise
available. The Company has also established strong relationships with its
private label manufacturers, and does not anticipate any difficulties in
obtaining sufficient quantities of its private label merchandise. No vendor
accounted for as much as 5% of the Company's purchases in fiscal 1998.
<PAGE>
All merchandise is received from vendors at the Company's central warehouse
and distribution facility in Suffern, New York, where it is inspected, allocated
and shipped to its stores. The Company seeks to use its strong relationships
with vendors to lower its operating costs by shifting freight and insurance
costs to the vendors and by requiring them to provide ancillary services. For
example, over 90% of the Company's merchandise is pre-ticketed by vendors and
over 35% is pre-packaged for distribution to stores, which allows cross-docking
in the distribution center to the stores. In addition, nearly half of the
hanging garments purchased by the Company are delivered on floor-ready hangers.
The Company generally does not warehouse merchandise, but distributes it
promptly to stores. Turnaround time between the receipt of merchandise from the
vendor and shipment to the stores is usually three days or less, and shipments
are made daily to most stores, maintaining the freshness of merchandise. Because
of such frequent shipments, the stores do not require significant storage space.
The Company may on occasion buy certain basic clothing that does not change in
style from year to year at attractive prices and warehouse such items at its
distribution center until needed.
Store Locations and Properties
As of July 25, 1998, the Company operated 669 stores in 43 states and the
District of Columbia. 334 of the stores were conveniently located in strip
centers and 258 stores were located in outlet centers. During fiscal 1998, no
store accounted for as much as 1% of the Company's total sales.
<TABLE>
The following table indicates the type of shopping facility in which the
stores were located:
<CAPTION>
Dress Barn
Dress Barn Woman Combo
Type of Facility Stores Stores Stores
<S> <C> <C> <C>
Strip Shopping Centers 198 32 104
Outlet Malls and Outlet Strip Centers 97 32 129
Free Standing, Downtown and Enclosed Malls 46 4 27
Total 341 68 260
</TABLE>
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<TABLE>
The following table indicates the states in which the stores operating on
July 25, 1998 were located, and the number of stores in each state:
<CAPTION>
Location DB DBW Combos
<S> <C> <C> <C>
Alabama 1 - 3
Arizona 6 1 5
Arkansas 1 - 2
California 25 4 16
Colorado 5 1 4
Connecticut 14 3 12
District of Columbia - - 1
Delaware 3 - 2
Florida 13 1 7
Georgia 12 3 12
Idaho 2 1 1
Illinois 10 - 14
Indiana 8 - 3
Iowa - - 2
Kansas 2 1 4
Kentucky 4 - 4
Louisiana - - 2
Maine 2 1 -
Maryland 9 2 10
Massachusetts 21 3 14
Michigan 16 1 11
Minnesota 1 - 2
Mississippi 1 - 3
Missouri 3 1 8
Nebraska - - 2
Nevada 2 - 3
New Hampshire 3 - 4
New Jersey 25 12 12
New Mexico - - -
New York 35 7 21
North Carolina 18 6 6
Ohio 7 1 9
Oklahoma 1 - 1
Oregon 2 2 1
Pennsylvania 31 7 13
Rhode Island 1 - -
South Carolina 14 1 3
Tennessee 8 3 7
Texas 13 1 14
Utah 2 1 3
Vermont 1 - -
Virginia 20 3 9
Washington 2 1 4
West Virginia - - 1
Wisconsin - - 5
Total 341 68 260
</TABLE>
<PAGE>
Store Development, Operations and Management
In considering new store locations, the Company typically focuses on
several criteria, such as concentration of the Company's target customer base,
the average household income in the surrounding area and the location of the
proposed store relative to competitive retailers. Within the specific strip or
outlet center, the Company evaluates the proposed co-tenants, the traffic count
of the existing center and the location of the store within the center. The
Company's real estate committee, which includes members of senior management,
must approve each new lease. The committee receives input from field management.
The Company's stores are designed to create a comfortable and pleasant
shopping environment for its customers. Merchandise and displays at all of the
stores are set up according to uniform guidelines and plans distributed by the
Company. The Company's merchandise is carefully arranged by lifestyle category
(e.g., career, casual and weekend wear) for ease of shopping. The stores also
have private fitting rooms, drive aisles, appealing lighting, carpeting,
background music and centralized cashier desks. Strategically located throughout
the stores are "lifestyle" posters showing the customer complete outfits
coordinated from among the stores' fashion offerings.
All stores are directly managed and operated by the Company. Each store is
staffed by a supervisor, who may be the store manager, and at least one sales
associate during non-peak hours, with additional sales associates added as
needed at peak hours. The supervisors and sales associates perform all store
operations, from receiving and processing merchandise and arranging it for
display, to assisting customers. Each store manager reports to a District Sales
Manager who, in turn, reports to a Regional Sales Manager. Dress Barn employs 10
Regional Sales Managers and approximately 90 District Sales Managers. District
sales managers typically visit each store at least once a week to review
merchandise levels and presentation, staff training and personnel performance,
expense control, security, cleanliness and adherence to Company operating
procedures.
The Company motivates its sales associates through promotion from within,
creative incentive programs, competitive wages and the opportunity for bonuses.
Sales associates compete in a broad variety of Company-wide contests involving
sales goals and other measures of performance. The contests are designed to
boost store profitability, create a friendly competitive atmosphere among
associates and offer opportunities for additional compensation. Management
believes that Dress Barn's creative incentive programs provide an important tool
for building cohesive and motivated sales teams. The Company utilizes
comprehensive training programs at the store level in order to ensure that the
customer will receive friendly and helpful service, which include (i) on-going
video training, (ii) workbooks and manuals and (iii) one-on-one training of
sales associates by store managers.
In fiscal 1998, approximately 57% of the Company's sales were paid for by
credit card, with the remainder being by cash or check. The Company utilizes its
own Dress Barn credit card. Consistent with the other credit cards it accepts,
the Company assumes no credit risk with respect to its Dress Barn card but pays
a percentage of sales as a service charge. The number of cardholders has
steadily increased to approximately 1.1 million currently. The average
transaction on the Dress Barn credit card during fiscal 1998 was approximately
50% more than the average of all other transactions and represented
approximately 13% of the Company's sales.
The Company mainly uses print advertising that emphasizes current fashion
apparel at value prices. The Company also uses direct mail programs, with seven
mailings during fiscal 1998, each to approximately one million households
including its credit card holders. At the store level, the store supervisors
host local marketing programs, including fashion shows and in-store events
designed to create greater awareness of Dress Barn's merchandise. In addition,
the Company considers its credit card program to be a significant component in
the development of its targeted marketing efforts, enabling it to develop
segmented marketing programs.
Virtually all of the Company's stores are open seven days a week. Stores
located in strip and outlet centers conform to the hours of other stores in the
center and are open most evenings, while downtown and freestanding stores are
usually open two nights per week.
Management Information Systems
In the past several years, the Company has made a significant investment in
technology to improve customer service, gain efficiencies and reduce operating
costs. Dress Barn has installed an IBM AS/400 management information system,
which integrates all major aspects of the Company's business, including sales,
distribution, purchasing, inventory control, merchandise planning and
replenishment, and financial systems. In August 1997, the Company completed
rolling out to all its stores IBM 4694 point-of-sale systems with price look-up
capabilities for both inventory and sales transactions. These systems can
accommodate substantial growth in additional stores with minimal incremental
investment. The Company has also developed and continues to refine a laptop
system that delivers up-to-date store-related information to its Regional Sales
Managers.
The Company's merchandising system tracks merchandise from the inception of
the purchase order, through receipt at the distribution center, through the
distribution planning process, and ultimately to the point of sale. To monitor
the performance of various styles, management reviews sales and inventory levels
on-line, organized by department, class, vendor, style, color and store. The
system enables the Company to mark down slow-moving merchandise or efficiently
transfer it to stores selling such items more rapidly. Through sophisticated yet
inexpensive off-the-shelf systems, the Company analyzes historical hourly and
projected sales trends to efficiently schedule sales personnel, minimizing labor
costs while producing a higher level of customer service. The Company believes
that such investments in technology enhance operating efficiencies and position
Dress Barn for future growth.
Trademarks
The Company has previously been issued U.S. Certificates of Registration of
Trademark for the operating names of its stores and its major private label
merchandise. The Company believes the following trademarks are materially
important to its business:
Trademark Registration Date
- --------- -----------------
Dress Barn March 5, 1985
Westport, Ltd. August 20, 1985
Atrium March 16, 1993
Princeton Club April 30, 1985
Lise J. February 15, 1984
Lee David Ltd. May 7, 1985
Approximately 5% of the Company's stores currently in operation, located in
outlet centers, operate under the name Westport Ltd. and Westport Woman. Subject
to landlord approval and underlying lease restrictions, if any, the Company
intends to convert as many of these stores as possible to the Dress Barn or
Dress Barn Woman name by the end of fiscal 1999.
<PAGE>
Employees
As of July 25, 1998, the Company had approximately 7,000 employees of whom
approximately 4,000 worked part time. A number of temporary employees are
usually added during the peak selling periods. None of the Company's employees
are covered by any collective bargaining agreement. The Company considers its
employee relations to be good.
Seasonality
The Company's sales are evenly split between its Fall and Spring seasons.
Though the Company does not consider its business seasonal, it has historically
experienced substantially lower earnings in its second fiscal quarter ending in
January than during its other three fiscal quarters, reflecting the intense
promotional atmosphere that has characterized the Christmas shopping season in
recent years. In addition, the Company's quarterly results of operations may
fluctuate materially depending on, among other things, increases or decreases in
comparable store sales, adverse weather conditions, shifts in timing of certain
holidays, the timing of new store openings, net sales contributed by new stores,
and changes in the Company's merchandise mix.
Forward-Looking Statements and Factors Affecting Future Performance
This Annual Report on Form 10-K contains in the "Business" section, in the
"Properties" section, in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere, forward looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. These statements reflect the Company's current views with respect to
future events and financial performance. The Company's actual results of
operations and future financial condition may differ materially from those
expressed or implied in any such forward looking statements as a result of
certain factors set forth below and elsewhere in this Form 10-K.
Among the factors that could cause actual results to differ materially are,
but are not limited to, the following: general economic conditions and consumer
confidence; competitive factors and pricing pressures; the availability,
selection and purchasing of attractive merchandise on favorable terms; import
risks, including potential disruptions and duties, tariffs and quotas on
imported merchandise, including economic and political problems in countries
from which merchandise is imported; the Company's ability to predict fashion
trends; consumer apparel buying patterns; adverse weather conditions; inventory
risks due to shifts in market demand and other factors that may be described in
the Company's filings with the Securities and Exchange Commission. The Company
does not undertake to publicly update or revise the forward-looking statements
even if experience or future changes make it clear that the projected results
expressed or implied therein will not be realized.
The women's retail apparel industry is subject to rapid change and is
highly competitive. The industry is subject to changes in the retail environment
which may be affected by overall economic conditions, women's apparel fashions,
demographics, macroeconomic factors such as consumer confidence that may affect
the level of spending for the types of merchandise sold by the Company, as well
as other factors. The Company's sales and results of operations may also be
affected by unusual weather patterns in areas where the Company has its greatest
concentration of stores. The level of occupancy costs, merchandise, labor and
other costs will affect future results of operations.
<PAGE>
The Company competes primarily with department stores, off-price retailers,
specialty stores, discount stores and mass merchandisers, many of which have
substantially greater financial, marketing and other resources than the Company.
Many department stores offer a broader selection of merchandise than the
Company. In addition, many department stores continue to be promotional and
reduce their selling prices, and certain of the Company's competitors and
vendors have opened outlet stores which offer off-price merchandise. The
Company's sales and results of operations may also be affected by close-outs and
going-out-of-business sales by other women's apparel retailers. The Company may
face periods of strong competition in the future which could have an adverse
effect on its financial results.
The growth of the Company is dependent, in large part, upon the Company's
ability to successfully execute its strategy of adding new stores and expanding
into related businesses. The success of the Company's growth strategy will
depend upon a number of factors, including the identification of suitable
markets and sites for new Combo Stores, negotiation of leases on acceptable
terms, construction or renovation of sites in a timely manner at acceptable
costs, and maintenance of the productivity of the existing store base. In
addition, the Company must be able to hire, train and retain competent managers
and personnel and manage the systems and operational components of its growth.
The failure of the Company to open new Combo Stores on a timely basis, obtain
acceptance in markets in which it currently has limited or no presence, attract
qualified management and personnel or appropriately adjust operational systems
and procedures would adversely affect the Company's future operating results. In
addition, there can be no assurance that the opening of new Combo Stores in
existing markets will not have an adverse effect on sales at existing stores in
these markets. There can be no assurance that the Company will be able to
successfully implement its growth strategy of continuing to introduce the Combo
Stores or to maintain its current growth levels.
The Company's success also depends in part on its ability to anticipate and
respond to changing merchandise trends and consumer preferences in a timely
manner. Accordingly, any failure by the Company to anticipate, identify and
respond to changing fashion trends could adversely affect consumer acceptance of
the merchandise in the Company's stores, which in turn could adversely affect
the Company's business and its image with its customers. If the Company
miscalculates either the market for its merchandise or its customers' purchasing
habits, it may be required to sell a significant amount of unsold inventory at
below average markups over the Company's cost, or below cost, which would have
an adverse effect on the Company's financial condition and results of
operations. In addition, the Company has increased its use of private brands.
The nature of the Company's obligations with respect to private brand purchases
may make it more difficult to respond to changing trends by reducing order
quantities. These factors could result in higher markdowns and lower gross
profits to the extent that sales of private brand merchandise are lower than
expected.
The Company's success is largely dependent on the efforts and abilities of
its executive officers, particularly Elliot S. Jaffe, its Chairman and Chief
Executive Officer, and Burt Steinberg, its President and Chief Operating
Officer. The loss of the services of any of its executive officers could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company relies upon its existing management information systems in
operating and monitoring all major aspects of the Company's business, including
sales, warehousing, distribution, purchasing, inventory control, merchandising
planning and replenishment, as well as various financial systems. Any disruption
in the operation of the Company's management information systems, or the
Company's failure to continue to upgrade, integrate or expend capital on such
systems as its business expands, would have a material adverse effect on the
Company. In addition, any disruption in the operations of the Company's
distribution center would have a material adverse effect on the Company's
business.
<PAGE>
The Company is committed to being leaner and more productive. The Company
is planning to continue to close or relocate underperforming stores and maintain
tight cost controls in all areas with a view to increasing shareholder value.
There can be no assurance that the Company's strategy will result in a
continuation of revenue and profit growth. Future economic and industry trends
that could impact revenue and profitability remain difficult to predict.
ITEM 2. PROPERTIES
<TABLE>
The Company leases all its stores. Store leases generally have an initial
term ranging from 5 to 15 years with one or more 5-year options to extend the
lease. The table below, covering all stores operated by the Company on July 25,
1998, indicates the number of leases expiring during the period indicated and
the number of expiring leases with and without renewal options:
<CAPTION>
Leases Number with Number Without
Fiscal Years Expiring Renewal Options Renewal Options
<S> <C> <C> <C>
1999 129 75 54
2000 150 135 15
2001 98 87 11
2002-2004 240 204 36
2005 and thereafter 52 45 7
--- --- ---
Total 669 546 123
--- --- ---
</TABLE>
New store leases generally provide for a base rent of between $10 and $20
per square foot per annum. Most leases have formulas requiring the payment of a
percentage of sales as additional rent, generally when sales reach specified
levels. The Company's aggregate minimum rentals under operating leases in effect
at July 25, 1998, and excluding locations acquired after July 25, 1998, for
fiscal 1999 are approximately $54.2 million. In addition, the Company is also
responsible under its store leases for its pro rata share of maintenance
expenses and common charges in strip and outlet centers.
Most of the store leases give the Company the option to terminate the lease
at little or no cost if certain specified sales volumes are not achieved. This
affords the Company greater flexibility to close underperforming stores. Usually
these provisions are operative only during the first few years of the lease.
The Company's investment in new stores consists primarily of inventory,
leasehold improvements, fixtures and equipment. Dress Barn often receives tenant
improvement allowances from the landlords to offset these initial investments.
The Company's stores are typically profitable within the first 12 months of
operation.
The Company leases its executive offices and distribution facilities in
Suffern, New York. The Suffern facility has a total of 510,000 square feet, with
100,000 square feet of office space and the remainder for merchandise
distribution. This lease expires on April 30, 2007, with three five-year options
to extend the lease. Management believes the Suffern facility is sufficient to
meet its current needs and any foreseeable increase in the Company's store base
resulting from expansion or acquisition.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets for the name, age and position with the Company of
the Executive Officers of the Registrant:
Name Age Positions
Elliot S. Jaffe 72 Chairman of the Board,
Chief Executive Officer and Director
Burt Steinberg 53 President, Chief Operating Officer and
Director
David R. Jaffe 39 Executive Vice President
Armand Correia 52 Senior Vice President and Chief
Financial Officer
Eric Hawn 48 Senior Vice President
Store Operations
Elise Jaffe 43 Senior Vice President
Real Estate
Mr. Elliot S. Jaffe has been Chief Executive Officer of the Company since
1966.
Mr. Steinberg has been President and Chief Operating Officer of the Company
since 1989.
Mr. David R. Jaffe has been Executive Vice President of the Company since
1996. He joined the Company in 1992 as Vice President Business Development and
became Senior Vice President in 1995. Mr. Jaffe is the son of Elliot S. and
Roslyn S. Jaffe, Secretary, Treasurer and Director of the Company.
Mr. Correia has been Senior Vice President and Chief Financial Officer of
the Company since 1991.
Mr. Hawn has been Senior Vice President of the Company since 1989.
Ms. Elise Jaffe has been Senior Vice President of the Company since January
1, 1995. She previously was Vice President. Ms. Jaffe is the daughter of Elliot
S. and Roslyn S. Jaffe, Secretary, Treasurer and Director of the Company.
The Company's officers are elected by the Board of Directors for
one-year terms and serve at the discretion of the Board of Directors.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Market Prices of Common Stock
<TABLE>
The Common Stock of The Dress Barn, Inc. is traded over-the-counter on the
NASDAQ National Market System under the symbol DBRN.
The table below sets forth the high and low bid prices as reported by
NASDAQ for the last eight fiscal quarters. These quotations represent prices
between dealers and do not include retail mark-ups, mark-downs or other fees or
commissions and may not represent actual transactions.
<CAPTION>
Fiscal 1998 Fiscal 1997
Bid Prices Bid Prices
High Low High Low
Fiscal Period
<S> <C> <C> <C> <C>
First Quarter $26.38 $19.00 $13.88 $8.63
Second Quarter $28.38 $21.75 $17.00 $13.38
Third Quarter $32.38 $25.75 $18.75 $13.38
Fourth Quarter $31.00 $22.50 $22.00 $14.75
</TABLE>
Number of Record Holders
The number of record holders of the Company's common stock as of October
15, 1998 was approximately 2,000.
Dividend Policy
The Company has never paid cash dividends on its common stock. Payment of
dividends is within the discretion of the Company's Board of Directors.
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
Dollars in thousands except per share information Fiscal Year Ended
-------------------------------------------------------------------------------------
July 25, July 26, July 27, July 29, July 30,
1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $598,175 $554,843 $515,522 $500,836 $457,325
Cost of sales, including
occupancy and buying costs 381,354 358,093 337,998 327,166 301,154
------------------------------------------------------------------------------------
Gross profit 216,821 196,750 177,524 173,670 156,171
Selling, general and
administrative expenses 142,098 135,384 132,176 133,253 120,131
Depreciation & amortization 17,758 16,139 15,828 14,063 12,127
Write-down of underperforming
and closed store assets ---- ---- 2,848 ---- ----
------------------------------------------------------------------------------------
Operating income 56,965 45,227 26,672 26,354 23,913
Interest income- net 6,385 4,800 3,343 2,670 1,727
------------------------------------------------------------------------------------
Earnings before
income taxes 63,350 50,027 30,015 29,024 25,640
Income taxes 23,123 18,260 11,106 10,739 9,487
------------------------------------------------------------------------------------
Net earnings $40,227 $31,767 $18,909 $18,285 $16,153
=====================================================================================
Earnings per share - basic $1.75 $1.40 $0.84 $0.82 $0.73
=====================================================================================
=====================================================================================
Earnings per share - diluted $1.70 $1.33 $0.84 $0.82 $0.73
=====================================================================================
Balance sheet data:
Working capital $170,412 $153,579 $122,730 $103,310 $89,051
Total assets $345,129 $309,502 $265,723 $243,521 $217,863
Long-term debt -- $3,500 $3,500 $3,500 --
Shareholders' equity $265,608 $232,822 $199,096 $178,938 $159,198
Percent of net sales:
Cost of sales, including
occupancy and buying costs 63.8% 64.5% 65.6% 65.3% 65.9%
Gross profit 36.2% 35.6% 34.4% 34.7% 34.1%
Selling, general and
administrative expenses 23.8% 24.4% 25.6% 26.6% 26.3%
Operating income 9.5% 8.2% 5.2% 5.3% 5.2%
Net earnings 6.7% 5.7% 3.7% 3.7% 3.5%
<FN>
Certain reclassifications have been made to prior years' data to conform with
the current year's presentation
</FN>
</TABLE>
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
<TABLE>
The table below sets forth certain financial data of the Company expressed
as a percentage of net sales for the periods indicated:
<CAPTION>
Fiscal Year Ended
July 25, July 26, July 27,
1998 1997 1996
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales, including
occupancy and buying costs 63.8% 64.5% 65.6%
Selling, general and
administrative expenses 23.8% 24.4% 25.6%
Depreciation and amortization 3.0% 2.9% 3.1%
Write-down of underperforming and
closed store assets (see footnote 8) -- -- 0.6%
Interest income - net 1.1% 0.9% 0.6%
Earnings before income taxes 10.6% 9.0% 5.8%
Net earnings 6.7% 5.7% 3.7%
</TABLE>
Fiscal 1998 Compared to Fiscal 1997
Net sales increased by 7.8% to $598.2 million for the 52 weeks ended July
25, 1998 ("fiscal 1998"), from $554.8 million for the 52 weeks ended July 26,
1997 ("fiscal 1997"), due primarily to a 3.6% increase in comparable store
sales. The increase in comparable store sales resulted primarily from the
positive reaction by customers to the Company's merchandise offerings and the
generally improved retail climate for apparel during fiscal 1998. The
improvement in net sales was also attributable to an approximately 6% increase
in total selling square footage. This increase in square footage was due to the
opening of new combination Dress Barn/Dress Barn Woman stores ("combo stores"),
which carry both Dress Barn and Dress Barn Woman merchandise, and the conversion
of single-format stores into combo stores. This offset the square foot reduction
from the closing of underperforming stores. The number of stores in operation
declined to 669 stores as of July 25, 1998, from 690 stores in operation as of
July 26, 1997. The Company's strategy for fiscal 1999 is to continue opening
primarily combo stores and converting its existing single-format stores into
combo stores, while closing its underperforming locations.
Gross profit (net sales less cost of goods sold, including occupancy and
buying costs) increased by 10.2% to $216.8 million, or 36.2% of net sales, in
fiscal 1998 from $196.7 million, or 35.5% of net sales, in fiscal 1997. The
increase in gross profit as a percentage of net sales was primarily due to
decreased markdowns, higher initial margins resulting from the increased
percentage of private brand merchandise and lower shrinkage.
<PAGE>
Selling, general and administrative ("SG&A") expenses increased by 5.0% to
$142.1 million, or 23.8% of net sales, in fiscal 1998 from $135.4 million, or
24.4% of net sales, in fiscal 1997. The Company's continued productivity
improvements from the larger-size combo stores, focus on controlling costs and
the comparable store sales increase all contributed to the decline in SG&A as a
percentage of sales.
Depreciation expense increased by 10.0% to $17.8 million for fiscal 1998
from $16.1 million for fiscal 1997. This was primarily due to the increase in
fixed asset additions in fiscal 1998 to $21.7 million from $16.7 million in
fiscal 1997. Depreciation expense for both periods also includes certain
write-offs related to the closure of 60 stores and 61 stores during fiscal 1998
and fiscal 1997, respectively.
Interest income - net increased by 33.0% to $6.4 million for fiscal 1998
from $4.8 million for fiscal 1997. The increase resulted primarily from an
increase in the Company's investment portfolio.
Fiscal 1997 Compared to Fiscal 1996
Net sales increased by 7.6% to $554.8 million for the 52 weeks ended July
26, 1997 ("fiscal 1997"), from $515.5 million for the 52 weeks ended July 27,
1996 ("fiscal 1996"), due primarily to a 5.4% increase in comparable store
sales. The increase in comparable store sales resulted primarily from better
weather conditions during fiscal 1997 and positive reaction by customers to the
Company's merchandise offerings. The improvement in net sales was also
attributable to an approximately 3.5% increase in total selling square footage,
which was due to the opening of new combination Dress Barn/Dress Barn Woman
stores ("combo stores"), which carry both Dress Barn and Dress Barn Woman
merchandise, and the conversion of single-format stores into combo stores. This
offset the closing of underperforming stores, which resulted in the number of
stores in operation declining to 690 stores as of July 26, 1997, from 726 stores
in operation as of July 27, 1996.
Gross profit (net sales less cost of goods sold, including occupancy and
buying costs) increased by 10.8% to $196.7 million, or 35.5% of net sales, in
fiscal 1997 from $177.5 million, or 34.4% of net sales, in fiscal 1996. The
increase in gross profit as a percentage of net sales was primarily due to
higher initial margins resulting from the increased percentage of private brand
merchandise, decreased markdowns and lower shrinkage. Occupancy costs also
decreased as a percentage of sales as leverage from the increase in comparable
store sales offset higher rents paid for new stores and lease renewals.
Selling, general and administrative ("SG&A") expenses increased by 2.4% to
$135.4 million, or 24.4% of net sales, in fiscal 1997 from $132.2 million, or
25.6% of net sales, in fiscal 1996. The Company's continued productivity
improvements from the larger-size combo stores, focus on controlling costs and
the comparable store sales increase all contributed to the decline in SG&A as a
percentage of sales.
Depreciation expense increased by 2.0% to $16.1 million for fiscal 1997
from $15.8 million for fiscal 1996. Depreciation expense for both periods also
includes certain writeoffs related to the closure of 61 stores and 72 stores
during fiscal 1997 and fiscal 1996, respectively.
Interest income - net increased by 44.0% to $4.8 million for fiscal 1997
from $3.3 million for fiscal 1996. The increase resulted primarily from an
increase in the Company's investment portfolio.
<PAGE>
Liquidity and Capital Resources
The Company has generally funded, through internally generated cash flow,
all of its operating and capital needs. These include the opening or acquisition
of new stores, the remodeling of existing stores and the continued expansion of
its successful combination store format. Total capital expenditures were $21.7
million, $16.5 million and $17.1 million in fiscal 1998, 1997 and 1996,
respectively.
The Company funds inventory expenditures through cash flows from operations
and the favorable payment terms the Company has established with its vendors.
The Company's quick ratio (i.e., the ratio of current assets less inventory to
current liabilities) has improved steadily over the past three years (1.85, 1.75
and 1.54 at the end of fiscal 1998, 1997 and 1996, respectively). The Company's
net cash provided by operations in fiscal 1998 increased to $62.1 million as
compared to $48.4 million in fiscal 1997 and $35.6 million in fiscal 1996. The
increase in fiscal 1998 was due primarily to the increase in earnings, offset by
an increase in taxes paid.
At July 25, 1998, the Company had $140.0 million in marketable securities
and other investments. The portfolio consists primarily of municipal bonds that
can readily be converted to cash. The Company holds no options or other
derivative instruments. Working capital was $170.4 million at July 25, 1998. In
addition, the Company had available $100 million in unsecured lines of credit
bearing interest at below the prime rate. The Company had no debt outstanding
under any of the lines at July 25, 1998. However, potential borrowings were
limited by approximately $32 million of outstanding letters of credit primarily
to vendors for import merchandise purchases.
In fiscal 1999, the Company plans to open approximately 60 additional
stores, convert approximately 20 single-format stores to its larger combination
store format and continue its store remodeling program. The Company intends to
look at new markets, and expects to enter the Southern California market in
fiscal 1999. In addition, the Company continues to pursue acquisition
opportunities. The Company believes that its cash, cash equivalents, marketable
securities and investments, together with cash flow from operations, will be
adequate to fund the Company's proposed capital expenditures and any other
operating requirements.
Other assets, as of July 25, 1998, include a $3 million non-trading, equity
investment, which is net of a $7 million write-off to reflect its estimated net
realizable value.
Inflation
The Company does not believe that inflation had a material effect on its
results of operations during the past three years. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
Seasonality
The Company has historically experienced substantially lower earnings in
its second fiscal quarter ending in January than during its other three fiscal
quarters, reflecting the intense promotional atmosphere that has characterized
the Christmas shopping season in recent years. The Company expects this trend to
continue for fiscal 1999. In addition, the Company's quarterly results of
operations may fluctuate materially depending on, among other things, increases
or decreases in comparable store sales, adverse weather conditions, shifts in
timing of certain holidays, the timing of new store openings, net sales
contributed by new stores, and changes in the Company's merchandise mix.
<PAGE>
Information Systems and "Year 2000" Compliance
The Company has completed a comprehensive review of its information systems
and is involved in an enterprise-wide program to update computer systems and
applications in preparation for the year 2000. The Company expects this process
to be completed in early 1999. The Company has and will incur internal staff
costs as well as outside consulting and other expenditures related to this
initiative. Total costs related to remediation to bring current systems into
compliance, testing, conversion, the purchase of new package systems and
upgrading system applications are not expected to be material. The Company is
surveying its service providers and others whom it relies on to assure that
their systems will be converted in a timely fashion. Based on the results of
this survey, the Company will develop appropriate contingency plans. However,
there can be no assurance that the systems of other companies on which the
Company's systems rely will also be converted in a timely fashion, or that any
such failure to convert by another company would not have an adverse effect on
the Company's systems. Furthermore, no assurance can be given that any or all of
the Company's systems are or will be Year 2000 compliant, or that the ultimate
costs required to address the Year 2000 issue or the impact of any failure to
achieve substantial Year 2000 compliance will not have a material adverse effect
on the Company's financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of The Dress Barn, Inc. and
subsidiaries are filed together with this report: See Index to Financial
Statements, Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information called for by Items 10, 11, 12 and 13 is incorporated
herein by reference from the definitive proxy statement to be filed by the
Company in connection with its 1998 Annual Meeting of Shareholders.
<PAGE>
PART IV
<TABLE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<CAPTION>
ITEM 14. (a) (1) FINANCIAL STATEMENTS PAGE NUMBER
- --------------------------------------- -----------
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Earnings F-3
Consolidated Statements of Shareholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 to F-11
<FN>
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
</FN>
</TABLE>
ITEM 14. (a) (3) LIST OF EXHIBITS
<TABLE>
The following exhibits are filed as part of this Report and except Exhibits
22 and 24 are all incorporated by reference (utilizing the same exhibit numbers)
from the sources shown.
<CAPTION>
Incorporated By
Reference From
<C> <C>
3(c) Amended and Restated Certificate of Incorporation (1)
3(e) Amended and Restated By-Laws (1)
3(f) Amendments to Amended and Restated Certificate of Incorporation (5)
3(g) Amendments to Amended and Restated By-Laws (5)
3(h) Amendments to Amended and Restated By-Laws (6)
4. Specimen Common Stock Certificate (1)
10(a) 1993 Incentive Stock Option Plan (10)
10(b) Employment Agreement With Burt Steinberg (1)
10(e) Agreement for Issuance of Stock to Arthur Ziluck (1)
10(f) Agreement terminating Agreement for Purchase of Certain Stock
from Elliot S. Jaffe upon death (6)
<PAGE>
10(g) Agreement terminating Agreement for Purchase of Certain Stock
from Roslyn S. Jaffe upon death (6)
Leases of Company premises of which the lessor is Elliot S. Jaffe or members of
his family or related trusts:
10(k) Wilton, CT store (1)
10(l) Danbury, CT store (1)
10(m) Branford, CT store (1)
10(o) Mt. Kisco, NY store (1)
10(hh) Norwalk, CT Dress Barn Woman store (8)
10(ii) Branford, CT Dress Barn Woman store (8)
10(r) Amendments to Employment Agreement with Burt Steinberg (2)
10(v) Employment Agreement with Eric Hawn (4)
10(w) Agreement for Advances with Eric Hawn (4)
10(z) Extension of Employment Agreement with Burt Steinberg (5)
10(aa) The Dress Barn, Inc. 1987 Non-Qualified Stock Option Plan (5)
10(cc) Employment Agreement with Armand Correia (7)
10(dd) Nonqualified Stock Option Agreement with Armand Correia (7)
10(ff) Nonqualified Stock Option Agreement with Elliot Jaffe (7)
10(gg) Nonqualified Stock Option Agreement with Burt Steinberg (7)
10(kk) Employment Agreement with David Jaffe (8)
10(mm) Lease between Dress Barn and AT&T for (9)
Office and Distribution Space in Suffern, New York
10(nn) The Dress Barn, Inc. 1995 Stock Option Plan (11)
10(oo) Split Dollar Agreement between Dress Barn and (12)
Steinberg Family Trust f/b/o Michael Steinberg
<PAGE>
10(pp) Split Dollar Agreement between Dress Barn and (12)
Steinberg Family Trust f/b/o Jessica Steinberg
10(qq) Split Dollar Agreement between Dress Barn and (12)
Jaffe 1996 Insurance Trust
22. Subsidiaries of the Registrant
24. Independent Auditors' Consent
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
(1) The Company's Registration Statement on Form S-1 under the Securities Act
of 1933 (Registration No. 2-82916) declared effective May 4, 1983.
(2) The Company's Annual Report on Form 10-K for the fiscal year ended July 28, 1984.
(3) The Company's Annual Report on Form 10-K for the fiscal year ended July 27, 1985.
(4) The Company's Annual Report on Form 10-K for the fiscal year ended July 26, 1986.
(5) The Company's Annual Report on Form 10-K for the fiscal year ended July 30, 1988.
(6) The Company's Annual Report on Form 10-K for the fiscal year ended July 28, 1990.
(7) The Company's Annual Report on Form 10-K for the fiscal year ended July 27, 1991.
(8) The Company's Annual Report on Form 10-K for the fiscal year ended July 25, 1992.
(9) The Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1993.
(10) The Company's Registration Statement on Form S-8 under the Securities Act
of 1933 (Registration No. 33-60196) filed on March 29, 1993.
(11) The Company's Annual Report on Form 10-K for the fiscal year ended July 27, 1996.
(12) The Company's Annual Report on Form 10-K for the fiscal year ended July 26, 1997.
</TABLE>
ITEM 14. (b) REPORT ON FORM 8-K
The Company has not filed any reports on Form 8-K during the last
quarter of the fiscal year ended July 25, 1998.
ITEM 14. (c) EXHIBITS
All exhibits are incorporated by reference as shown in Item 14(a)3, except
Exhibits 22 and 24 which are filed as part of this Report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
The Dress Barn, Inc.
by /s/ ELLIOT S. JAFFE
Elliot S. Jaffe
Chairman of the Board
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ ELLIOT S. JAFFE 10/23/98
Elliot S. Jaffe Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ ROSLYN S. JAFFE 10/23/98
Roslyn S. Jaffe Director and Secretary and Treasurer
/s/ BURT STEINBERG 10/23/98
Burt Steinberg Director and President
and Chief Operating Officer
/s/ KLAUS EPPLER 10/23/98
Klaus Eppler Director
/s/ DONALD JONAS 10/23/98
Donald Jonas Director
Mark S. Handler Director
/s/ EDWARD D. SOLOMON 10/23/98
Edward D. Solomon Director
/s/ ARMAND CORREIA 10/23/98
Armand Correia Chief Financial Officer (Principal
Financial and Accounting Officer)
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Dress Barn, Inc.
Suffern, New York
We have audited the accompanying consolidated balance sheets of The Dress Barn,
Inc. and Subsidiaries as of July 25, 1998 and July 26, 1997, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended July 25, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Dress Barn, Inc.
and Subsidiaries as of July 25, 1998 and July 26, 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
July 25, 1998, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Stamford, Connecticut
September 17, 1998
<PAGE>
<TABLE>
The Dress Barn, Inc. and Subsidiaries
Consolidated Balance Sheets
Dollars in thousands, except share data
<CAPTION>
July 25, July 26,
ASSETS 1998 1997
------------------ ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $3,032 $1,124
Marketable securities and investments (Note 2) 139,994 122,888
Merchandise inventories 102,706 99,835
Prepaid expenses and other 4,201 2,469
------------------ ----------------
Total Current Assets 249,933 226,316
------------------ ----------------
Property and Equipment:
Leasehold improvements 58,176 54,261
Fixtures and equipment 104,500 92,438
Computer software 9,018 7,924
Automotive equipment 415 301
------------------ ----------------
172,109 154,924
Less accumulated depreciation
and amortization 86,399 73,171
------------------ ----------------
85,710 81,753
------------------ ----------------
Deferred Income Taxes (Note 5) 3,076 --
------------------ ----------------
Other Assets 6,410 1,433
------------------ ----------------
$345,129 $309,502
================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable- trade $41,211 $40,168
Accrued expenses 35,483 27,814
Customer credits 2,827 2,489
Income taxes payable -- 2,266
------------------ ----------------
Total Current Liabilities 79,521 72,737
------------------ ----------------
Deferred Income Taxes (Note 5) -- 443
------------------ ----------------
Long-Term Debt (Note 3) -- 3,500
------------------ ----------------
Commitments (Note 6)
Shareholders' Equity:
Preferred stock, par value $.05 per share:
Authorized- 100,000 shares
Issued and outstanding- none -- --
Common stock, par value $.05 per share:
Authorized- 30,000,000 shares
Issued- 24,506,559 and 23,887,538
shares, respectively
Outstanding- 22,839,059 and 22,742,538
shares, respectively 1,225 1,194
Additional paid-in capital 25,175 19,856
Retained earnings 259,104 218,877
Treasury stock, at cost (21,005) (8,214)
Unrealized holding gain (loss) on marketable securities 1,109 1,109
------------------ ----------------
265,608 232,822
================== ================
$345,129 $309,502
================== ================
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Earnings
Dollars in thousands except per share amounts
<CAPTION>
Year Ended
-----------------------------------------------------------
July 25, July 26, July 27,
1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C>
Net sales $598,175 $554,843 $515,522
Cost of sales, including
occupancy and buying costs 381,354 358,093 337,998
-----------------------------------------------------------
Gross profit 216,821 196,750 177,524
Selling, general and
administrative expenses 142,098 135,384 132,176
Depreciation and amortization 17,758 16,139 15,828
Write-down of underperforming
and closed store assets (Note 8) ---- ---- 2,848
-----------------------------------------------------------
Operating income 56,965 45,227 26,672
Interest income- net 6,385 4,800 3,343
-----------------------------------------------------------
Earnings before
Income taxes 63,350 50,027 30,015
Income taxes 23,123 18,260 11,106
-----------------------------------------------------------
Net earnings $40,227 $31,767 $18,909
===========================================================
Earnings per share:
Basic $1.75 $1.40 $0.84
===========================================================
Diluted $1.70 $1.33 $0.84
===========================================================
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of
Shareholders' Equity
<CAPTION>
Dollars and shares in thousands Unrealized
Holding Gain
Additional (Loss) On Total
Common Stock Paid-In Retained Treasury Marketable Shareholders'
Shares Amount Capital Earnings Stock Securities Equity
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 29, 1995 22,314 $1,166 $15,056 $168,201 $(5,706) $221 $178,938
Deferred compensation 43 3 183 186
Employee Stock Purchase Plan activity 21 1 226 227
Shares issued pursuant to exercise of stock options 190 9 1,065 1,074
Unrealized holding loss on marketable securities (238) (238)
Net earnings 18,909 18,909
------------------------------------------------------------------------------------------------------------
Balance, July 27, 1996 22,568 1,179 16,530 187,110 (5,706) (17) 199,096
Deferred compensation 1,160 1,160
Employee Stock Purchase Plan activity 13 1 149 150
Shares issued pursuant to exercise of stock options 302 14 2,017 2,031
Purchase of treasury stock (140) (2,508) (2,508)
Unrealized holding gain on marketable securities 1,126 1,126
Net earnings 31,767 31,767
------------------------------------------------------------------------------------------------------------
Balance, July 26, 1997 22,743 1,194 19,856 218,877 (8,214) 1,109 232,822
Deferred compensation 18 18
Tax benefit from exercise of stock options 404 404
Employee Stock Purchase Plan activity 5 -- 131 131
Shares issued pursuant to exercise of stock options 613 31 4,766 4,797
Purchase of treasury stock (522) (12,791) (12,791)
Unrealized holding gain on marketable securities -- --
Net earnings 40,227 40,227
------------------------------------------------------------------------------------------------------------
Balance, July 25, 1998 22,839 $1,225 $25,175 $259,104 ($21,005) $1,109 $265,608
============================================================================================================
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Dollars in thousands Year Ended
---------------------------------------------------
July 25, July 26, July 27,
1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net earnings $40,227 $31,767 $18,909
---------------------------------------------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization of property and
equipment (net) 14,489 13,351 12,855
Write-down of underperforming and
closed store assets (Note 8) --- --- 2,848
Write-down of non-trading equity investment 7,000 --- ---
Loss on disposal of closed store assets 3,269 2,788 2,973
(Decrease) increase in deferred income taxes (3,519) (1,548) 873
Deferred compensation 18 1,159 185
Changes in assets and liabilities:
Increase in merchandise inventories (2,871) (10,044) (1,746)
(Increase) decrease in prepaid expenses (1,732) 301 670
Increase in other assets (1,977) (480) (331)
Increase (decrease) in accounts payable- trade 1,043 2,969 (1,225)
Increase in accrued expenses 7,669 6,410 1,403
Increase in customer credits 338 427 575
(Decrease) Increase in income taxes payable (1,862) 1,294 (2,430)
---------------------------------------------------
Total adjustments 21,865 16,627 16,650
---------------------------------------------------
Net cash provided by operating activities 62,092 48,394 35,559
---------------------------------------------------
Investing Activities
Purchases of property and equipment - net (21,715) (16,487) (17,109)
Sales and maturities of marketable securities and investments 118,686 38,911 110,613
Purchases of marketable securities and investments (135,792) (78,885) (128,226)
Purchase of non-trading equity investment (10,000) --- ---
---------------------------------------------------
Net cash used in investing activities (48,821) (56,461) (34,722)
---------------------------------------------------
Financing Activities
Repayment of long term debt (3,500) --- ---
Purchase of treasury stock (12,791) (2,508) ---
Proceeds from Employee Stock Purchase Plan 131 150 227
Proceeds from stock options exercised 4,797 2,032 1,074
---------------------------------------------------
Net cash (used in) provided by financing activities (11,363) (326) 1,301
---------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,908 (8,393) 2,138
Cash and cash equivalents- beginning of period 1,124 9,517 7,379
---------------------------------------------------
Cash and cash equivalents- end of period $3,032 $1,124 $9,517
===================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $28,190 $16,966 $13,840
===================================================
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
The Dress Barn, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Years Ended July 25, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Dress Barn, Inc. (including The Dress Barn, Inc. and it's wholly-owned
subsidiaries (the "Company")) operates a chain of women's apparel specialty
stores. The stores, operating principally under the names "Dress Barn" and
"Dress Barn Woman", offer in-season, moderate to better quality fashion apparel.
The Company operates in one business segment.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany balances and transactions are
eliminated. The Company reports on a 52-53 week fiscal year ending on the last
Saturday in July.
Merchandise inventories
Merchandise inventories are valued at the lower of cost, on a first-in,
first-out basis, or market as determined by the retail method.
Property and equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the related assets which range from 3 to 10 years. For income tax purposes,
accelerated methods are generally used.
Income taxes
Deferred income taxes are provided using the asset and liability method,
whereby deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements.
Store preopening costs
Expenses associated with the opening of new stores are charged to expense
as incurred.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers its
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents. These amounts are stated at cost, which approximates
market value. The majority of the Company's money market funds are maintained
with one financial institution.
<PAGE>
Marketable securities and investments
The Company has categorized its marketable securities as available for
sale, stated at market value. The unrealized holding gains and losses are
included in shareholders' equity until realized. The amortized cost is adjusted
for amortization of premiums and discounts to maturity, with the net
amortization included in interest income. Other investments, due to their
nature, are carried at cost.
Earnings per share (EPS)
Earnings per share is calculated by dividing net earnings by the total of
the weighted average number of common shares and common share equivalents
outstanding during the period, assuming the dilutive effect of stock options,
computed in accordance with the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS128). SFAS
128 requires dual presentation of basic EPS and diluted EPS on the face of all
income statements for all entities with complex capital structures. Basic EPS is
computed as net income divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur from common shares issuable through stock options, warrants and
other convertible securities. The number of shares used in the computation of
basic earnings per share was 23,032,400, 22,738,322 and 22,413,267 for fiscal
1998, fiscal 1997 and fiscal 1996, respectively. The number of shares used in
the computation of diluted earnings per share was 23,653,899, 23,941,070 and
22,631,574 for fiscal 1998, fiscal 1997 and fiscal 1996, respectively. All
periods presented reflect the adoption of SFAS128
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement requires companies to classify items of other
comprehensive income by their nature in the financial statements and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in-capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for financial statements issued
for fiscal years beginning after December 15, 1997. The Company will adopt the
provisions of SFAS No. 130 in fiscal 1999.
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock based compensation
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation", ("SFAS 123"), was issued. SFAS 123
requires the Company elect to either adopt a fair value based expense
recognition method of accounting for stock-based compensation plans or continue
to use the current valuation methods with pro forma disclosure of net income and
earnings per share as if the fair value based method of accounting defined in
SFAS 123 had been applied. The Company has elected to retain its current method
of accounting for stock-based compensation and provide the required disclosures
in its financial statements.
<PAGE>
The company accounts for stock-based awards to employees using the
intrinsic value method in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees". Compensation expense, if any, is measured as the
excess of the market price of the stock over the exercise price on the
measurement date.
Disclosure about fair value of financial instruments
The fair value of financial instruments classified as current assets or
liabilities approximate carrying amount due to the short-term maturity of the
instruments. The fair value of long term debt, discounted using current
borrowing rates available for financing with similar terms and maturities, was
approximately $2.1 million at the end of the 1997 fiscal year.
Other assets, as of July 25, 1998, include a $3 million non-trading, equity
investment, which is net of a $7 million write-off to reflect its estimated net
realizable value.
2. MARKETABLE SECURITIES AND INVESTMENTS
<TABLE>
Marketable securities and investments included the following:
<CAPTION>
July 25, 1998 July 26, 1997
------------- -------------
(In 000's) Fair Amortized Fair Amortized
Value Cost Value Cost
<S> <C> <C> <C> <C>
Money Market Funds $732 $732 $1,893 $1,893
US Govt. Bonds & Notes -- -- 8,010 7,983
Short Term Investments 22,313 22,313 24,642 24,642
Other Investments 9,298 8,987 9,108 8,917
Tax Free Municipal Bonds 105,921 104,966 77,524 76,457
US Govt. Securities Fund 1,730 1,887 1,711 1,887
--------- --------- --------- --------
$139,994 $138,885 $122,888 $121,779
========= ========= ========= ========
</TABLE>
<TABLE>
The scheduled maturities of marketable securities and investments at July
25, 1998 are:
<CAPTION>
Due In Fair Value Amortized Cost
- ------------------- ----------- --------------
(in 000's)
<S> <C> <C>
One year or less $54,764 $54,443
One year through five years 80,703 79,934
Six years through ten years 2,467 2,454
Over ten years 2,060 2,054
--------- --------
$139,994 $138,885
========= ========
</TABLE>
Unrealized holding gains and losses at July 25, 1998 netted to an
unrealized gain of approximately $1.1 million. Proceeds and gross realized
losses from the sale of securities in fiscal 1998, 1997 and 1996 were $118.7
million and $0.1 million, $38.9 million and $0.3 million and $110.6 million and
$0.6 million, respectively. For the purposes of determining gross realized gains
and losses, the cost of securities is based upon specific identification.
<PAGE>
3. LONG-TERM DEBT
During fiscal 1998, the Company repaid its $3.5 million unsecured loan from
the New York State Urban Development Corporation. This loan was due October 1,
2004, with interest at rates ranging from 0% to 3% over the term of the loan.
The Company had no other long-term debt outstanding at any time during the three
years ended July 25, 1998.
At July 25, 1998, the Company had unsecured lines of credit with three
banks totaling $100 million with interest payable at rates below prime. None of
the Company's lines of credit contain any significant covenants or commitment
fees. The Company had no debt outstanding under any of the lines at July 25,
1998. However, the credit lines available were reduced by approximately $32
million of outstanding letters of credit.
4. EMPLOYEE BENEFIT PLANS
In August 1995, the Company established a defined contribution retirement
savings plan (401(k)) covering all eligible employees. This plan succeeds the
previous discretionary profit-sharing plan, with all prior individual account
balances and vesting terms transferred to the new plan. The Company has also
established an Executive Retirement Plan for certain officers and key executives
not participating in the 401(k) plan. Both plans allow participants to defer a
portion of their annual compensation and receive a matching employer
contribution on a portion of that deferral. During fiscal 1998, 1997 and 1996,
the Company incurred expenses of $982,000, $738,000 and $712,000, respectively,
relating to the contributions to and administration of the above plans. The
Company also has an Employee Stock Purchase Plan, which allows employees to
purchase shares of company stock during each quarterly offering period at a 10%
discount through weekly payroll deductions. The Company does not provide any
additional postretirement benefits.
5. INCOME TAXES
<TABLE>
The components of the provision for income taxes were as follows:
<CAPTION>
Year Ended
(In 000's) July 25, July 26, July 27,
1998 1997 1996
<S> <C> <C> <C>
Federal:
Current $20,349 $15,986 $8,428
Deferred (2,477) (1,240) 169
-------- ------- ------
17,872 14,746 8,597
State:
Current 5,872 3,822 2,742
Deferred (621) (308) (233)
-------- ------- ------
5,251 3,514 2,509
Provision for income taxes $23,123 $18,260 $11,106
========= ========= =======
</TABLE>
<PAGE>
<TABLE>
Significant components of the Company's deferred tax assets and liabilities
were as follows:
<CAPTION>
July 25, July 26,
(in 000's) 1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Inventory capitalization for tax purposes $2,246 $1,449
Other items 11,168 6,055
------ -----
Total deferred tax assets 13,414 7,504
Deferred tax liabilities:
Depreciation 6,618 6,627
Other items 3,720 1,320
-- ------ -----
Total deferred tax liabilities 10,338 7,947
Net deferred tax assets (liabilities) $3,076 $(443)
====== ======
</TABLE>
<TABLE>
The net deferred tax assets were comprised of approximately $490,000 in
state deferred taxes and $2,586,000 in federal deferred taxes. Following is a
reconciliation of the statutory Federal income tax rate and the effective income
tax rate applicable to earnings before income taxes:
<CAPTION>
Year Ended
July 25, July 26, July 27,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate 35.0 % 35.0 % 35.0 %
State taxes - net of federal
Benefit 5.8 % 5.1 % 5.6 %
Other - net (4.3)% (3.6)% (3.6)%
Effective tax rate 36.5 % 36.5 % 37.0 %
===== ===== =====
</TABLE>
6. COMMITMENTS
Lease commitments
The Company leases all its stores and its distribution center. Certain
leases provide for additional rents based on percentages of net sales, charges
for real estate taxes, insurance and other occupancy costs. Store leases
generally have an initial term ranging from 5 to 15 years with one or more
5-year options to extend the lease. Some of these leases have provisions for
rent escalations during the initial term. The Company leases its 510,000 square
foot office and distribution center in Suffern, New York. The lease has an
initial term expiring in 2007 with three 5-year options to extend the lease.
<TABLE>
A summary of occupancy costs follows:
<CAPTION>
Year Ended
July 25, July 26, July 27,
(in 000's) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Base rentals $62,880 $59,906 $56,113
Percentage rentals 378 229 94
Other occupancy costs 22,477 19,526 19,626
------ ------ ------
Total $85,735 $79,661 $75,833
======== ======== =======
</TABLE>
<PAGE>
The following is a schedule of future minimum rentals under noncancellable
operating leases as of July 25, 1998 (dollars in thousands):
Fiscal Year Amount
------------- ------------
1999 $ 54,244
2000 48,160
2001 37,342
2002 29,229
2003 17,625
Subsequent years 24,070
Total future minimum rentals $210,670
Although the Company has the ability to cancel certain leases if specified
sales levels are not achieved, future minimum rentals under such leases have
been included in the above table.
Leases with related parties
The Company leases five stores from the Chief Executive Officer or related
trusts. Future minimum rentals under leases with such related parties which
extend beyond July 25, 1998, included in the above schedule, are approximately
$404,000 annually and aggregate $1.7 million. The leases also contain provisions
for cost escalations and additional rent based on net sales in excess of
stipulated amounts. Rent expense for fiscal years 1998, 1997 and 1996 under
these leases amounted to approximately $438,000, $443,000 and $492,000,
respectively.
7. STOCK-BASED COMPENSATION PLANS
At July 25, 1998, the Company had five stock-based compensation plans. The
Company's 1983 Incentive Stock Option Plan expired on April 4, 1993, and
accordingly, the Company can no longer grant options under such plan. The
Company's 1993 Incentive Stock Option Plan, which contains provisions similar to
the expired plan, provides for the grant of options to purchase up to 1,250,000
shares of the Company's common stock. The exercise price of the options granted
under both plans may not be less than the market price of the common stock at
the date of grant. All options granted under both plans vest over a five year
period and generally expire after ten years from date of grant. At July 25,
1998, there were 663,000 shares under the 1993 plan available for future grant.
The Company's 1987 Non-Qualified Stock Option Plan, which expired December 7,
1997, provides for the granting of options to purchase up to 1,000,000 shares of
Common Stock to key employees. The Company's 1995 Stock Option Plan provides for
the granting of either incentive or non-qualified options to purchase up to
2,000,000 shares of Common Stock. As of July 25, 1998, 340,000 options had been
issued under the 1995 Stock Option Plan. The Company's Employee Stock Purchase
Plan allows employees to purchase shares of company stock during each quarterly
offering period at a 10% discount through weekly payroll deductions.
<PAGE>
<TABLE>
The following summarizes the activities in all Stock Option Plans and
changes during each of the fiscal years presented:
<CAPTION>
July 25, 1998 July 26, 1997 July 27, 1996
------------- ------------- -------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding - beginning of year 1,746,992 $8.09 1,273,293 $8.39 1,392,633 $7.04
Granted 167,750 19.99 882,055 7.43 124,750 9.15
Cancelled (12,769) 10.65 (106,154) 10.11 (55,261) 8.28
Exercised (626,538) 7.65 (302,202) 6.68 (188,829) 5.69
----------------------------------------------------------------------------------------------
Outstanding end of year 1,275,435 $9.83 1,746,992 $8.09 1,273,293 $8.39
==============================================================================================
Options exercisable at year-end 187,209 $10.51 484,460 $8.23 675,914 $7.50
----------------------------------------------------------------------------------------------
Weighted-average fair
value of options granted
during the year
$8.53 $3.79 $4.00
--------------- -------------- -------------
</TABLE>
<TABLE>
The following table summarizes information about stock options outstanding
at July 25, 1998:
<CAPTION>
Range of Exercise Prices Number Weighted Average Weighted
Outstanding as of Remaining Life Weighted Average Number Average
7/25/98 Exercise Price Exercisable as of Exercise Price
7/25/98
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$5.00 - $6.00 240,000 8.06 years $5.00 --- $ ---
6.50 - $8.68 572,188 7.64 years 8.64 36,828 8.50
8.75 - 12.50 302,997 6.14 years 10.36 150,381 11.01
12.50 - 22.63 160,250 9.45 years 20.28 --- ---
---------------------------------------------------------------------------------------------
$5.00 - $22.63 1,275,435 7.59 years $9.83 187,209 $10.51
=============================================================================================
</TABLE>
<PAGE>
<TABLE>
In fiscal 1997, the Company granted 300,000 options at $5.00 per share,
which was less than the market price on the date of grant, and had a fair value
of $5.36 per share. The Company records compensation expense for all stock-based
compensation plans using the method prescribed by Accounting Principles Board
Opinion No. 25, where compensation expense, if any, is measured as the excess of
the market price of the stock over the exercise price on the measurement date.
No compensation expense is recognized for the Company's option grants that have
an exercise price equal to the market price on the date of grant or for the
Company's Employee Stock Purchase Plan. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the option grant
dates for awards in accordance with the accounting provisions of SFAS 123, the
Company's net earnings and earnings per share for fiscal 1998, fiscal 1997 and
fiscal 1996 would have been reduced to the pro forma amounts indicated below:
<CAPTION>
Year Ended
July 25, July 26, July 27,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net earnings (in 000's):
As reported $40,227 $31,767 $18,909
Pro forma $39,530 $31,241 $18,872
Earnings per share - basic:
As reported $1.75 $1.40 $0.84
Pro forma $1.72 $1.37 $0.84
Earnings per share - diluted:
As reported $1.70 $1.33 $0.84
Pro forma $1.67 $1.30 $0.84
</TABLE>
<TABLE>
The fair values of the options granted under the Company's fixed stock
option plans were estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
<CAPTION>
Year Ended
July 25, July 26, July 27,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average risk-free interest rate 4.6% 5.7% 5.7%
Weighted average expected life (years) 5.0 5.0 5.0
Expected volatility 38.6% 39.6% 39.6%
</TABLE>
These pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock options.
SFAS 123 does not apply to awards prior to fiscal 1996, and additional awards in
future years are anticipated.
8. WRITE-DOWN OF UNDERPERFORMING AND CLOSED STORE ASSETS
In fiscal 1996, the Company implemented the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." This statement addresses the timing of recognition and the
measurement of impairment of (a) long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and (b)
long-lived assets and certain identifiable intangibles to be disposed of. The
statement requires that such assets be reviewed for impairment whenever events
or changes in circumstances indicate that their carrying amount may not be
recoverable, and that such assets be reported at the lower of carrying amount or
fair value.
<PAGE>
<TABLE>
QUARTERLY RESULTS OF OPERATIONS (unaudited)
(in thousands except per share amounts)
<CAPTION>
Fourth Third Second First
Quarter Quarter Quarter Quarter
Year ended July 25, 1998
<S> <C> <C> <C> <C>
Net Sales $153,430 $144,341 $144,210 $156,194
Gross Profit,
less occupancy
and buying costs 56,896 53,545 49,904 56,476
Income Taxes 6,512 5,627 4,606 6,378
Net Earnings 11,327 9,794 8,010 11,096
Earnings Per Share(*)
Basic $0.49 $0.42 $0.35 $0.49
Diluted $0.48 $0.41 $0.34 $0.47
<CAPTION>
Fourth Third Second First
Quarter Quarter Quarter Quarter
Year ended July 26, 1997
<S> <C> <C> <C> <C>
Net Sales $146,527 $134,103 $131,457 $142,755
Gross Profit,
less occupancy
and buying costs 54,533 48,309 43,947 49,960
Income Taxes 6,446 4,232 3,028 4,554
Net Earnings 11,211 7,364 5,268 7,924
Earnings Per Share(*)
Basic $0.49 $0.32 $0.23 $0.35
Diluted $0.47 $0.31 $0.23 $0.34
<FN>
(*) Earnings per share is computed independently for each period presented. As a
result, the total of the per share earnings for the four quarters does not equal
the annual earnings per share in fiscal 1998 and fiscal 1997.
</FN>
</TABLE>
<PAGE>
EXHIBIT 22
THE DRESS BARN, INC.
SUBSIDIARIES OF THE REGISTRANT
(All 100% Owned)
State of
Subsidiary Incorporation
D.B.R., Inc. Delaware
The Dress Barn, Inc. of
New Hampshire, Inc. (**) New Hampshire
Raxton Corp. (**) Massachusetts
JRL Consulting Corp. (**) New Jersey
D.B.X. Inc. New York
(**) Inactive Subsidiary
<PAGE>
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Shareholders
The Dress Barn, Inc.
Suffern, New York
We consent to the incorporation by reference in Registration Statement Nos.
33-16857, 33-47415, 33-60196, 333-18135 and 33-17488 (on Form S-8) of our
report, dated September 17, 1998, appearing in this Annual Report on Form 10-K
of The Dress Barn, Inc. and Subsidiaries for the year ended July 25, 1998.
Deloitte & Touche LLP
Stamford, Connecticut
October 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The Dress Barn Inc.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-25-1998
<PERIOD-START> JUL-27-1997
<PERIOD-END> JUL-25-1998
<CASH> 3032
<SECURITIES> 139994
<RECEIVABLES> 4201
<ALLOWANCES> 0
<INVENTORY> 102706
<CURRENT-ASSETS> 249933
<PP&E> 172109
<DEPRECIATION> 86399
<TOTAL-ASSETS> 345129
<CURRENT-LIABILITIES> 79521
<BONDS> 0
0
0
<COMMON> 1225
<OTHER-SE> 264383
<TOTAL-LIABILITY-AND-EQUITY> 345129
<SALES> 598175
<TOTAL-REVENUES> 598175
<CGS> 381354
<TOTAL-COSTS> 381354
<OTHER-EXPENSES> 142098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6385)
<INCOME-PRETAX> 63350
<INCOME-TAX> 23123
<INCOME-CONTINUING> 40227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40227
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.70
</TABLE>
