SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended October 24, 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 [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
.05 par value 22,764,005 shares on December 3, 1998
Page 1 of 9
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THE DRESS BARN, INC.
FORM 10-Q
QUARTER ENDED OCTOBER 24, 1998
TABLE OF CONTENTS
Page
Number
Part I. FINANCIAL INFORMATION (Unaudited):
Item 1. Financial Statements:
Consolidated Balance Sheets
October 24, 1998 (unaudited)
and July 25, 1998 3
Consolidated Statements of Earnings
(unaudited) for the Thirteen weeks ended
October 24, 1998 and October 25, 1997 4
Consolidated Statements of Cash Flows
(unaudited) for the Thirteen weeks ended
October 24, 1998 and October 25, 1997 5
Notes to Unaudited Consolidated Financial
Statements (unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7 and 8
Part II. OTHER INFORMATION:
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submissions of Matters to a Vote
of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 9
* Not applicable in this filing.
Page 2 of 9
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The Dress Barn, Inc. and Subsidiaries
Consolidated Balance Sheets
Dollars in thousands except share data
<TABLE>
<CAPTION>
October 24, July 25,
ASSETS 1998 1998
------------------ -----------------
<S> <C> <C>
Current Assets: (unaudited)
Cash & cash equivalents $633 $3,032
Marketable securities and investments 156,876 139,994
Merchandise inventories 114,001 102,706
Prepaid expenses and other 3,881 4,201
------------------ -----------------
Total Current Assets 275,391 249,933
------------------ -----------------
Property and Equipment:
Leasehold improvements 60,015 58,176
Fixtures and equipment 110,470 104,500
Computer software 9,281 9,018
Automotive equipment 415 415
------------------ -----------------
180,181 172,109
Less accumulated depreciation and amortization 91,349 86,399
------------------ -----------------
88,832 85,710
------------------ -----------------
Deferred Taxes 2,546 3,076
------------------ -----------------
Other Assets 4,688 6,410
================== =================
$371,457 $345,129
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable- trade $49,712 $41,211
Accrued expenses 42,035 35,483
Customer credits 2,666 2,827
Income taxes payable 3,857 --
------------------ -----------------
Total Current Liabilities 98,270 79,521
------------------ -----------------
Commitments
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- 24,544,005 and 24,506,559
shares, respectively
Outstanding- 22,755,105 and 22,839,059
shares, respectively 1,227 1,225
Additional paid-in capital 25,508 25,175
Retained earnings 268,279 259,104
Treasury stock, at cost (23,704) (21,005)
Unrealized holding gain on investments 1,877 1,109
------------------ -----------------
273,187 265,608
================== =================
$371,457 $345,129
================== =================
<FN>
See notes to condensed financial statements (unaudited)
</FN>
</TABLE>
Page 3 of 9
<PAGE>
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Earnings
Dollars in thousands except per share amounts
<TABLE>
<CAPTION>
Thirteen Weeks Ended
---------------------------------------
October 24, October 25,
1998 1997
------------------ -----------------
<S> <C> <C>
Net sales $158,772 $156,194
Cost of sales, including
occupancy and buying costs 103,347 99,718
------------------ -----------------
Gross profit 55,425 56,476
Selling, general and
administrative expenses 37,702 35,912
Depreciation and amortization 4,950 4,550
------------------ -----------------
Operating income 12,773 16,014
Interest income- net 1,674 1,460
------------------ -----------------
Earnings before
income taxes 14,447 17,474
Income taxes 5,273 6,378
------------------ -----------------
Net earnings $9,174 $11,096
================== =================
Earnings per share
Basic $0.40 $0.49
================== =================
Diluted $0.39 $0.47
================== =================
Weighted average shares outstanding:
Basic 22,760 22,838
------------------ -----------------
Diluted 23,295 23,808
------------------ -----------------
<FN>
See notes to accompanying condensed financial statements (unaudited)
</FN>
</TABLE>
Page 4 of 9
<PAGE>
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Dollars in thousands
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------------
October 24, October 25,
1998 1997
--------------- ----------------
<S> <C> <C>
Operating Activities:
Net earnings $9,174 $11,096
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment 4,950 4,550
Change in deferred income taxes 530 (82)
Deferred compensation 5 5
Changes in assets and liabilities:
Increase in merchandise inventories (11,295) (8,891)
Decrease (increase) in prepaid expenses 320 (1,494)
Decrease (increase) in other assets 1,722 (107)
Increase in accounts payable- trade 8,501 6,909
Increase in accrued expenses 6,552 6,773
Decrease in customer credits (161) (286)
Increase in income taxes payable 3,857 3,655
--------------- ----------------
Total adjustments 14,981 11,032
--------------- ----------------
Net cash provided by operating activities 24,155 22,128
--------------- ----------------
Investing Activities:
Purchases of property and equipment - net (8,072) (4,398)
Sales and maturities of marketable securities and investments 12,613 38,845
Purchases of marketable securities and investments (28,727) (51,592)
--------------- ----------------
Net cash used in investing activities (24,186) (17,145)
--------------- ----------------
Financing Activities:
Proceeds from Employee Stock Purchase Plan 35 30
Purchase of treasury stock (2,699) --
Proceeds from stock options exercised 296 1,875
--------------- ----------------
Net cash provided by financing activities (2,368) 1,905
--------------- ----------------
Net (decrease) increase in cash and cash equivalents (2,399) 6,888
Cash and cash equivalents- beginning of period 3,032 1,124
--------------- ----------------
Cash and cash equivalents- end of period $633 $8,012
=============== ================
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $886 $2,723
=============== ================
<FN>
See notes to consolidated financial statements (unaudited)
</FN>
</TABLE>
Page 5 of 9
<PAGE>
THE DRESS BARN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain 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. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring adjustments)
which management considers necessary to present fairly the consolidated
financial position of The Dress Barn Inc. and its wholly owned subsidiaries (the
"Company") as of October 24, 1998 and July 25, 1998, the consolidated results of
its operations for the thirteen weeks ended October 24, 1998 and October 25,
1997, and cash flows for the thirteen weeks ended October 24, 1998 and October
25, 1997. The results of operations for thirteen week periods may not be
indicative of the results for the entire year.
These consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's July 25, 1998 Annual Report to Shareholders. Accordingly, significant
accounting policies and other disclosures necessary for complete financial
statements in conformity with generally accepted accounting principles have been
omitted since such items are reflected in the Company's audited financial
statements and related notes thereto.
2. Stock Repurchase Program
The Board of Directors approved a stock repurchase plan on October 15,
1998. The Board authorized the Company to repurchase its outstanding common
stock at prevailing market prices for up to an aggregate amount of $75 million.
As of October 24,1998, the Company had not yet acquired any shares under this
program.
3. Reclassification
Certain reclassifications have been made to prior year's financial
statements to conform with the current year's presentation.
4. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement is required to be
adopted by the Company as of the end of the fiscal year ending July 31, 1999.
SFAS No. 131 requires disclosure of certain information about operating
segments, products and services, geographic areas of operations, and major
customers, and the factors used by management to determine reportable segments.
The adoption of SFAS No. 131 will not affect the Company's financial position or
results of operations. Management has not completed its determination of the
effect that this statement will have on the Company's financial statement
disclosures.
Page 6 of 9
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THE DRESS BARN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the thirteen weeks ended October 24, 1998 (the "first
quarter") increased by 1.7% to $158.8 million from $156.2 million for the
thirteen weeks ended October 25, 1997. (the "prior period"). Net sales were
negatively impacted by a 3% decrease in comparable store sales, primarily due to
the unseasonably warm weather in September and October. This was offset by an
approximate 6% increase in store square footage versus the prior period. The
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 footage reduction from the closing of
underperforming stores. As of October 24,1998, the Company had 681 stores in
operation, (329 Dress Barn stores, 66 Dress Barn Woman stores and 286 combo
stores), versus 691 as of October 25, 1997. The Company's strategy for the
remainder of fiscal 1999 is to continue opening primarily combo stores and
converting its existing single-format stores into combo stores, while closing
its underperforming locations. The Company anticipates closing approximately 20
stores during the next fiscal quarter.
Gross profit (net sales less cost of goods sold, including occupancy
and buying costs) decreased by 1.2% to $55.4 million, or 34.9% of net sales, for
the first quarter from $56.5 million, or 36.2% of net sales, for the prior
period. The decrease in gross profit as a percentage of net sales was primarily
the result of the relatively fixed costs of occupancy expenses being measured
against a decrease in same store sales. Merchandise margins as a percentage of
sales in the first quarter remained consistent with the prior period.
Selling, general and administrative (SG&A) expenses were $37.7 million
for the first quarter, compared to $35.9 million for the prior period. The
increase in selling and administrative expenses was mainly due to an increase in
store operating costs, resulting from the approximate 6% increase in square
footage. As a percent of sales, SG&A expenses (excluding depreciation) increased
as a percentage of sales, from 23.0% of sales in the prior period to 23.7% in
1998. This increase was the result of negative leverage from the decrease in
comparable store sales.
As a percentage of net sales, depreciation increased to 3.2% in the
first quarter from 2.9% in the prior period as a result of $25.4 million in
fixed asset purchases during the last twelve months.
Interest income for the first quarter increased to approximately $1.7
million this year versus $1.5 million in the prior period as the increase in the
funds available for investment offset generally lower prevailing investment
rates.
The effective tax rate for first quarter was 36.5%, the same as that in
effect for the fiscal year ended July 25, 1998.
As a result of the above factors, net income for the first quarter was
$9.2 million, a decrease of 17.3% versus the $11.1 million net income in the
prior period.
Page 7 of 9
<PAGE>
THE DRESS BARN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Liquidity and Capital Resources
The Company believes that its cash, cash equivalents and short-term
investments, together with cash flow from operations, will be adequate to fund
the Company's fiscal 1999 capital expenditures, other operating requirements and
other proposed or contemplated expenditures. Inventories were current and in
line with sales projections.
Forward-Looking Statements and Factors Affecting Future Performance
This Form 10-Q contains 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 in the
Company's Annual Report on Form 10-K for its fiscal year ended July 25, 1998.
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 not developed any
contingency plans in the event that the Company itself should fail to become
Year 2000 compliant as it expects to be in compliance by early 1999. 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. However, no assurance can be given
that all of the Company's systems 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 Year 2000 compliance will not have a material adverse effect
on the Company's business.
The Company has contacted and will continue to contact its key
suppliers and other third party service providers to determine their year 2000
readiness. Although the Company is not currently aware of material Year 2000
compliance issues relating to systems of other companies with which the Company
does business, there is no assurance that the Company will not be adversely
affected by such issues affecting the systems of such other companies. If any of
the Company's merchandise vendors fail to be in compliance, a vendor that is in
compliance will be substituted. The Company is currently developing a
contingency plan in the event any of its service providers fail to be Year 2000
compliant. The Company expects to complete this plan by Spring 1999.
Page 8 of 9
<PAGE>
Part II - OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K
(a) No exhibits are required to be filed herewith.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BY: /s/ ARMAND CORREIA
Armand Correia
Senior Vice President
(Principal Financial
and Accounting Officer)
Page 9 of 9
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Quarter Ended October 24, 1998
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> JUL-26-1998
<PERIOD-END> OCT-24-1998
<CASH> 633
<SECURITIES> 156876
<RECEIVABLES> 3881
<ALLOWANCES> 0
<INVENTORY> 114001
<CURRENT-ASSETS> 275391
<PP&E> 180181
<DEPRECIATION> 91349
<TOTAL-ASSETS> 371457
<CURRENT-LIABILITIES> 98270
<BONDS> 0
0
0
<COMMON> 1227
<OTHER-SE> 271960
<TOTAL-LIABILITY-AND-EQUITY> 371457
<SALES> 158772
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<CGS> 103347
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