10-Q 1 d10q.txt DRESS BARN 10Q 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 28, 2000 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) (845) 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 18,307,986 shares on November 30, 2000 Page 1 of 12 THE DRESS BARN, INC. FORM 10-Q QUARTER ENDED OCTOBER 28, 2000 TABLE OF CONTENTS Page Number Part I. FINANCIAL INFORMATION (Unaudited): Item 1. Financial Statements: Consolidated Balance Sheets October 28, 2000 (unaudited) and July 29, 2000 I-3 Consolidated Statements of Earnings (unaudited) for the Thirteen weeks ended October 28, 2000 and October 30, 1999 I-4 Consolidated Statements of Cash Flows (unaudited) for the Thirteen weeks ended October 28, 2000 and October 30, 1999 I-6 Notes to Unaudited Condensed Financial Statements (unaudited) I-7 through I-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations I-9 through I-11 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 I-12 * Not applicable in this filing. The Dress Barn, Inc. and Subsidiaries Consolidated Balance Sheets Dollars in thousands except share data
October 28, July 29, ASSETS 2000 2000 -------------------- ----------------- Current Assets: (unaudited) Cash & cash equivalents $11,782 $2,978 Marketable securities and investments 170,260 154,050 Merchandise inventories 104,195 111,901 Prepaid expenses and other 3,703 4,851 -------------------- ----------------- Total Current Assets 289,940 273,780 -------------------- ----------------- Property and Equipment: Leasehold improvements 56,567 54,749 Fixtures and equipment 132,495 128,300 Computer software 12,688 12,294 Automotive equipment 613 560 -------------------- ----------------- 202,363 195,903 Less accumulated depreciation and amortization 114,917 109,146 -------------------- ----------------- 87,446 86,757 -------------------- ----------------- Deferred Taxes 9,509 9,864 -------------------- ----------------- Other Assets 3,871 3,835 -------------------- ----------------- $390,766 $374,236 ==================== ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable- trade $56,690 $64,780 Accrued expenses 45,693 39,633 Customer credits 5,227 5,255 Income taxes payable 8,135 5,007 -------------------- ----------------- Total Current Liabilities 115,745 114,675 -------------------- ----------------- 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- 25,280,047 and 25,094,847 shares, respectively Outstanding- 18,170,847 and 17,985,647 shares, respectively 1,263 1,255 Additional paid-in capital 38,783 37,083 Retained earnings 341,955 329,170 Treasury stock, at cost (107,162) (107,162) Accumulated other comprehensive income (loss) 182 (785) -------------------- ----------------- 275,021 259,561 -------------------- ----------------- $390,766 $374,236 ==================== ================= See notes to unaudited condensed financial statements
The Dress Barn, Inc. and Subsidiaries Consolidated Statements of Earnings - First Quarter Dollars in thousands except per share amounts
Thirteen Weeks Ended ---------------------------------------- October 29, October 30, 2000 1999 ------------------ ------------------ Net sales $188,328 $167,938 Cost of sales, including occupancy and buying costs 121,019 109,004 ------------------ ------------------ Gross profit 67,309 58,934 Selling, general and administrative expenses 43,616 40,116 Depreciation and amortization 5,770 5,250 ------------------ ------------------ Operating income 17,923 13,568 Interest income- net 2,212 1,543 ------------------ ------------------ Earnings before income taxes 20,135 15,111 Income taxes 7,349 5,515 ------------------ ------------------ Net earnings $12,786 $9,596 ================== ================== Earnings per share Basic $0.71 $0.48 ================== ================== Diluted $0.68 $0.47 ================== ================== Weighted average shares outstanding: Basic 18,031 20,084 ------------------ ------------------ Diluted 18,885 20,507 ------------------ ------------------ See notes to unaudited condensed financial statements
The Dress Barn, Inc. and Subsidiaries Consolidated Statements of Cash Flows Dollars in thousands
Thirteen Weeks Ended ------------------------------------- October 28, October 30, 2000 1999 ------------------ ---------------- Operating Activities: Net income $12,786 $9,596 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 5,770 5,250 Change in deferred income taxes 355 1,325 Deferred compensation --- --- Changes in assets and liabilities: Decrease in merchandise inventories 7,706 2,863 Decrease (increase) in prepaid expenses 1,148 (1,430) (Increase) decrease in other assets (36) 153 Decrease in accounts payable- trade (8,090) (7,440) Increase in accrued expenses 6,060 7,410 Decrease in customer credits (28) (178) Increase in income taxes payable 3,128 3,093 ------------------ ---------------- Total adjustments 16,013 11,046 ------------------ ---------------- Net cash provided by operating activities 28,799 20,642 ------------------ ---------------- Investing Activities: Purchases of property and equipment - net (6,459) (7,108) Sales and maturities of marketable securities and investments 12,966 55,913 Purchases of marketable securities and investments (28,209) (63,948) ------------------ ---------------- Net cash used in investing activities (21,702) (15,143) ------------------ ---------------- Financing Activities: Proceeds from Employee Stock Purchase Plan 26 28 Purchase of treasury stock -- -- Proceeds from stock options exercised 1,681 1,163 ------------------ ---------------- Net cash provided by financing activities 1,707 1,191 ------------------ ---------------- Net increase in cash and cash equivalents 8,804 6,690 Cash and cash equivalents- beginning of period 2,978 17,492 ------------------ ---------------- Cash and cash equivalents- end of period $11,782 $24,182 ================== ================ Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes $2,500 $1,097 ================== ================ See notes to unaudited condensed financial statements
THE DRESS BARN, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Unaudited) 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 28, 2000 and July 29, 2000, the consolidated results of its operations for the thirteen weeks ended October 28, 2000 and October 30, 1999, and cash flows for the thirteen weeks ended October 28, 2000 and October 30, 1999. The results of operations for a thirteen-week period 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 29, 2000 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 Programs In October 1998, the Board of Directors authorized the Company to repurchase its outstanding common stock at prevailing market prices for up to an aggregate amount of $75 million. The $75 million stock repurchase plan was completed in March 2000, with a total of approximately 4.8 million shares repurchased at an average price of $15.47 per share. On March 30, 2000, The Board of Directors authorized an additional $50 million stock repurchase plan. As of the date of this filing, the Company had repurchased 472,700 shares under the $50 million stock repurchase plan at an aggregate purchase price of approximately $8.5 million, with no shares repurchased since the beginning of the fiscal year. THE DRESS BARN, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Unaudited) 3. Comprehensive Income The Company's short-term investments are classified as available for sale securities, and therefore, are carried at fair value, with unrealized gains and losses reported as a component of other comprehensive income. Total comprehensive income for the quarter ended October 28, 2000 was $13.4 million versus $9.5 million in the prior year. Total comprehensive income is composed of net earnings and net unrealized gains or losses on available for sale securities. The Board of Directors authorized an additional $50 million stock repurchase plan. As of October 28, 2000, the Company had repurchased approximately 473,000 shares under the $50 million stock repurchase plan at an aggregate purchase price of approximately $8.5 million. Since the beginning of the fiscal year the Company has not repurchased any additional shares 4. Recent Accounting Pronouncements Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), effective for all fiscal quarters of all fiscal years beginning after June 15, 1999, establishes standards for the recognition and measurement of derivatives and hedging activities. The Company does not currently engage in these types of risk management or investment activities. Therefore, SFAS No. 133 is not anticipated to have any impact on the Company's financial position or results of operations. THE DRESS BARN, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth the percentage change in dollars from last year for the thirteen-week period ended October 28, 2000, and the percentage of net sales for each component of the Consolidated Statements of Earnings for each of the periods presented:
First Quarter % Change % of Sales ---------- From L/Y T/Y L/Y -------- --- --- Net Sales 12.1% Cost of Sales, including occupancy & buying 11.1% 64.3% 64.9% Gross Profit 14.2% 35.7% 35.1% Selling, General and admin. Expenses 8.7% 23.2% 23.9% Depreciation and amortization 9.9% 3.1% 3.1% Operating Income 32.1% 9.5% 8.1% Interest Income - Net 43.4% 1.2% 0.9% Income Before income Taxes 33.2% 10.7% 9.0% Net Income 33.2% 6.8% 5.7%
Net sales increased by 12.1% to $188.3 million for the 13 weeks ended October 28, 2000 ("first quarter"), from $167.9 million for the 13 weeks ended October 30, 1999 ("last year"). The sales increase from last year was due a 5.6% increase in comparable store sales and an approximately 8% increase in total selling square footage. The Company believes the increase in comparable store sales resulted in part from a number of its strategic initiatives including the development of its Dress Barn(R) brand merchandise and brand image and the Company's ability to react to the growing customer preference for casual career wear and adapt its merchandise offerings accordingly. The increase in store 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 increased to 715 stores as of October 28, 2000, from 689 stores in operation as of October 30, 1999. During the first quarter the Company opened 31 stores and closed 5 underperforming locations. The Company's strategy for the remainder of fiscal 2001 is to continue opening primarily combo stores and converting its existing single-format stores into combo stores, while closing its underperforming locations. THE DRESS BARN, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company mailed approximately 3.7 million catalogs during the first quarter compared to approximately 1.5 million catalogs mailed during last year's first quarter. During Spring 2000, the Company also started its e-commerce operation, selling merchandise on the internet via its web site (www.dressbarn.com). The Company's earnings per share - diluted for the first quarter were negatively impacted by approximately $.07 due to operating losses and continued expansion of its catalog and e-commerce operations. The Company believes both the catalog and e-commerce operations represent complementary channels of distribution to its existing core businesses and help drive store traffic. Gross profit (net sales less cost of goods sold, including occupancy and buying costs) increased by 14.2% to $67.3 million, or 35.7% of net sales, in the first quarter from $58.9 million, or 35.1% of net sales last year. The increase in gross profit as a percentage of sales was primarily due to higher initial margins and lower markdowns. Tight inventory controls helped to increase inventory turns and minimize markdowns. Leverage from the increase in sales offset higher store occupancy costs resulting from the increase in square footage and higher rents for new stores, store expansions and lease renewals. Selling, general and administrative ("SG&A") expenses increased by 8.7% to $43.6 million, or 23.2% of net sales, in the first quarter from $40.1 million, or 23.9% of net sales, last year. Cost controls, productivity improvements and increases in comparable store sales more than offset increases in store operating costs, primarily selling costs due to wage pressures from a tight labor market and the SG&A of the catalog and e-commerce operations. Depreciation expense increased by 9.9% to $5.8 million in the first quarter from $5.2 million last year. Increases in fixed asset purchases during the last twelve months were offset in part by a reduction in the number of closed stores during the first quarter versus last year. Interest income - net increased by 43.4% to $2.2 million in the first quarter from $1.5 million last year. The first quarter was favorably impacted by increased funds available for investment and higher rates as compared to last year. Principally as a result of the above factors, net income for the first quarter was $12.8 million, or 6.8% of net sales, an increase of 33.2% from the $9.6 million, or 5.7% of net sales, for the first quarter of last year. 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 2001 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 29, 2000. 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)