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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 28, 2001 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 [ ].
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. [ ].
As of October 25, 2001, 18,323,447 shares of common shares were
outstanding. The aggregate market value of the common shares (based upon the
October 24, 2001 closing price of $21.20 on the NASDAQ Stock Market) of The
Dress Barn, Inc. held by non-affiliates was approximately $301.9 million. For
the purposes of such calculation, all outstanding shares of Common Stock have
been considered held by non-affiliates, other than the 4,082,995 shares
beneficially owned by Directors and Executive 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 10, 2001 are incorporated into Parts I and
III of this Form 10-K.
Cover Page
THE DRESS BARN, INC.
FORM 10-K
FISCAL YEAR ENDED JULY 28, 2001
TABLE OF CONTENTS
PART I PAGE
Item 1 Business
General 3
Company Strengths and Strategies 3
Merchandising 6
Buying and Distribution 7
Store Locations and Properties 8
Operations and Management 10
Advertising and Marketing 11
Management Information Systems 11
Trademarks 12
Employees 12
Seasonality 12
Forward-Looking Statement and Factors Affecting Future 13
Performance
Item 2 Properties 15
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 4A Executive Officers of the Registrant 17
PART II
Item 5 Market for Registrant's Common Stock and 19
Related Security Holders Matters
Item 6 Selected Financial Data 20
Item 7 Management's Discussion and Analysis of 21
Financial Condition and Results of Operations
Item 8 Financial Statement and Supplementary Data 25
Item 9 Changes in and Disagreements with Accountants 25
on Accounting and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant 25
Item 11 Executive Compensation 25
Item 12 Security Ownership of Certain Beneficial Owners 25
and Management
Item 13 Certain Relationships and Related Transactions 25
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 26
PART I
ITEM 1. BUSINESS
General
Dress Barn operates a national chain of specialty stores offering
in-season, moderate to better quality career and casual fashion to the working
woman at value prices. The Company differentiates 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. As part of this focus, the Company has
successfully developed its own line of private brands, which constituted
approximately 80% of net sales for the fiscal year ended July 28, 2001 ("fiscal
2001").
The Company operates primarily combination Dress Barn/Dress Barn Woman
stores ("Combo Stores"), which carry both Dress Barn and larger-sized Dress Barn
Woman merchandise, as well as freestanding Dress Barn and Dress Barn Woman
stores. As of July 28, 2001, the Company operated 720 stores in 43 states and
the District of Columbia, consisting of 441 Combo Stores, 224 Dress Barn stores
and 55 Dress Barn Woman 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. The Company sells
through its mail-order catalog and its internet site (www.dressbarn.com), which
gives the Company multiple channels of distribution, and the ability to target
multiple groups of potential customers while providing its current customers
with the convenience of seeing and buying its merchandise in new ways.
Company Strengths and Strategies
Dress Barn is one of the largest national specialty store chains offering
in-season women's career and casual 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 over 700 store locations 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 targeted marketing activities.
The Company has developed and maintains strong and lasting relationships
with its domestic and offshore vendors, including its buying agents, often being
one of their largest accounts. These relationships, along with the Company's
buying power and strong credit profile, enable the Company to receive favorable
purchasing terms, exclusive merchandise and expedited delivery times.
The senior members of the Company's management team, with one exception,
have worked together at Dress Barn for many years, with each also having
substantial previous fashion retailing experience. During fiscal 2001, the
Company added another experienced executive to its management team. Kathryn
Bufano Foster joined the company as President and Chief Merchandising Officer.
Refer to Executive Officers of the Registrant, below.
The Company has repositioned itself to appeal to a younger-feeling customer
while maintaining the Company's focus on its target customer. This repositioning
included evolving the existing Dress Barn image, building brand awareness,
adopting a new logo and creating a "personality" for Dress Barn that is unique
and proprietary to the marketplace. This included developing Dress Barn into a
national brand, enhancing its merchandise and its stores. During fiscal 2000 the
Company undertook a national "lifestyle" marketing campaign, to further
strengthen and develop the Dress Barn brand. During fiscal 2001 the Company
expanded the use of its Dress Barn(R) label to approximately 80% of its
merchandise offerings. During the year ending July 27, 2002 ("fiscal 2002"), the
Company intends to expand its Dress Barn(R) label to virtually all of its
private brand merchandise offerings, emphasizing quality, value and fashion. In
addition, during fiscal 2002, the Company plans to conduct extensive customer
surveys and launch a comprehensive brand image campaign for the Spring 2002
selling season.
The Company's merchandise offerings reflect a focused and balanced
assortment of career and casual fashions tailored to its customers' demands. The
merchandise mix has evolved to more younger-feeling and contemporary in style.
Assortments are narrower to provide better edited, but deeper, assortments for
added depth in stock and more appealing merchandise presentation. In addition,
the Company has developed a new store design prototype that features an easier
to shop layout, warmer colors and redesigned fixtures for enhanced merchandise
presentation. During fiscal 2001, the Company updated to the new prototype
design or remodeled approximately 75 stores; the Company plans to update or
remodel approximately 100 of its store locations during fiscal 2002.
In September 1999, the Company launched its mail order catalog. In Spring
2000, the Company launched e-commerce sales on its internet site
(www.dressbarn.com). Over eleven million catalogs were mailed during fiscal
2001, with a larger number planned to be mailed during fiscal 2002 to both
existing and prospective customers, with the hope of driving them into the
store, as well as offering the opportunity to purchase by phone, mail or online.
The Company believes these sales channels will help to increase overall revenue
growth, as well as drive store traffic. In August 2001, the Company moved its
fulfillment operations in-house to enhance customer service and reduce
fulfillment costs. In addition, to reduce merchandising and overhead costs and
promote a cohesive brand image, the Company is closely integrating its catalog
and e-commerce operations with its retail operations for fiscal 2002. This
includes sharing merchandising functions and the utilization of only store
merchandise in its catalogs, plus coordinating its promotions and marketing
efforts with corresponding retail operations.
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. The Company utilizes a field information
system for all its Regional and District Sales Managers via laptop computers,
providing immediate sales, inventories and other operational data. The Company
recently upgraded all of its store personal computers and related software, and
plans to complete the upgrade of its back-office store system software during
fiscal 2002. In addition, the Company plans to begin upgrading its store
locations' cash register software and hardware to an enhanced PC-based system
during fiscal 2002. The Company's distribution center systems continue to be
refined, further reducing per-unit distribution costs.
All aspects of Dress Barn's stores 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 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.
The Company believes it has become the leading national chain of
value-priced specialty stores offering in-season career and casual fashions to
the moderate-income working woman. Dress Barn seeks to be the destination value
specialty retailer brand in the immediate trading area of its units for
consumers at moderate price points. The Company has developed the following
strategies: (i) utilize Dress Barn(R) as a brand, have it recognized as an
authority in its core categories with merchandise that provides shoppers with
desired quality at value prices; (ii) gradually evolve Dress Barn's merchandise
focus to include more fashion with a "soft separates" focus; (iii) continue to
open Combo Stores with added concentration on downtown and urban locations; (iv)
further develop customer targeted marketing, utilizing cross marketing between
its retail, catalog and e-commerce customers, and (v) further improve customer
service.
The Company has gradually increased the percentage of merchandise
manufactured for sale under the Dress Barn(R) label as well as its other private
brands, to approximately 80% of the Company's net sales for fiscal 2001. In
fiscal 2002 the Company intends to further increase the percentage of sales from
its private brand merchandise, of which the vast majority will carry the Dress
Barn(R) label. In addition, approximately 10% of the Company's net sales are
from merchandise produced by national brand manufacturers exclusively for Dress
Barn.
The Company's stores carry a broad assortment of career and casual wear,
including casual, career and special occasion dresses, sweaters, knitwear, both
casual and career pants and skirts, separates and suits, 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 trendy
merchandise that is subject to rapidly changing consumer tastes.
Based on the success of its larger size Combo Stores, the Company expects
most fiscal 2002 store openings to be Combo Stores between 8,000 and 9,000
square feet. Future Combo store openings will likely include expanded areas for
shoes, petites and other new merchandise categories. 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. If sufficient space is not available in a desirable shopping
center for a Combo store, the Company may open a separate Dress Barn or Dress
Barn Woman location in that center. Of the approximately 60 additional stores
that the Company plans to open by the end of fiscal 2002, approximately 50 are
expected to be new stores and approximately 10 are expected to be conversions to
Combo locations from existing Dress Barn or Dress Barn Woman stores. The Company
expects to continue to open stores primarily in strip centers, as well as in
downtown and outlet locations.
In conjunction with its strategy of adding primarily Combo Stores, the
Company continues to close or relocate its underperforming locations and expects
to close approximately 40 such locations during fiscal 2002, compared to 37
closed in fiscal 2001. 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, resulted in an aggregate store square footage
increase of approximately 7% in fiscal 2001, and is expected to result in a 7%
increase in fiscal 2002.
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. In Fall 2001, the
Company is implementing a customer relationship management program, headed by
two experienced executives. This system is designed to track customer
transactions, with the ability target customers with specific offers and
promotions, including coupons, pre-sale announcements, and special events. The
Company believes these efforts can lead to increased sales and a more loyal
customer base. In addition, the Company is actively marketing its Dress Barn
private label credit card membership, with 1.5 million cardholders as of the end
of fiscal 2001. The credit card purchasing information, combined with those from
store, catalog and e-commerce transactions, is creating a valuable customer
database for targeted marketing programs. The Company believes it complies with
current consumer privacy rules and regulations for the protection of its
customers.
Dress Barn continually seeks to improve the customer's shopping experience.
The Company's enhanced store systems enable store managers and sales associates
to spend more time servicing customers. The Company utilizes an ongoing
video-training program to improve customer service and sales associates' product
knowledge and selling skills.
To further enhance shareholder value, in October 1998, the Company's Board
of Directors authorized the Company to repurchase up to $75 million of the
Company's common stock. The Company completed this authorization during fiscal
2000, purchasing a total of 4.8 million shares at an average price of $15.62 per
share. In March 2000, the Company's Board of Directors approved an authorization
to repurchase an additional $50 million of the Company's common stock, which was
increased to $75 million in April 2001. Through the end of fiscal 2001, the
Company had repurchased 782,700 shares (or approximately 21% of the additional
authorization) at an aggregate cost of approximately $15.9 million.
Merchandising
In addition to the Company's broad assortment of career and casual wear,
the Company offers other wardrobe items including accessories, jewelry, hosiery
and shoes. There are separate merchandising teams for Dress Barn and Dress Barn
Woman. Starting in fiscal 2002, the Company intentention is that all of its
catalog and e-commerce merchandise offerings will consist only of store
merchandise, utilizing the stores' merchandising teams. The Company is
developing cross-marketing strategies covering store, catalog and e-commerce
merchandise. This includes featuring the same merchandise, pricing, promotions
and return policies across all three channels.
The use of its own label and private brands in general improves the
Company's control over the flow of merchandise into its stores and enables the
Company to better specify quantities, styles, colors, size breaks and delivery
dates. In addition, the Company believes its private brands provide it with more
flexibility in the marketing process by allowing for higher initial mark-ons.
The Company believes it has the expertise to execute its Dress Barn brand
strategy due to its extensive experience sourcing goods (primarily overseas),
its position as a merchandiser of established fashions, and its prior experience
with private brands. The percentage of the Company's sales generated from all
private brand labels has increased to approximately 80% in fiscal 2001, from 75%
in fiscal 2000 and 70% in fiscal 1999.
The Company continues to expand its shoe and petite-size departments. As of
July 28, 2001, 290 stores had shoe departments and 113 stores featured petites.
The Company currently plans to increase by a net of approximately 20 shoe
departments and approximately 10 petite departments in fiscal 2002.
Virtually all merchandising decisions affecting the Company's stores are
made centrally. Day to day store merchandising is under the direction of the
President and five merchandise managers. Catalog and e-commerce merchandising is
under the direction of the Company's President and the Catalog's General
Manager. Store 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 offers first-quality in season merchandise, with
approximately 60% of the Company's sales volume derived from sportswear,
including sweaters, knit and woven tops, pants and skirts. The remainder of the
Company's sales volume consists of dresses, suits, blazers, outerwear and
accessories. Dress Barn Woman merchandise features larger sizes of styles
similar to Dress Barn merchandise.
Buying and Distribution
Buying is conducted on a departmental basis for Dress Barn and Dress Barn
Woman by the Company's staff of over 45 buyers and assistant buyers supervised
by the President and five merchandise managers. Buying for the catalogs and
e-commerce is shared with the buyers of store merchandise, supervised by both
the Company's President and the Catalog's General Manager. The Company also uses
independent buying representatives in New York and overseas. The Company obtains
its nationally branded merchandise from approximately 200 vendors and its
private brand merchandise from approximately 65 vendors, and no vendor accounted
over 5% of the Company's purchases. In fiscal 2001, imports accounted for over
50% of merchandise purchases and no vendor accounted for over 5% of the
Company's purchases. Typical lead times for the Company in making purchases from
its vendors range from approximately one month for items such as dresses,
t-shirts, socks and hosiery to approximately six months for items such as suits
and sweaters.
All merchandise for its stores 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 uses its strong
relationships with vendors to lower its operating costs by shifting freight and
insurance costs to the vendors and typically requires them to provide ancillary
services. For example, over 90% of the Company's merchandise is pre-ticketed by
vendors and over 40% is pre-packaged for distribution to stores, which allows
cross-docking in the distribution center to the stores. In addition, over half
of the hanging garments purchased by the Company are delivered on floor-ready
hangers. Beginning in August 2001, merchandise for the catalog and e-commerce
operations is also being received at the Company's Suffern location, where the
merchandise is stored, processed and shipped directly to the customer. The
Company no longer utilizes a third party for the catalog and e-commerce
operations' fulfillment functions.
The Company generally does not warehouse store 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 28, 2001, the Company operated 720 stores in 43 states and the
District of Columbia. 404 of the stores were conveniently located in strip
centers and 250 stores were located in outlet centers. During fiscal 2001, no
store accounted for as much as 1% of the Company's total sales. The following
table indicates the type of shopping facility in which the stores were located:
Dress Barn
Dress Barn Woman Combo
Type of Facility Stores Stores Stores Total
Strip Shopping Centers 126 24 254 404
Outlet Malls and Outlet Strip Centers 67 26 157 250
Free Standing, Downtown and Enclosed Malls 31 5 30 66(*)
Total 224 55 441 720
--- -- --- ---
(*) Includes 25 downtown locations
The table on the following page indicates the states in which the stores
operating on July 28, 2001 were located, and the number of stores in each state:
Location DB DBW Combos
------- ------- ------
Alabama - - 6
Arizona 3 - 6
Arkansas - - 2
California 19 3 16
Colorado 4 1 8
Connecticut 8 3 21
District of Columbia 1 - 1
Delaware 3 1 3
Florida 11 1 15
Georgia 4 2 20
Idaho - - 2
Illinois 3 - 24
Indiana 5 - 5
Iowa - - 3
Kansas - - 4
Kentucky 1 - 6
Louisiana - - 4
Maine 2 1 -
Maryland 7 2 17
Massachusetts 11 2 23
Michigan 8 1 23
Minnesota 1 - 4
Mississippi - - 6
Missouri 3 2 12
Nebraska - - 4
Nevada 2 - 4
New Hampshire 1 - 5
New Jersey 21 9 18
New York 27 4 35
North Carolina 10 5 16
Ohio 6 1 14
Oklahoma - - 2
Oregon 2 2 2
Pennsylvania 24 6 18
Rhode Island 2 - 2
South Carolina 9 2 7
Tennessee 4 2 11
Texas 6 1 37
Utah 2 1 4
Vermont - - 2
Virginia 13 2 18
Washington 1 1 5
West Virginia - - 1
Wisconsin - - 5
Total 224 55 441
--- -- ---
Operations and Management
In considering new store locations, the Company's focus is on expanding in
its existing major trading and high-density markets, in certain cases seeking
downtown or urban locations and/or adding to a cluster of suburban or other
locations. Downtown and urban locations are considered based on pedestrian and
mass transit traffic patterns, proximity to major corporate centers and
occupancy costs at the location, which are substantially higher than in suburban
locations. With respect to suburban and other locations the Company considers
the 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 all
new leases. The committee also 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. The Company has updated
its interior signage and fixturing for a more open and easier to shop
environment. During fiscal 2001 the Company updated 50 of its existing stores
and plans over time to update the many of its remaining stores.
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 95 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. They include (i) ongoing
video training, (ii) manuals and (iii) one-on-one training of sales associates
by store managers.
Approximately 64% of the Company's sales in fiscal 2001, versus 61% in
fiscal 2000, were paid for by credit card, with the remainder being paid by cash
or check. This increase was partially due to the catalog and e-commerce sales,
which are virtually all credit card sales, and the Company's increased promotion
of the Dress Barn card. Consistent with the other credit cards it accepts, the
Company assumes no credit risk with respect to the Dress Barn card but pays a
percentage of sales as a service charge. As of July 28, 2001, the number of
cardholders was approximately 1.5 million. The average transaction on the Dress
Barn credit card during fiscal 2001 was approximately 28% greater than the
average of all other transactions and represented approximately 11% of the
Company's sales.
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.
Advertising and Marketing
The Company markets through three channels; retail, catalog and Internet.
For its retail locations, the Company primarily uses print advertising. At the
store level, the store managers host local marketing programs, including fashion
shows and in-store events designed to create greater awareness of Dress Barn's
merchandise. The Company also uses direct mail programs, with eight mailings
during fiscal 2001, each to approximately 800,000 households including its
active credit card holders. In addition, there were several smaller, more
targeted mailings during fiscal 2001. In fiscal 2000, the Company conducted a
national brand awareness campaign, using cable, local television and radio to
promote Dress Barn as a national brand and as a "lifestyle" to help drive
customer traffic. The Company plans to launch a national campaign in 2002, after
conducting extensive customer research and surveys during Winter 2001.
Marketing for the Company's catalog and e-commerce operations are closely
coordinated with its retail operations. Beginning in fiscal 2002, the Company's
catalogs will carry only Dress Barn retail merchandise. This has many benefits
including ease of inventory control, since the customer can exchange her
purchase at her nearby store, or come into a store to see and handle the item.
The Company plans to mail over 15 million catalogs during the fiscal 2002, to
both existing and prospective customers, with the hope of driving them into the
store, as well as offering the opportunity to purchase by phone, mail or online.
The Company believes that identifying its customers and their purchasing
patterns is essential to its business. During fiscal 2002, the Company intends
to implement a customer relationship management program, to track customer
transactions. The Company intends to incorporate data from its stores, credit
card program, catalog and internet site (www.dressbarn.com) to develop targeted
marketing efforts, tailoring offers and promotions to its best customers.
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 a 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. All stores utilize a point-of-sale system with price look-up
capabilities for both inventory and sales transactions. The Company continues to
refine its laptop system that delivers up-to-date store-related information to
its Regional and District Sales Managers and automates many of their reporting
functions.
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. 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. In fiscal 2002, the Company will complete the upgrade of its
back-office store system software and other information systems to enable store
managers and sales associates to spend more time servicing customers. The
Company believes that such investments in technology enhance operating
efficiencies and position Dress Barn for future growth.
Beginning in fiscal 2002, the catalog and e-commerce operations will
utilize their own computer operating system, which it purchased from a third
party, for the call center and fulfillment operations, which tracks merchandise
from the initial purchase order to the eventual fulfillment of customer orders.
The catalog and e-commerce operations also use their own planning and
forecasting system to determine optimal mailing patterns to maximize response
rates for catalog mailings, and to properly plan merchandise and assortment
levels for the highest potential order fulfillment rates with a minimum of back
orders.
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 its Dress Barn (R) trademark is materially
important to its business. A small number of the Company's stores currently in
operation, primarily located in outlet centers, operate under the name Westport
Ltd. and Westport Woman.
Employees
As of July 28, 2001, the Company had approximately 7,800 employees of whom
approximately 4,300 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,
the catalog and e-commerce operations, 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 in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section below.
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.
The Company competes primarily with department stores, specialty stores,
discount stores, mass merchandisers and off-price retailers, many of which have
substantially greater financial, marketing and other resources than the Company.
The Company's catalog and e-commerce operations compete with other catalog and
other multi-channel retailers. 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 closeouts 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 Company's success is largely dependent on the efforts and abilities of
its senior management team. During fiscal 2001, the Company added a key member
to its management team, Kathy Bufano Foster as President and Chief Merchandising
Officer. Burt Steinberg, previously Vice Chairman and Chief Operating Officer,
will continue with the Company as Executive Director. In this new position Mr.
Steinberg will focus on special projects including overseeing all foreign
sourcing and updating the Company's distribution process, as well as new
business opportunities. The Company's results of operations may be impacted by
the effect, if any, of these changes on its day-to-day operations, merchandising
and store activities, growth plans and ability to continue servicing its
existing customer base.
The Company's results of operations were negatively impacted in fiscal 2000
and fiscal 2001 by the costs of creating an infrastructure for its catalog and
e-commerce operations and from their continued operations. During fiscal 2002,
the Company is taking various measures to reduce their operating costs. These
include purchasing new operating systems for its catalog and e-commerce
operations, moving the receipt and processing of all catalog and e-commerce
merchandise and customer shipments to its Suffern facility and closely
integrating its catalog and e-commerce operations with its retail operations. If
sales of these operations do not achieve their planned levels, the Company's
operating results will continue to be negatively impacted. The Company may not
be able to operate the catalog and e-commerce operations at a satisfactory
profit level regardless of the measures it takes to reduce its costs. E-commerce
for specialty apparel retailers is relatively new, with few success stories.
The growth of the Company's store operations is dependent, in large part,
upon the Company's ability to successfully execute its strategy of adding new
stores and expanding into related businesses, such as the catalog and e-commerce
operations. The success of the Company's growth strategy for its stores 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, 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 expansion of the Dress Barn(R) brand to the vast majority of the
Company's merchandise offerings and the marketing campaign to promote the
Company's brand and image may not generate positive reaction from its customers
and may not increase sales. Failure of the Company to maintain its existing
customer base may negatively impact sales.
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.
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.
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
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 28,
2001, indicates the number of leases expiring during the period indicated and
the number of expiring leases with and without renewal options:
Leases Number with Number Without
Fiscal Years Expiring Renewal Options Renewal Options
2002 135 80 55
2003 131 116 15
2004 126 110 16
2005-2007 227 192 35
2008 and thereafter 101 96 5
--- --- ---
Total 720 594 126
--- --- ---
New store leases generally provide for a base rent of between $15 and $25
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 28, 2001, and excluding locations acquired after July 28, 2001, for
fiscal 2002 are approximately $78.2 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 used 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 current expansion plans for its stores, catalog and
e-commerce businesses. The catalog and e-commerce call center and fulfillment
operations were moved to the Suffern facility in August 2001, both staffed with
the Company's own personnel. The Company believes any substantial increase in
the Company's store base and substantial increases in catalog and e-commerce
revenues resulting from expansion or acquisition may require additional
distribution facilities.
ITEM 3. LEGAL PROCEEDINGS
On May 18, 2000, Alan M. Glazer, GLZR Acquisition Corp. and Bedford Fair
Industries, Ltd. commenced an action against the Company in the Superior Court
of Connecticut, Stamford Judicial District, seeking compensatory and punitive
damages in an unspecified amount for alleged unfair trade practices and alleged
breach of contract arising out of negotiations before Bedford Fair Industries'
Chapter 11 bankruptcy liquidation for the acquisition of the Bedford Fair
business which the Company never concluded. The Company believes there is no
merit in any of the plaintiffs' asserted claims, is vigorously defending the
litigation, and, in any event, does not expect the outcome of these proceedings
to have a material adverse effect on the Company.
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.
ITEM 4A. Executive Officers of the Registrant
The following table sets forth the name, age and position with the Company
of the Executive Officers of the Registrant:
Name Age Positions
Elliot S. Jaffe 75 Chairman of the Board,
Chief Executive Officer and Director
David R. Jaffe 42 Vice Chairman,
Chief Operating Officer and Director
Kathryn Bufano Foster 49 President and Chief Merchandising Officer
Burt Steinberg 56 Executive Director and
Director
Armand Correia 55 Senior Vice President and Chief
Financial Officer
Eric Hawn 51 Senior Vice President
Store Operations
Elise Jaffe 46 Senior Vice President
Real Estate
Mr. Elliot S. Jaffe has been Chief Executive Officer of the Company since
1966.
Mr. David R. Jaffe became Vice Chairman, Chief Operating Officer and a
member of the Board of Directors in September 2001. Previously he had been Vice
Chairman since February 2001. He joined the Company in 1992 as Vice President
Business Development and became Senior Vice President in 1995 and Executive Vice
President in 1996. Mr. Jaffe is the son of Elliot S. and Roslyn S. Jaffe,
Secretary, Treasurer and Director of the Company.
Ms. Bufano Foster joined the Company in February 2001 as President and
Chief Merchandising Officer. Before joining the Company, she was Executive Vice
President and GMM of Women's Apparel for Macy's Department Stores. Prior to her
six years with Macy's, she spent 17 years at Lord and Taylor and left as Senior
Vice President and GMM of Ladies Sportswear, Special Sizes and Juniors.
Mr. Steinberg became Executive Director of the Company in August 2001. He
had been President and Chief Operating Officer of the Company since 1989 and
Vice Chairman since February 2001.
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.
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Market Prices of Common Stock
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.
Fiscal 2001 Fiscal 2000
Bid Prices Bid Prices
High Low High Low
Fiscal Period
First Quarter $25.38 $19.88 $19.63 $14.00
Second Quarter $31.00 $23.25 $18.25 $15.06
Third Quarter $30.75 $21.38 $22.69 $13.56
Fourth Quarter $28.92 $21.55 $24.94 $16.25
Number of Record Holders
The number of record holders of the Company's common stock as of October 1,
2001 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.
ITEM 6. SELECTED FINANCIAL DATA
Dollars in thousands except per share information
Fiscal Year Ended
------------------------------------------------------------------------------------
July 28, July 29, July 31, July 25, July 26,
2001 2000 1999 1998 1997
------------------------------------------------------------------------------------
Net sales $695,008 $656,174 $615,975 $598,175 $554,843
Cost of sales, including
occupancy and buying costs 443,426 419,479 398,282 381,354 358,093
------------------------------------------------------------------------------------
Gross profit 251,582 236,695 217,693 216,821 196,750
Selling, general and
administrative expenses 180,991 165,336 150,897 142,098 135,384
Depreciation & amortization 23,916 21,164 23,104 17,758 16,139
------------------------------------------------------------------------------------
Operating income 46,675 50,195 43,692 56,965 45,227
Interest income- net 8,949 7,667 8,787 6,385 4,800
------------------------------------------------------------------------------------
Earnings before
income taxes 55,624 57,862 52,479 63,350 50,027
Income taxes 20,303 21,120 19,155 23,123 18,260
------------------------------------------------------------------------------------
Net earnings $35,321 $36,742 $33,324 $40,227 $31,767
====================================================================================
Earnings per share - basic $1.94 $1.94 $1.56 $1.75 $1.40
====================================================================================
Earnings per share - diluted $1.88 $1.89 $1.53 $1.70 $1.33
====================================================================================
Balance sheet data:
Working capital $197,257 $159,105 $159,089 $170,412 $153,579
Total assets $402,282 $374,236 $363,579 $341,154 $309,502
Long-term debt -- -- -- -- $3,500
Shareholders' equity $296,597 $259,561 $253,600 $265,608 $232,822
Percent of net sales:
Cost of sales, including
occupancy and buying costs 63.8% 63.9% 64.7% 63.8% 64.5%
Gross profit 36.2% 36.1% 35.3% 36.2% 35.6%
Selling, general and
administrative expenses 26.0% 25.2% 24.5% 23.8% 24.4%
Operating income 6.7% 7.6% 7.1% 9.5% 8.2%
Net earnings 5.1% 5.6% 5.4% 6.7% 5.7%
Certain reclassifications have been made to prior years' data to conform with
the current year's presentation
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements contained in this Annual Report are forward-looking and
involve a number of risks and uncertainties. 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, including consumers'
reaction to global political instability; competitive factors and pricing
pressures, including the promotional activities of major department stores;
consumer apparel buying patterns, such as the ongoing shift to more casual
apparel; import risks, including potential disruptions, economic and political
problems in countries from which merchandise is imported, and duties, tariffs
and quotas on imported merchandise; the Company's ability to predict fashion
trends; the availability, selection and purchasing of attractive merchandise on
favorable terms; inadequate growth in the sales from the catalog and e-commerce
operations; new or increased competition in the catalog or e-commerce channels
of distribution; 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.
Results of Operations
The table below sets forth certain financial data of the Company expressed
as a percentage of net sales for the periods indicated:
Fiscal Year Ended
July 28, July 29, July 31,
2001 2000 1999
--------- --------- --------
Net sales 100.0% 100.0% 100.0%
Cost of sales, including
occupancy and buying costs 63.8% 63.9% 64.7%
Selling, general and
administrative expenses 26.0% 25.2% 24.5%
Depreciation and amortization 3.5% 3.2% 3.8%
Interest income - net 1.3% 1.2% 1.4%
Earnings before income taxes 8.0% 8.8% 8.5%
Net earnings 5.1% 5.6% 5.4%
Fiscal 2001 Compared to Fiscal 2000
Net sales increased by 5.9% to $695.0 million for the 52 weeks ended July
28, 2001 ("fiscal 2001"), from $656.2 million for the 52 weeks ended July 29,
2000 ("fiscal 2000"). The sales increase from fiscal 2000 was due to an
approximately 7% increase in total selling square footage, offset in part by a
1.2% decrease in comparable store sales. The increase in store square footage
was due to the opening of 68 new stores, primarily combination Dress Barn/Dress
Barn Woman stores ("combo stores"), which carry both Dress Barn and Dress Barn
Woman merchandise, offset in part by the square footage reduction from the
closing of 37 underperforming stores. The number of stores in operation
increased to 720 stores as of July 28, 2001, from 689 stores in operation as of
July 29, 2000. The Company believes its strategic initiatives, including the
development of its Dress Barn(R) brand merchandise and brand image contributed
to a strong Fall selling season. Sales slowed in the Spring, reflecting
diminished consumer confidence and continuing concerns over the slowing economy,
resulting in an overall 1.2% decline in comparable store sales for fiscal 2001.
The Company's strategy for fiscal 2002 is to continue opening primarily combo
stores and converting its existing single-format stores into combo stores, while
closing its underperforming locations. Store expansion will focus on both
expanding in the Company's existing major trading markets, in certain cases
seeking a downtown location and/or adding to a cluster of suburban or other
locations, and developing new markets.
The Company mailed a total of 11 million Dress Barn catalogs during fiscal
2001. The Company also sells merchandise on the internet via its web site
(www.dressbarn.com). The Company's fiscal 2001 earnings per share-diluted were
reduced by approximately $.41 due to the operating costs of the catalog and
e-commerce operations. The Company is integrating these operations with its
store operations. The Company believes both the catalog and e-commerce
operations represent complementary channels of distribution to its existing core
business, and help to drive store traffic. During fiscal 2002, the Company is
taking the fulfillment operations in-house to improve customer service and
reduce operating costs.
Gross profit (net sales less cost of goods sold, including occupancy and
buying costs) increased by 6.3% to $251.6 million, or 36.2% of net sales, in
fiscal 2001 from $236.7 million, or 36.1% of net sales, in fiscal 2000. The
increase in gross profit as a percentage of sales was primarily due to higher
initial margins from the Company's increased mix to more Dress Barn(R) brand
merchandise and lower markdowns due to tight inventory controls, which helped
increase inventory turns and minimize markdowns. This was offset, in part, by
higher store occupancy costs as a percentage of sales resulting from higher
rents for new stores, store expansions and lease renewals.
Selling, general and administrative ("SG&A") expenses increased by 9.5% to
$181.0 million, or 26.0% of net sales, in fiscal 2001 from $165.3 million, or
25.2% of net sales, in fiscal 2000. Cost controls and productivity improvements
were not sufficient to offset a combination of negative leverage from the 1.2%
decrease in comparable store sales and its impact on fixed costs, increased
store operating costs and catalog and e-commerce expenses.
Depreciation expense increased by 13.0% to $23.9 million for fiscal 2001
from $21.1 million for fiscal 2000. Fiscal 2001's depreciation expense included
the write-off of certain obsolete computer equipment and software. Depreciation
expense for both periods also includes certain write-offs related to the closure
of 37 stores and 47 stores during fiscal 2001 and fiscal 2000, respectively.
Interest income - net increased by 16.7% to $8.9 million for fiscal 2001
from $7.7 million for fiscal 2000. This was the result of increased funds
available for investment during the year, partially offset by decreased interest
rates.
Net earnings for fiscal 2001 decreased 3.9% to $35.3 million versus $36.7
million in fiscal 2000, while diluted earnings per share fell 0.5% to $1.88 per
share versus $1.89 in fiscal 2000. The earnings per share decrease was less than
the decrease in net earnings primarily due to the Company's repurchase of .3
million and 2.4 million shares of its common stock in fiscal 2001 and 2000,
respectively.
Fiscal 2000 Compared to Fiscal 1999
Net sales increased by 6.5% to $656.2 million for fiscal 2000, from $616.0
million for the 53 weeks ended July 31, 1999 ("fiscal 1999"). On a comparable
52-week basis sales would have increased 8.2%. The sales increase from fiscal
1999 was primarily due to a 1.8% increase in comparable store sales and an
approximately 9% 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
combo stores and the conversion of single-format stores into combo stores,
offset in part by the square footage reduction from the closing of
underperforming stores. The number of stores in operation increased to 689
stores as of July 29, 2000, from 674 stores in operation as of July 31, 1999.
The Company mailed its first Dress Barn catalog in September 1999, with a
total of 6 million catalogs mailed during fiscal 2000. During Spring 2000, the
Company also started its e-commerce business, selling merchandise on the
internet via its web site (www.dressbarn.com). The Company's fiscal 2000
earnings per share-diluted were reduced by approximately $0.22 due to the
startup costs of launching the catalog and e-commerce operations and building
the infrastructure to support their continued expansion.
Gross profit increased by 8.7% to $236.7 million, or 36.1% of net sales, in
fiscal 2000 from $217.7 million, or 35.3% of net sales, in fiscal 1999. The
increase in gross profit as a percentage of sales was primarily due to higher
initial margins from the continued increase in the percentage of sales from
private brands and lower markdowns as a percentage of sales. Increased store
sales more than offset higher store occupancy costs resulting from the increase
in square footage and higher rents for new stores, store expansions and lease
renewals.
SG&A expenses increased by 9.6% to $165.3 million, or 25.2% of net sales,
in fiscal 2000 from $150.9 million, or 24.5% of net sales, in fiscal 1999. Cost
controls, productivity improvements and increases in comparable store sales were
not sufficient to offset increases in store operating costs (primarily selling
costs resulting from the tight labor market) and increases in advertising and
marketing expenses. In addition, SG&A expenses included start-up costs for the
Dress Barn catalog and the e-commerce operations.
Depreciation expense decreased by 8.5% to $21.2 million for fiscal 2000
from $23.1 million for fiscal 1999. Fiscal 1999's depreciation expense included
additional provisions for future store closings and an additional charge for the
replacement of its store personal computers during fiscal 2000. Depreciation
expense for both periods also includes certain write-offs related to the closure
of 47 stores and 56 stores during fiscal 2000 and fiscal 1999, respectively.
Interest income - net decreased by 12.7% to $7.7 million for fiscal 2000
from $8.8 million for fiscal 1999. During fiscal 2000, funds available for
investment were consistent with fiscal 1999, but fiscal 1999 included $1.2
million of net capital gains from the redemption of equity funds made during the
fiscal year.
Net earnings for fiscal 2000 increased 10.3% to $36.7 million versus $33.3
million in fiscal 1999, while diluted earnings per share increased 23.5% to
$1.89 per share versus $1.53 in fiscal 1999. The earnings per share increase
exceeded the increase in net earnings primarily due to the Company's repurchase
of 2.4 million and 3.0 million shares of its common stock in fiscal 2000 and
1999, respectively.
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, the continued expansion of its
successful combination store format and the building of its catalog and
e-commerce capabilities. Total capital expenditures were $25.8 million, $22.3
million and $22.7 million in fiscal 2001, 2000 and 1999, respectively. Capital
expenditures increased $3.5 million in fiscal 2001 primarily due to the
investment in new store technology and back office operating systems. The
Company also repurchased 310,000 outstanding shares of its stock for a total
cost of $7.4 million during fiscal 2001 and 2,399,400 outstanding shares for
$33.9 million during fiscal 2000.
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 net cash provided by operations in fiscal 2001 increased to $63.2
million as compared to $61.5 million in fiscal 2000 and $84.5 million in fiscal
1999. The large increase in fiscal 1999 versus both fiscal 2001 and fiscal 2000
was due primarily to the $21.0 million increase in accounts payable (while
inventory increased $7.4 million) and to a decrease in taxes paid in fiscal
1999.
At July 28, 2001, the Company had $177.5 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 approximately $197.3 million at July
28, 2001. In addition, the Company had available $115 million in unsecured lines
of credit bearing interest below the prime rate. The Company had no debt
outstanding under any of the lines at July 28, 2001. However, potential
borrowings were limited by approximately $22 million of outstanding letters of
credit primarily to vendors for import merchandise purchases.
In fiscal 2002, the Company plans to open approximately 60 additional
stores, convert approximately 15 single-format stores to its larger combo store
format and continue its store remodeling program. The Company intends to focus
on its current markets, and enter into new markets where economically justified.
The Company intends to pursue downtown locations as these stores complement
existing suburban locations in its trading markets. The Company also intends to
continue developing its catalog and e-commerce capabilities. 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.
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 2002. 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, the catalog and e-commerce operations, and changes in
the Company's merchandise mix.
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 2001 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ITEM 14. (a) (1) FINANCIAL STATEMENTS PAGE NUMBER
--------------------------------------- -----------
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
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.
ITEM 14. (a) (3) LIST OF EXHIBITS
The following exhibits are filed as part of this Report and except
Exhibits 10(b), 10(ss), 21 and 23 are all incorporated by reference (utilizing
the same exhibit numbers) from the sources shown.
Incorporated By
Reference From
3(c) Amended and Restated Certificate of Incorporation (1)
3(e) Amended and Restated By-Laws (13)
3(f) Amendments to Amended and Restated Certificate of Incorporation (5)
4. Specimen Common Stock Certificate (1)
10(a) 1993 Incentive Stock Option Plan (10)
10(b) Employment Agreement With Burt Steinberg
10(f) Agreement terminating Agreement for Purchase of Certain Stock
from Elliot S. Jaffe upon death (6)
10(g) Agreement terminating Agreement for Purchase of Certain Stock
from Roslyn S. Jaffe upon death (6)
Incorporated By
Reference From
Leases of Company premises of which the lessor is Elliot S. Jaffe or members of
his family or related trusts:
10(l) Danbury, CT store (1)
10(hh) Norwalk, CT Dress Barn/Dress Barn Woman store (8)
10(aa) The Dress Barn, Inc. 1987 Non-Qualified Stock Option Plan (5)
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(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
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
10(rr) Employment Agreement With Kathryn Bufano Foster (14)
10(ss) The Dress Barn, Inc. 2001 Stock Option Plan
21. Subsidiaries of the Registrant
23. Independent Auditors' Consent
References on following page:
--------------------------------------------------------------------------------
(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 25,
1998.
(13) The Company's Annual Report on Form 10-K for the fiscal year ended July 29,
2000.
(14) The Company's Quarterly Report on Form 10-Q for the quarter ended April 29,
2001.
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 28, 2001.
ITEM 14. (c) EXHIBITS
All exhibits are incorporated by reference as shown in Item 14(a)3, except
Exhibits 10(b), 10(ss), 21 and 23 which are filed as part of this Report.
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
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.
Signature Title Date
/s/ ELLIOT S. JAFFE 10/26/00
--------------------
Elliot S. Jaffe Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ ROSLYN S. JAFFE 10/26/00
---------------------
Roslyn S. Jaffe Director and Secretary and Treasurer
/s/ DAVID R. JAFFE 10/26/00
---------------------
David R. Jaffe Director, Vice Chairman
and Chief Operating Officer
/s/ BURT STEINBERG 10/26/00
---------------------
Burt Steinberg Director and Executive Director
/s/ KLAUS EPPLER 10/26/00
-----------------------
Klaus Eppler Director
/s/ DONALD JONAS 10/26/00
----------------
Donald Jonas Director
/s/ EDWARD D. SOLOMON 10/26/00
---------------------
Edward D. Solomon Director
/s/VIVIAN BEHRENS 10/26/00
------------------
Vivian Behrens Director
/s/ ARMAND CORREIA 10/26/00
---------------------
Armand Correia Chief Financial Officer (Principal
Financial and Accounting Officer)
INDEPENDENT AUDITORS' REPORT
The 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 (the "Company") as of July 28, 2001 and July 29,
2000, and the related consolidated statements of earnings, shareholders' equity
and cash flows for each of the three years in the period ended July 28, 2001.
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 auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company as of
July 28, 2001 and July 29, 2000, and the consolidated results of its operations
and its consolidated cash flows for each of the three years in the period ended
July 28, 2001 in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
New York, New York
September 12, 2001
The Dress Barn, Inc. and Subsidiaries
Consolidated Balance Sheets
Amounts in thousands, except share data
July 28, July 29,
2001 2000
------------------ ------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 16,834 $2,978
Marketable securities and investments (Note 2) 177,474 154,050
Merchandise inventories 104,487 111,901
Prepaid expenses and other 4,147 4,851
------------------ ------------------
Total Current Assets 302,942 273,780
------------------ ------------------
Property and Equipment:
Leasehold improvements 59,019 54,749
Fixtures and equipment 144,468 128,300
Computer software 14,277 12,294
Automotive equipment 547 560
------------------ ------------------
218,311 195,903
Less accumulated depreciation
and amortization 129,712 109,146
------------------ ------------------
88,599 86,757
------------------ ------------------
Deferred Income Taxes (Note 4) 7,278 9,864
------------------ ------------------
Other Assets 3,463 3,835
------------------ ------------------
$402,282 $374,236
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable- trade $ 53,681 $64,780
Accrued expenses 45,006 39,633
Customer credits 5,811 5,255
Income taxes payable 1,187 5,007
------------------ ------------------
Total Current Liabilities 105,685 114,675
------------------ ------------------
Commitments (Note 5)
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- 25,656,232 and 25,094,847
shares, and outstanding- 18,237,032 and
17,985,647 shares, respectively 1,283 1,255
Additional paid-in capital 45,339 37,083
Retained earnings 364,491 329,170
Treasury stock, at cost (114,577) (107,162)
Accumulated other comprehensive income (loss) 61 (785)
------------------ ------------------
296,597 259,561
------------------ ------------------
$402,282 $374,236
================== ==================
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Earnings
Amounts in thousands, except per share amounts
Fiscal Year Ended
------------------------------------------------------------
July 28, July 29, July 31,
2001 2000 1999
------------------------------------------------------------
Net sales $695,008 $656,174 $615,975
Cost of sales, including
occupancy and buying costs 443,426 419,479 398,282
------------------------------------------------------------
Gross profit 251,582 236,695 217,693
Selling, general and
administrative expenses 180,991 165,336 150,897
Depreciation and amortization 23,916 21,164 23,104
------------------------------------------------------------
Operating income 46,675 50,195 43,692
Interest income- net 8,949 7,667 8,787
------------------------------------------------------------
Earnings before
income taxes 55,624 57,862 52,479
Income taxes 20,303 21,120 19,155
------------------------------------------------------------
Net earnings $35,321 $36,742 $33,324
============================================================
Earnings per share:
Basic $1.94 $1.94 $1.56
============================================================
Diluted $1.88 $1.89 $1.53
============================================================
Weighted average shares outstanding:
Basic 18,240 18,958 21,336
------------------------------------------------------------
Diluted 18,747 19,408 21,758
------------------------------------------------------------
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Dollars and shares in thousands.
Accumulated
Common Stock Additional Other Total
------------------ Paid-In Retained Treasury Comprehensive Shareholders'
Shares Amount Capital Earnings Stock Income(Loss) Equity
------------------------------------------------------------------------------------------------------------------------------------
Balance, July 25, 1998 22,839 $1,225 $25,175 $259,104 ($21,005) $ 1,109 $265,608
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 33,324
Unrealized holding loss on marketable securities (1,692)
----------
Total comprehensive income 31,632
----------
Deferred compensation 10 -- 164 164
Tax benefit from exercise of stock options 2,431 2,431
Employee Stock Purchase Plan activity 10 -- 133 133
Shares issued pursuant to exercise of stock options 119 7 894 901
Purchase of treasury stock (3,042) (47,269) (47,269)
------------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1999 19,936 1,232 28,797 292,428 (68,274) (583) 253,600
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 36,742
Unrealized holding loss on marketable securities (202)
----------
Total comprehensive income 36,540
----------
Tax benefit from exercise of stock options 4,050 4,050
Employee Stock Purchase Plan activity 7 1 109 110
Shares issued pursuant to exercise of stock options 442 22 4,127 4,149
Purchase of treasury stock (2,399) (38,888) (38,888)
------------------------------------------------------------------------------------------------------------------------------------
Balance, July 29, 2000 17,986 1,255 37,083 329,170 (107,162) (785) 259,561
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 35,321
Unrealized holding gain on marketable securities 846
----------
Total comprehensive income 36,167
----------
Deferred compensation 8 -- 183 183
Tax benefit from exercise of stock options 1,668 1,668
Employee Stock Purchase Plan activity 5 -- 102 102
Shares issued pursuant to exercise of stock options 548 28 6,303 6,331
Purchase of treasury stock (310) (7,415) (7,415)
------------------------------------------------------------------------------------------------------------------------------------
Balance, July 28, 2001 18,237 $1,283 $45,339 $364,491 ($114,577) $ 61 $296,597
===================================================================================================================================
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Dollars in thousands
Fiscal Year Ended
---------------------------------------------------
July 28, July 29, July 31,
2001 2000 1999
---------------------------------------------------
Operating Activities:
Net earnings $35,321 $36,742 $33,324
---------------------------------------------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization of property and
equipment (net) 22,309 16,481 16,296
Write-down of non-trading equity investment --- --- 3,000
Loss on disposal of closed store assets 1,607 4,683 6,808
Decrease (increase) in deferred income tax assets 2,586 2 (6,790)
Deferred compensation 183 --- 164
Changes in assets and liabilities:
Decrease (increase) in merchandise inventories 7,414 (1,763) (7,432)
Decrease (increase) in prepaid expenses and other 704 (2,813) 2,163
Decrease (increase) in other assets 372 (545) 120
(Decrease) increase in accounts payable- trade (11,099) 2,565 21,004
Increase in accrued expenses 5,373 1,129 6,996
Increase in customer credits 556 1,891 537
(Decrease) increase in income taxes payable (2,152) 3,160 8,327
---------------------------------------------------
Total adjustments 27,853 24,790 51,193
---------------------------------------------------
Net cash provided by operating activities 63,174 61,532 84,517
---------------------------------------------------
Investing Activities:
Purchases of property and equipment - net (25,758) (26,565) (22,724)
Sales and maturities of marketable securities and investments 119,697 22,132 84,078
Purchases of marketable securities and investments (142,275) (36,984) (85,176)
---------------------------------------------------
Net cash used in investing activities (48,336) (41,417) (23,822)
---------------------------------------------------
Financing Activities:
Purchase of treasury stock (7,415) (38,888) (47,269)
Proceeds from Employee Stock Purchase Plan 102 110 133
Proceeds from stock options exercised 6,331 4,149 901
---------------------------------------------------
Net cash used in financing activities (982) (34,629) (46,235)
---------------------------------------------------
Net increase (decrease) in cash and cash equivalents 13,856 (14,514) 14,460
Cash and cash equivalents- beginning of period 2,978 17,492 3,032
---------------------------------------------------
Cash and cash equivalents- end of period $16,834 $2,978 $17,492
===================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $20,005 $18,047 $16,730
===================================================
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Years Ended July 28, 2001
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 is a specialty retailer of women's apparel (in both regular and
large sizes), including shoes and accessories. Given the similar economic
characteristics of the Company's different store formats, the similar nature of
the products sold, gross margins, type of customer and method of distribution,
the operations of the Company are aggregated into one reportable 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. The fiscal year ended July 31, 1999 consisted of 53 weeks; the
other years presented consisted of 52 weeks.
Revenue recognition
Revenues from retail sales, net of returns, are recognized upon delivery of
the merchandise to the customer and exclude sales taxes.
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.
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 other comprehensive income, a component of 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.
Merchandise inventories
Merchandise inventories are valued at the lower of cost 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 taxes are provided using the asset and liability method, whereby
deferred income taxes result from temporary differences between the reported
amounts in the financial statements and the tax basis of assets and liabilities,
as measured by presently enacted tax rates.
Store preopening costs
Expenses associated with the opening of new stores are charged to expense
as incurred.
Earnings per share (EPS)
The Company calculates EPS in accordance with the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS
No. 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.
Advertising costs
Advertising costs are expensed in the period in which they are incurred.
Advertising expenses were $8.6 million, $8.8 million and $6.8 million for fiscal
2001, 2000 and 1999, respectively.
Recent Accounting Pronouncements
In July 2001, Statements of Financial Accounting Standards No. 141
"Business Combinations" ("SFAS 141") and No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142) were released. The related statements address financial
accounting and reporting for business combinations and acquired goodwill and
other intangible assets. SFAS 141 is effective for all business combinations
initiated after June 30, 2001. SFAS 142 is effective for all fiscal years
beginning after December 15, 2001, however early adoption is permitted. The
Company is required to adopt SFAS 142 in fiscal 2003. The Company is currently
assessing the impact that SFAS 142 will have on its financial position and
results of operations.
Effective July 30, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133, as amended, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. Under SFAS
133, certain contracts that were not formerly considered derivatives may now
meet the definition of a derivative. The adoption of SFAS 133 did not have an
impact on the consolidated financial position, results of operations, or cash
flows of the Company
In October 2001, SFAS No. 144, " Accounting for the Impairment or Disposal
of Long-Lived Assets" (SFAS 144") was released. This statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". In August 2001, SFAS No.
143, "Accounting for Asset Retirement Obligations" (SFAS 144") was released.
This Statement establishes accounting standards for recognition and measurement
of a liability for an asset retirement obligation and the associated asset
retirement cost. The Company is required to adopt SFAS 144 and SFAS 143 in
fiscal 2003. The Company has not yet assessed what impact, if any, that the
adoption of SFAS 144 and SFAS 143 will have on its financial position and
results of operations.
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.
Comprehensive income
Comprehensive income consists of net income and unrealized holdings gains
and losses on marketable securities, net of tax.
Valuation of long-lived assets
The Company periodically reviews its long-lived assets for potential
impairment, where events or changes in circumstances indicate that their
carrying amount may not be recoverable. In that event, a loss is recognized
based on the amount the carrying amount exceeds the fair market value of the
long-lived asset.
Stock based compensation
The Company follows the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 encourages, but does not require, companies
to adopt a fair value based method for determining expense related to
stock-based compensation. The disclosures are set forth in Note 6. The Company
continues to account for stock-based compensation using the intrinsic value
method as prescribed under Accounting Principles Board Opinion No 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Financial instruments
Concentration of Credit Risk - Financial instruments, which potentially
subject the Company to concentrations of credit risk, are principally bank
deposits and short-term investments. Cash and cash equivalents are deposited
with high credit quality financial institutions. Short-term investments
principally consist of triple A or double A rated instruments.
Fair Value of Financial Instruments - The carrying amounts of cash, cash
equivalents, short-term investments and accounts payable approximate fair value
because of the short-term nature, and maturity of such instruments.
2. MARKETABLE SECURITIES AND INVESTMENTS
The amortized cost and estimated fair value of marketable securities and
investments consisted of the following:
July 28, 2001 July 29, 2000
------------- -------------
(In 000's) Estimated Estimated
Fair Value Cost Fair Value Cost
---------- -------- ---------- --------
Money Market Funds $33,189 $33,189 $5,553 $5,553
Short Term Investments 60,985 60,985 44,975 44,975
Tax Free Municipal Bonds 81,592 81,366 101,896 102,429
US Govt. Securities Fund 1,708 1,878 1,626 1,878
---------- -------- ---------- --------
$177,474 $177,418 $154,050 $154,835
========== ======== ========== ========
The scheduled maturities of marketable securities and investments at July
28, 2001 are:
Estimated
Due In (in 000's) Fair Value Cost
------ ----------- --------
One year or less $122,409 $122,510
One year through five years 45,398 45,257
Six years through ten years 1,112 1,111
Over ten years 8,555 8,540
--------- --------
$177,474 $177,418
========= ========
Unrealized holding gains and losses at July 29, 2001 netted to an
unrealized gain of approximately $60,000. Proceeds and gross realized gains
(losses) from the sale of securities in fiscal 2001, 2000 and 1999 were $119.7
million and $0.3 million, $22.1 million and ($0.1) million and $84.1 million and
$1.2 million, respectively. For the purposes of determining gross realized gains
and losses, the cost of securities is based upon specific identification.
3. EMPLOYEE BENEFIT PLANS
The Company has established a defined contribution retirement savings plan
(401(k)) covering all eligible employees. This plan succeeded 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 2001, 2000, and 1999
the Company incurred expenses of $1,619,000, $1,980,000 and $1,493,000,
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.
4. INCOME TAXES
The components of the provision for income taxes were as follows:
Fiscal Year Ended
(In 000's) July 28, July 29, July 31,
2001 2000 1999
---------- ---------- ---------
Federal:
Current $16,210 $18,420 $21,800
Deferred (749) (2,128) (6,652)
---------- ---------- ---------
15,461 16,292 15,148
---------- ---------- ---------
State:
Current 5,562 5,734 5,502
Deferred (720) (906) (1,495)
---------- ---------- ---------
4,842 4,828 4,007
---------- ---------- ---------
Provision for income taxes $20,303 $21,120 $19,155
========== ========== =========
Significant components of the Company's deferred tax assets were as
follows:
July 28, July 29, July 31,
(in 000's) 2001 2000 1999
--------- --------- ---------
Deferred tax assets:
Inventory capitalization for tax purposes $2,822 $3,130 $5,695
Capital loss carryover 2,622 2,775 2,574
Employee benefits 1,494 1,973 1,564
Other items 8,382 8,808 7,510
--------- --------- ---------
Total deferred tax assets 15,320 16,686 17,343
--------- --------- ---------
Deferred tax liabilities:
Depreciation 4,630 3,961 4,125
Other items 3,412 2,861 3,352
--------- --------- ---------
Total deferred tax liabilities 8,042 6,822 7,477
--------- --------- ---------
Net deferred tax assets $7,278 $9,864 $9,866
========= ========= =========
The net deferred tax assets were comprised of approximately $1,488,000 in
state deferred taxes and $5,790,000 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:
Fiscal Year Ended
July 28, July 29, July 31,
2001 2000 1999
---------- ---------- ---------
Statutory tax rate 35.0 % 35.0 % 35.0 %
State taxes - net of federal
Benefit 5.5 % 5.4 % 5.0 %
Other - net, primarily tax-free interest (4.0)% (3.9)% (3.5)%
---------- ---------- ---------
Effective tax rate 36.5 % 36.5 % 36.5 %
========== ========== =========
5. COMMITMENTS
Lease commitments
The Company leases all of 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.
A summary of occupancy costs follows:
Fiscal Year Ended
July 28, July 29, July 31,
(in 000's) 2001 2000 1999
---------- ---------- ---------
Base rentals $78,920 $74,450 $69,661
Percentage rentals 2,192 842 58
Other occupancy costs 23,114 21,168 23,862
---------- ---------- ---------
Total $104,226 $96,460 $93,581
========== ========== =========
The following is a schedule of future minimum rentals under noncancellable
operating leases as of July 28, 2001 (dollars in thousands):
Fiscal Year Amount
------------- ----------
2002 $ 78,246
2003 65,111
2004 53,124
2005 42,331
2006 31,727
Subsequent years 58,598
----------
Total future minimum rentals $329,137
==========
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 two stores from its Chief Executive Officer or related
trusts. Future minimum rentals under leases with such related parties which
extend beyond July 28, 2001, included in the above schedule, are approximately
$237,000 annually and in the aggregate $0.8 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 2001, 2000 and 1999 under
these leases amounted to approximately $346,000, $426,000 and $464,000,
respectively.
Lines of credit
At July 28, 2001, the Company had unsecured lines of credit with three
banks totaling $115 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 28,
2001. However, approximately $22 million of outstanding letters of credit
reduced the credit lines available.
Legal proceedings
The Company is involved in various routine legal proceedings incident to
the ordinary course of business. On May 18, 2000, an action was filed against
the Company seeking compensatory and punitive damages in an unspecified amount
for alleged unfair trade practices and alleged breach of contract arising out of
negotiations for an acquisition the Company never concluded. The Company
believes there is no merit in any of the plaintiffs' asserted claims, is
vigorously defending the litigation, and, in any event, does not expect the
outcome of these proceedings to have a material adverse effect on the Company.
The Company believes that the outcome of all pending and threatened legal
proceedings will, on the whole, not have a material adverse effect on its
financial condition or results of operations.
6. STOCK-BASED COMPENSATION PLANS
At July 28, 2001, 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 the date of grant. At July 28,
2001, there were 526,701 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 28, 2001, there were 82,900 shares
under the 1995 plan available for future grant. The Company's Employee Stock
Purchase Plan allows employees to purchase shares of the Company's common stock
during each quarterly offering period at a 10% discount through weekly payroll
deductions.
The following table summarizes the activities in all Stock Option Plans and
changes during each of the fiscal years presented:
July 28, 2001 July 29, 2000 July 31, 1999
------------- ------------- -------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------------------------------------------------------------------------------
Options outstanding - beginning of
year 1,820,643 $12.31 1,439,167 $10.37 1,275,435 $9.83
Granted 358,469 20.99 884,743 14.05 319,250 11.64
Cancelled (47,924) 13.83 (61,231) 12.63 (36,432) 11.89
Exercised (548,753) 11.54 (442,036) 9.39 (119,086) 7.56
------------------------------------------------------------------------------------------------
Outstanding end of year 1,582,435 $14.51 1,820,643 $12.31 1,439,167 $10.37
================================================================================================
Options exercisable
at year-end 234,522 $11.22 319,496 $11.37 448,523 $10.36
------------------------------------------------------------------------------------------------
Weighted-average fair
value of options granted
during the year
$9.84 $6.31 $5.09
-------------- --------------- ---------------
The following table summarizes information about stock options
outstanding at July 28, 2001:
Weighted
Number Weighted Average Number Average
Outstanding as of Weighted Average Exercise Price Exercisable as Exercise Price
Range of Exercise Prices 7/28/01 Remaining Life of 7/28/01
----------------------------------------------------------------------------------------------------------------------------
$5.00 120,000 5.03 years $5.00 60,000 $5.00
8.25 - 9.15 142,943 5.03 years $8.70 66,950 $8.74
10.50 - 11.44 182,792 6.51 years $11.31 41,132 $11.06
14.06 - 15.63 705,700 8.05 years $14.08 18,140 $14.07
19.50 - 22.63 431,000 8.71 years $21.15 48,300 $21.44
----------------------------------------------------------------------------------------------
$5.00 - $22.63 1,582,435 7.55 years $14.51 234,522 $11.22
==============================================================================================
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 No. 123, the Company's net earnings and
earnings per share for fiscal 2001, fiscal 2000 and fiscal 1999 would have been
reduced to the pro forma amounts indicated below:
Fiscal Year Ended
July 28, July 29, July 31,
2001 2000 1999
--------- --------- ---------
Net earnings (in 000's):
As reported $35,321 $36,742 $33,324
Pro forma $33,959 $35,082 $32,372
Earnings per share - basic:
As reported $1.94 $1.94 $1.56
Pro forma $1.86 $1.85 $1.52
Earnings per share - diluted:
As reported $1.88 $1.89 $1.53
Pro forma $1.81 $1.81 $1.49
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:
Fiscal Year Ended
July 28, July 29, July 31,
2001 2000 1999
--------- --------- ---------
Weighted average risk-free interest rate 5.4% 5.9% 5.8%
Weighted average expected life (years) 5.0 5.0 5.0
Expected volatility 44.8% 41.0% 40.9%
These pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock options.
SFAS No. 123 does not apply to awards prior to fiscal 1996, and additional
awards in future years are anticipated.
QUARTERLY RESULTS OF OPERATIONS (unaudited)
(in thousands, except per share amounts)
Fourth Third Second First
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Fiscal Year ended July 28, 2001
Net Sales $177,335 $165,111 $164,234 $188,328
Gross Profit,
less occupancy
and buying costs 64,409 60,087 59,777 67,309
Income Taxes 4,724 3,556 4,674 7,349
Net Earnings 8,250 6,155 8,130 12,786
Earnings Per Share
Basic $0.45 $0.34 $0.44 $0.71
Diluted $0.44 $0.33 $0.43 $0.68
Fourth Third Second First
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Fiscal Year ended July 29, 2000
Net Sales $175,696 $162,992 $149,548 $167,938
Gross Profit,
less occupancy
and buying costs 67,351 58,114 52,296 58,934
Income Taxes 7,217 4,827 3,561 5,515
Net Earnings 12,555 8,398 6,193 9,596
Earnings Per Share(*)
Basic $0.70 $0.45 $0.32 $0.48
Diluted $0.68 $0.44 $0.31 $0.47
(*) 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.