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 27, 2002 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 15, 2002, 37,034,276 shares of common shares were outstanding. The
aggregate market value of the common shares (based upon the October 14, 2002
closing price of $15.01 on the NASDAQ Stock Market) of The Dress Barn, Inc. held
by non-affiliates was approximately $439.1 million. For the purposes of such
calculation, all outstanding shares of Common Stock have been considered held by
non-affiliates, other than the 8,259,810 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 9, 2002 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 27, 2002
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 7
Operations and Management 10
Advertising and Marketing 11
Management Information Systems 11
Trademarks 11
Employees 12
Seasonality 12
Forward-Looking Statement and Factors
Affecting Future Performance 14
Item 2 Properties 14
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of
Security Holders 15
Item 4A Executive Officers of the Registrant 15
PART II
Item 5 Market for Registrant's Common Stock and
Related Security Holders Matters 17
Item 6 Selected Financial Data 18
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 8 Financial Statement and Supplementary Data 24
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 24
PART III
Item 10 Directors and Executive Officers of the Registrant 24
Item 11 Executive Compensation 24
Item 12 Security Ownership of Certain Beneficial Owners
and Management 24
Item 13 Certain Relationships and Related Transactions 24
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 25
PART I
ITEM 1. BUSINESS
General
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 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 brand, which constituted
approximately 90% of net sales for the fiscal year ended July 27, 2002 ("fiscal
2002").
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 27, 2002, the Company operated 754 stores in 43 states and
the District of Columbia, consisting of 483 Combo Stores, 211 Dress Barn stores
and 60 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 8,500 square feet.
On September 18, 2002, the Company's Board of Directors approved the
initiation of a "Dutch Auction" Tender Offer by the Company to purchase up to 8
million shares of its outstanding common stock at a price per share of not less
than $15.00 nor in excess of $17.00 per share. The tender offer commenced
September 19, 2002 and is scheduled to expire, unless extended, October 18,
2002.
Company Strengths and Strategies
Dress Barn strives to be the preferred career and casual women's specialty
store for the moderate customer (size 4 to 24), providing current fashion
merchandise at value price points in a comfortable shopping environment with a
strong focus on customer service. The Company caters to the time-pressured
working women who want their shopping trips to be efficient. To accommodate this
customer, the Company locates its stores primarily in nearby strip shopping
centers and operates most of these stores seven days and six nights a week. The
Company seeks to maintain a distinct fashion point of view, editing its
assortments frequently, in accordance with its targeted customer's tastes.
Merchandise is arranged conveniently by lifestyle and category. Customers
develop a high degree of confidence that they will quickly find the styles that
match their preferences. This, along with attentive service, which Dress Barn is
known for, helps to create a loyal repeat customer.
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) national brand recognition and loyal customer
base; (ii) long-standing relationships with vendors and manufacturers of quality
merchandise, both domestic and overseas; (iii) strong, consistent customer
focus; (iv) low cost operating structure; (v) experienced merchandise management
team and (vi) 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, focusing on its target
customer - fashion minded working women. The Company has built its brand image
as a core resource for a stylish, value-priced assortment of career and casual
fashions tailored to its customers' needs. The Company's over 750 store
locations in 43 states provide it with a nationally recognized brand name. The
Company has developed long-standing relationships with its existing customers,
enjoying strong customer loyalty. The Company's customer database program tracks
customer transactions.
The Company has developed and maintains strong and lasting relationships
with its domestic and offshore vendors and manufacturers, 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.
Over the past several years, the Company has been gradually repositioning
itself to appeal to a younger-feeling customer while maintaining the Company's
focus on its target customer. This repositioning includes enhancing the existing
Dress Barn image, building brand awareness through various marketing and
advertising campaigns, adopting a new logo and creating a "personality" for the
Dress Barn brand that is unique and proprietary to the marketplace. To enhance
the development of the Dress Barn brand, the Company changed and updated its
in-store graphics, newspaper ads, and developed a new prototype store format.
During this period, the Company has expanded the use of its dressbarn(R) label
to virtually all its merchandise offerings, emphasizing quality, value and
fashion.
During fiscal 2002, the Company engaged a national firm to conduct
extensive customer surveys to better understand its customers, their concerns
and issues, as well as those who have never shopped or used to shop Dress Barn.
The goal was to enhance the Company's branding and advertising strategy,
culminating with a comprehensive brand image campaign to strengthen brand
awareness as well as bring new customers for the Spring 2003 selling season. In
September 2002, the Company hired Vivian Behrens as Senior Vice President,
Marketing. Ms. Behrens previously held senior marketing positions at Avon, The
Limited Inc., and Charming Shoppes, Inc., and was formerly a member of the
Company's Board of Directors. Ms. Behrens will be responsible for all of the
Company's marketing, including brand development and brand image campaigns,
advertising, sales promotion and the internet.
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 younger and contemporary in style, including in
its mix more fashion merchandise. The Company has shifted its focus from
structured, career looks to softer outfit dressings and assortments. The Company
has traded up its fabrications, offering value, style and fashion while
maintaining its quality and price points. The Company attempts to insure its
merchandise sizes are true, the fit is consistent, it is easy to care for and is
long lasting wear. In February 2002, the Company promoted Keith Fulsher to
Senior Vice President and General Merchandising Manager, responsible for all
merchandising, product development, merchandise planning and store visual
presentation. Mr. Fulsher had been with the Company for eight years, most
recently as Merchandise Manager, Sportswear. Previously he was at Macy's for 18
years, leaving as Group Vice President of Better Sportswear.
The Company's stores reflect newness and fashion, with key items in depth
accented by six floorset changes a year. Stores receive shipments daily for a
constant flow of new looks to keep the assortments fresh and exciting. Lifestyle
merchandising is key; emphasizing mix and match outfit dressing within strong
color stories. The Company has a store design prototype that features an easier
to shop layout, warmer colors and redesigned fixtures and in-store graphics for
enhanced merchandise presentation. During fiscal 2002, the Company updated to
the prototype design or remodeled approximately 100 stores; the Company plans to
update or remodel approximately 100 of its store locations during its fiscal
year ending July 26, 2003 ("fiscal 2003").
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 sales, inventories and other operational data. The Company upgraded
its back-office store system software during fiscal 2002, with plans to begin
upgrading its store locations' cash register software and hardware to an
enhanced PC-based system during fiscal 2003. 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. In past customer surveys, customer service was viewed as
superior and was a competitive advantage. 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 coordinated merchandise with all items going together
and matching, 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 customer service associates to
assist customers in a low-key and friendly manner. The Company has various
programs to recognize and reward its best customer service associates. 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 potential
acquisitions. The Company believes its tender offer which commenced September
19, 2002 and expires October 18, 2002, unless extended, is consistent with its
goal of maximizing shareholder value, giving its shareholders an opportunity to
sell shares back to the Company at a favorable price with no transaction fees.
Upon completion of the tender offer, shareholders will realize a proportionate
increase in their relative ownership interest in the Company's future earnings
and assets, subject to the issuance of additional securities.
Based on the economic success of its larger size Combo Stores, most fiscal
2003 store openings will probably be Combo Stores between 8,000 and 9,000 square
feet. Combo Stores provide the Company with greater presence in shopping
centers, give the Company more leverage in negotiating lease terms, enable the
Company to achieve lower operating cost ratios and offer increased flexibility
in merchandise presentation. The Company has also been successfully
experimenting with opening smaller, freestanding Dress Barn and Dress Barn Woman
stores, especially in downtown, urban or other higher-rent areas. The Company
has also purchased locations from bankrupt retailers, most of which were too
small for a Combo and were opened as freestanding locations. Of the 74 stores
the Company opened during fiscal 2002, 51 were Combo locations and 23 were
freestanding locations. The Company has an ongoing program of converting its
older freestanding stores to Combo Stores. Eight stores were converted during
fiscal 2002. The Company expects to continue to open stores primarily in strip
centers, as well as in downtown and outlet locations. In fiscal 2003, the
company plans to open approximately 55 new stores and convert 5 to 10 existing
stores to Combo Stores, including expanding into new markets such as Southern
California.
In conjunction with its strategy of adding mostly Combo Stores, the Company
continues to close or relocate its underperforming locations and closed 32 such
locations during fiscal 2002, compared to 37 closed in fiscal 2001. The Company
also plans to close approximately 30 more such locations in fiscal 2003. 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 stores, net of
store closings, resulted in an aggregate store square footage increase of
approximately 6% in fiscal 2002, after a 7% increase in fiscal 2001.
The Company marketing programs focus on developing stronger relationships
with its existing customers and acquiring new customers. One major asset is the
Dress Barn credit card; with almost 2 million cardholders, giving the Company
the ability to "talk" to and reward its best customers. The credit card
purchasing information, combined with transactional data from the stores, is
creating a customer database for our customer relationship management ("CRM")
system. The CRM database is designed to track customer transactions, with the
ability to target customers with specific offers and promotions, including
coupons, pre-sale announcements, and special events. The CRM database also
enhances the Company's direct mail program, providing more productive direct
mail lists as well as targeting potential customers within each store's trading
area and for new stores. The Company believes these efforts can lead to new
customers as well as a more loyal customer base. 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 store associates
to spend more time servicing customers. The Company utilizes an ongoing training
program to improve customer service and the product knowledge and selling skills
of its store associates. The Company recently implemented its new DVDi Learning
Management System (LMS), where customer service associates are able to take
tests and plans to have the results tracked centrally for consistency across all
of its stores. The LMS system is part of the new back-office store system which
also included automated time and attendance, quicker processing of credit card
applications and integrated email and messaging.
Due to the continued operating losses of its catalog and e-commerce
operations and significant weaknesses in its new fulfillment and order
processing software, the Company suspended all mailing of catalogs and
e-commerce sales in November 2001. The Company believes direct selling via its
internet site represents a complementary channel of distribution to its existing
core business and can help drive store traffic. The Company is reevaluating its
direct selling strategy and intends to resume selling a limited assortment of
merchandise via its web site (www.dressbarn.com) and via telephone during fiscal
2003.
Merchandising
Virtually all merchandising decisions affecting the Company's stores are
made centrally. Day to day store merchandising is under the direction of the
General Merchandise Manager and five additional merchandise managers. The
Company utilizes a Visual Merchandising Department to communicate various
floorsets and presentations to the stores. The Company generally has 6 complete
floorset changes per year to keep its merchandise presentation fresh and
exciting. There is a constant flow of new merchandise to the stores to maintain
newness. 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 65% 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. The Company's Petite departments feature
merchandise similar to Dress barn merchandise in petite sizes. In addition to
the Company's broad assortment of career and casual wear, the Company offers
other wardrobe items including in selected stores accessories, jewelry, hosiery
and shoes. There are separate merchandising teams for Dress Barn and Dress Barn
Woman.
The Company's direct sourcing of its merchandise purchasing improves its
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 direct sourcing provides 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 90% in fiscal 2002 from 80%
in fiscal 2001.
The Company continues to expand the number of its stores with shoe and
petite-size departments. As of July 27, 2002, 309 stores had shoe departments
and 143 stores featured petites. The Company currently plans to add
approximately 20 shoe departments and add approximately 20 petite departments in
fiscal 2003.
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 General Merchandise Manager and five merchandise managers. The Company
also uses independent buying representatives in New York and overseas. The
Company obtains its merchandise from approximately 200 vendors, and no vendor
accounted for over 5% of the Company's purchases. In fiscal 2002, 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 half of the hanging garments purchased by the Company are
delivered on floor-ready hangers. In addition, 45% of its merchandise receipts
are pre-packaged for distribution to stores, which allows for efficiencies in
its distribution center by using cross-docking.
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.
Store Locations and Properties
As of July 27, 2002, the Company operated 754 stores in 43 states and the
District of Columbia. 369 of the stores were conveniently located in strip
centers and 289 stores were located in outlet centers. During fiscal 2002, no
store accounted for as much as 1% of the Company's total sales. The table on the
following page 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 122 26 221 369
Outlet Malls and Outlet Strip Centers 55 23 211 289
Free Standing, Downtown and Enclosed Malls 34 11 51 96(*)
Total 211 60 483 754
--- -- --- ---
(*) Includes 31 downtown locations
The table on the following page indicates the states in which the stores
operating on July 27, 2002 were located, and the number of stores in each state:
Location DB DBW Combos
------- ------- ------
Alabama - - 6
Arizona 1 - 7
Arkansas - - 2
California 20 3 21
Colorado 3 1 8
Connecticut 7 3 22
District of Columbia 2 1 1
Delaware 3 1 3
Florida 12 1 15
Georgia 3 1 20
Idaho - - 2
Illinois 3 1- 24
Indiana 4 - 9
Iowa - - 4
Kansas - - 5
Kentucky 1 - 6
Louisiana - - 5
Maine 2 1 -
Maryland 5 3 19
Massachusetts 12 2 26
Michigan 8 1 21
Minnesota 1 - 7
Mississippi - - 6
Missouri 4 2 14
Nebraska - - 4
Nevada 2 - 5
New Hampshire 1 - 5
New Jersey 22 9 18
New York 27 5 38
North Carolina 10 5 18
Ohio 4 1 16
Oklahoma - - 2
Oregon 2 2 3
Pennsylvania 23 7 18
Rhode Island 1 - 3
South Carolina 6 3 8
Tennessee 3 2 11
Texas 4 1 39
Utah 0 0 5
Vermont - - 2
Virginia 13 3 22
Washington 1 1 5
West Virginia - - 1
Wisconsin 1 - 7
Total 211 60 483
--- -- ---
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
traffic and daytime population, 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. The Company also seeks to expand into new markets; in
fiscal 2003 the Company is opening several locations in Southern California.
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 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 2002 the Company updated 100 of its existing stores and plans over time
to update many of its remaining stores, another 100 of which will be updated in
fiscal 2003.
All stores are directly managed and operated by the Company. A supervisor,
who may be the store manager, staffs each store with at least one customer
service associate during non-peak hours, with additional customer service
associates added as needed at peak hours. The supervisors and customer service
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 11 Regional Sales Managers and approximately
100 District Sales Managers. District Sales Managers visit each store on a
regular basis 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 customer service associates through promotion
from within, creative incentive programs, competitive wages and the opportunity
for bonuses. Customer service 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 at
each store. 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) its DVDi LMS training system (ii) ongoing video
training and (iii) one-on-one training of customer service associates by store
managers.
Approximately 66% of the Company's sales in fiscal 2002 versus 64% in
fiscal 2001 were paid for by credit card, with the remainder being paid by cash
or check. This increase was partially due to 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 27, 2002, the number of
cardholders was approximately 1.9 million. The average transaction on the Dress
Barn credit card during fiscal 2002 was approximately 30% greater than the
average of all other transactions and represented approximately 16% 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 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 2002.
In addition, there were several smaller, more targeted mailings during fiscal
2002. The Company is considering launching a national brand awareness campaign
in 2003 after conducting extensive customer research and surveys during Spring
2002.
The Company believes that identifying its customers and their purchasing
patterns is essential to its business. During fiscal 2002, the Company
implemented a customer relationship management program to track customer
transactions.
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 and other
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 store
personnel, minimizing labor costs while producing a higher level of customer
service. The Company upgraded its back-office store system software during
fiscal 2002, with plans to begin upgrading its store locations' cash register
software and hardware to an enhanced PC-based system during fiscal 2003. The
Company believes that such investments in technology enhance operating
efficiencies and position Dress Barn for future growth. The Company recently
implemented its new DVDi Learning Management System (LMS), where customer
service associates are able to take tests and have the results tracked centrally
for consistency across all of its stores. The LMS system was part of the new
back-office store system which also included automated time and attendance,
quicker processing of credit card applications and integrated email and
messaging.
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.(R) and Westport Woman.
Employees
As of July 27, 2002, the Company had approximately 8,900 employees of whom
approximately 5,000 worked part time. A number of temporary employees are
usually added during the peak selling periods. None of the Company's employees
are covered by any collective bargaining agreement. The Company considers its
employee relations to be good.
Seasonality
The Company's sales are evenly split between its Fall and Spring seasons.
Though the Company does not consider its business seasonal, it has historically
experienced substantially lower earnings in its second fiscal quarter ending in
January than during its other three fiscal quarters, reflecting the intense
promotional atmosphere that has characterized the holiday shopping season in
recent years. In addition, the Company's quarterly results of operations may
fluctuate materially depending on, among other things, increases or decreases in
comparable store sales, adverse weather conditions, shifts in timing of certain
holidays, the timing of new store openings, net sales contributed by new stores,
and changes in the Company's merchandise mix.
Forward-Looking Statements and Factors Affecting Future Performance
This Annual Report on Form 10-K contains in the "Business" section, in the
"Properties" section, in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere, forward looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. These statements reflect the Company's current views with respect to
future events and financial performance. The Company's actual results of
operations and future financial condition may differ materially from those
expressed or implied in any such forward looking statements as a result of
certain factors set forth 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.
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 2002, the Company promoted a key
member of its management team, David Jaffe to President and Chief Executive
Officer from Chief Operating Officer. In addition, during fiscal 2002 the
Company promoted Keith Fulsher to Senior Vice President and General
Merchandising Manager from Merchandise Manager, Sportswear. 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 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. 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 dressbarn(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 imports a significant portion of its merchandise from
manufacturers in Asia, the Middle East and Africa, among others. Importing
involves risks including potential disruptions such as the recent West Coast
Longshoreman's work stoppage, economic and political problems in countries from
which merchandise is imported, and duties, tariffs and quotas on imported
merchandise. The Company's ability to manage the importing of goods from
overseas, their production, timing of deliveries and US Customs-related
compliance is an important component of its merchandising strategy. Failure of
the Company to manage its import activities 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 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 10 years with one or more 5-year options to extend the
lease. The table on the following page, covering all stores operated by the
Company on July 27, 2002, 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 124 77 47
2003 136 117 19
2004 113 89 24
2005-2007 283 250 33
2008 and thereafter 98 91 7
--- --- ---
Total 754 624 130
--- --- ---
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 27, 2002, and excluding locations acquired after July 27, 2002, for
fiscal 2003 are approximately $85.3 million. In addition, the Company is also
responsible under its store leases for it's pro rata share of maintenance
expenses and common charges in strip and outlet centers.
Most of the store leases give the Company the right 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. The Company
believes any substantial increase in the Company's store base 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 filing 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 76 Chairman of the Board,
Founder and Director
David R. Jaffe 43 President,
Chief Executive Officer and Director
Burt Steinberg 57 Executive Director and
Director
Vivian Behrens 49 Senior Vice President
Marketing
Armand Correia 56 Senior Vice President and Chief
Financial Officer
Keith Fulsher 48 Senior Vice President
And General Merchandise Manager
Eric Hawn 52 Senior Vice President
Store Operations
Elise Jaffe 47 Senior Vice President
Real Estate
Mr. Elliot S. Jaffe was Chief Executive Officer of the Company from 1966
until February 2002.
Mr. David R. Jaffe became President and Chief Executive Officer in February
2002. Previously he had been Vice Chairman, Chief Operating Officer and a member
of the Board of Directors since September 2001. 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.
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.
Ms. Behrens started with the Company in September 2002 as Senior Vice
President, Marketing. Ms. Behrens is President of Vivian B Consulting, a
marketing consultant to several retail and consumer product companies. She was
Chief Executive Officer of Posh & Sticks, Ltd., a consumer products
multi-channel retailer, from 1999 to 2000. From 1998 to 1999 she was Senior Vice
President-Marketing of the Foot Locker Division of Venator, Inc. From 1994 to
1997 she was Vice President-Marketing of Charming Shoppes, Inc. Previously she
held senior marketing positions at Limited Inc. and Avon Products, Inc. and was
formerly a member of the Company's Board of Directors.
Mr. Correia has been Senior Vice President and Chief Financial Officer of
the Company since 1991.
Mr. Fulsher became Senior Vice President and General Merchandise Manager of
the Company in February 2002. Previously, Mr. Fulsher had been with the Company
for eight years, most recently as Merchandise Manager, Sportswear. Previously he
was at Macy's for 18 years, leaving as Group Vice President of Better
Sportswear.
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 Company's Board of Directors approved a 2-for-1 stock split in the form
of a 100% stock dividend on the Company's issued and outstanding common stock in
May 2002. The stock dividend was distributed on May 31, 2002 to shareholders of
record on May 17, 2002. All historic share and per share information contained
in this report have been adjusted to reflect the impact of the stock split.
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 2002 Fiscal 2001
Bid Prices Bid Prices
High Low High Low
Fiscal Period
First Quarter $12.20 $9.64 $12.69 $9.94
Second Quarter $13.94 $10.83 $15.50 $11.63
Third Quarter $15.62 $12.55 $15.38 $10.69
Fourth Quarter $17.50 $12.14 $14.46 $10.78
Number of Record Holders
The number of record holders of the Company's common stock as of October 1,
2002 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.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes our equity compensation plans as of July 27,
2002.
Number of securities
remaining available
for future issuance
under equity
Number of securities Weighted average compensation plans
to be issues upon exercise price (excluding
exercise of of outstanding securities reflected
Plan Category outstanding options options in column (a))
- -------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
Equity compensation plans approved by security holders 2,734,352 $8.14 4,866,516
Equity compensation plans not approved by security holders 0 0 0
..........................................................
Total 2,734,352 $8.14 4,866,516
==========================================================
ITEM 6. SELECTED FINANCIAL DATA
Dollars in thousands except per share
information
Fiscal Year Ended
------------------------------------------------------------------------------------
July 27, July 28, July 29, July 31, July 25,
2002 2001 2000 1999 1998
------------------------------------------------------------------------------------
Net sales $717,136 $695,008 $656,174 $615,975 $598,175
Cost of sales, including
occupancy and buying costs 453,428 443,426 419,479 398,282 381,354
------------------------------------------------------------------------------------
Gross profit 263,708 251,582 236,695 217,693 216,821
Selling, general and
administrative expenses 186,375 180,991 165,336 150,897 142,098
Depreciation & amortization 23,508 23,916 21,164 23,104 17,758
------------------------------------------------------------------------------------
Operating income 53,825 46,675 50,195 43,692 56,965
Interest income- net 5,458 8,949 7,667 8,787 6,385
------------------------------------------------------------------------------------
Earnings before
income taxes 59,283 55,624 57,862 52,479 63,350
Income taxes 21,342 20,303 21,120 19,155 23,123
------------------------------------------------------------------------------------
Net earnings $37,941 $35,321 $36,742 $33,324 $40,227
====================================================================================
Earnings per share - basic (1) $ 1.04 $ .97 $ .97 $ .78 $ .87
====================================================================================
====================================================================================
Earnings per share - diluted (1) $ 1.01 $ .94 $ .95 $ .77 $ .85
====================================================================================
Balance sheet data:
Working capital $230,959 $197,257 $159,105 $159,089 $170,412
Total assets $458,247 $402,282 $374,236 $363,579 $341,154
Long-term debt -- -- -- -- --
Shareholders' equity $334,253 $296,597 $259,561 $253,600 $265,608
Percent of net sales:
Cost of sales, including
occupancy and buying costs 63.2% 63.8% 63.9% 64.7% 63.8%
Gross profit 36.8% 36.2% 36.1% 35.3% 36.2%
Selling, general and
administrative expenses 26.0% 26.0% 25.2% 24.5% 23.8%
Operating income 7.5% 6.7% 7.6% 7.1% 9.5%
Net earnings 5.3% 5.1% 5.6% 5.4% 6.7%
(1) All earnings per share amounts reported above reflect the effect of the
2-for-1 stock split, distributed May 31, 2002.
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 department stores, mass
merchandisers and other specialty chains; consumer apparel buying patterns, such
as the ongoing shift to more casual apparel; import risks, including potential
disruptions such as the recent West Coast Longshoreman's work stoppage, 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; 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.
Critical Accounting Policies and Estimates
The Company's accounting policies are more fully described in Note 1 of the
Notes to Consolidated Financial Statements. Management's discussion and analysis
of the Company's financial condition and results of operations are based upon
the Company's consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, income taxes and related disclosures of
contingent assets and liabilities. On an ongoing basis, the Company evaluates
estimates, including those related primarily to inventories, investments,
long-lived assets, income taxes and claims and contingencies. The Company bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. Management believes
the following accounting principles are the most critical because they involve
the most significant judgments, assumptions and estimates used in preparation of
the Company's financial statements.
Revenue Recognition
While the Company's recognition of revenue does not involve significant
judgment, revenue recognition represents an important accounting policy of the
Company. As discussed in Note 1 to the Consolidated Financial Statements, the
Company recognizes sales at the point of purchase when the customer takes
possession of the merchandise and pays for the purchase, generally with cash or
credit card. Sales from purchases made with gift certificates and layaway sales
are also recorded when the customer takes possession of the merchandise. Gift
certificates and merchandise credits issued by the Company are recorded as a
liability until they are redeemed.
Merchandise Inventories
The Company's inventory is valued using the retail method of accounting and
is stated at the lower of cost or market. Under the retail inventory method, the
valuation of inventory at cost and resulting gross margin are calculated by
applying a calculated cost to retail ratio to the retail value of inventory. The
retail inventory method is an averaging method that has been widely used in the
retail industry due to its practicality. Inherent in the retail method are
certain significant management judgments and estimates including, among others,
initial merchandise markup, markdowns and shrinkage, which significantly impact
the ending inventory valuation at cost as well as the resulting gross margins.
Estimates are used to charge inventory shrinkage for the first and third fiscal
quarters of the fiscal year. Physical inventories are conducted at the end of
the second fiscal quarter and at the end of the fiscal year to calculate actual
shrinkage and inventory on hand. The Company continuously reviews its inventory
levels to identify slow-moving merchandise and broken assortments, using
markdowns to clear merchandise. A provision is recorded to reduce the cost of
inventories to its estimated net realizable value. Consideration is given to a
number of quantitative factors, including anticipated subsequent markdowns and
aging of inventories. To the extent that actual markdowns are higher or lower
than estimated, the Company's gross margins could increase or decrease and,
accordingly, affect its financial position and results of operations. A
significant variation between the estimated provision and actual results could
have a substantial impact on the Company's results of operations.
Long-lived assets
The Company primarily invests in property and equipment in connection with
the opening and remodeling of stores and in computer software and hardware. Most
of the Company's store leases give the Company the option to terminate the lease
if certain specified sales volumes are not achieved during the first few years
of the lease. The Company periodically reviews its store locations and estimates
the recoverability of its assets, recording an impairment charge when the
Company expects to exercise its right to terminate the store's lease early using
this option. This determination is based on a number of factors, including the
store's historical operating results and cash flows, estimated future sales
growth, real estate development in the area and perceived local market
conditions that can be difficult to predict and may be subject to change. In
addition, the Company regularly evaluates its computer-related and other assets
and may accelerate depreciation over the revised useful life if the asset is no
longer in use or has limited future value. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation or amortization are
removed from the accounts, and any resulting gain or loss is reflected in income
for that period.
Claims and Contingencies
The Company is subject to various claims and contingencies related to
insurance, taxes, lawsuits and other matters arising out of the normal course of
business. The Company has risk participation agreements with insurance carriers
with respect to workers' compensation and medical insurance. Pursuant to these
arrangements, the Company is responsible for paying claims up to designated
dollar limits. The Company accrues its estimate of the eventual costs related to
these claims, which can vary based on changes in assumptions or claims
experience. The Company accrues its estimate of probable settlements of domestic
and foreign tax audits. At any one time, many tax years are subject to audit by
various taxing jurisdictions. The results of these audits and negotiations with
taxing authorities may affect the ultimate settlement of these issues. If the
Company believes the likelihood of an adverse legal outcome is probable and the
amount is estimable it accrues a liability. The Company consults with legal
counsel on matters related to litigation and seeks input from other experts both
within and outside the Company with respect to matters in the ordinary course of
business. The Company is generally conservative in the estimation of its claims
and contingencies, and therefore believes its accruals for claims and
contingencies are adequate.
Income taxes.
The Company does business in various jurisdictions that impose income
taxes. Management determines the aggregate amount of income tax expense to
accrue and the amount currently payable based upon the tax statutes of each
jurisdiction. This process involves adjusting income determined using generally
accepted accounting principles for items that are treated differently by the
applicable taxing authorities. Deferred tax assets and liabilities are reflected
on the Company's balance sheet for temporary differences that will reverse in
subsequent years. If different judgments had been made, the Company's tax
expense, assets and liabilities could be different.
Stock Split
The Company's Board of Directors approved a 2-for-1 stock split in the form
of a 100% stock dividend on the Company's issued and outstanding common shares
in May 2002 (the "stock split"). The stock dividend was distributed on May 31,
2002 to shareholders of record on May 17, 2002. All historic share and per share
information contained in this report have been adjusted to reflect the impact of
the stock split.
Results of Operations
The table on the following page sets forth certain financial data of the
Company expressed as a percentage of net sales for the periods indicated:
Fiscal Year Ended
July 27, July 28, July 29,
2002 2001 2000
--------- --------- ---------
Net sales 100.0% 100.0% 100.0%
Cost of sales, including
occupancy and buying costs 63.2% 63.8% 63.9%
Selling, general and
administrative expenses 26.0% 26.0% 25.2%
Depreciation and amortization 3.3% 3.5% 3.2%
Interest income - net 0.8% 1.3% 1.2%
Earnings before income taxes 8.3% 8.0% 8.8%
Net earnings 5.3% 5.1% 5.6%
Fiscal 2002 Compared to Fiscal 2001
Net sales increased by 3.2% to $717.1 million for the 52 weeks ended July
27, 2002 ("fiscal 2002"), from $695.0 million for the 52 weeks ended July 28,
2001 ("fiscal 2001"). The sales increase from fiscal 2001 was due to an
approximately 6% increase in total selling square footage, offset in part by a
1.9% decrease in comparable store sales. The increase in store square footage
was due to the opening of 74 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 32 under-performing stores. The number of stores in operation
increased to 754 stores as of July 27, 2002, from 720 stores in operation as of
July 28, 2001.
The Company believes that the events of September 11th and the economic
uncertainty that followed were the key influences of the weak fall selling
season resulting in a 5% decrease in comparable store sales for the first six
months of fiscal 2002. Sales strengthened modestly in the spring, helped by the
unseasonably warm weather in April, with comparable store sales increasing 2%
for the second half of fiscal 2002. The Company believes the second half of
fiscal 2002 benefited from easier sales comparisons versus fiscal 2001's spring
season. Nevertheless, diminished consumer confidence, a perceived slowing
economy and international uncertainties negatively impacted sales during the
second half of fiscal 2002. As a result, the Company is operating its business
conservatively during its fiscal year ending July 26, 2003 ("fiscal 2003").
The Company's real estate strategy for fiscal 2003 is to continue opening
primarily Combo Stores and converting its existing single-format stores into
Combo Stores, while closing its under-performing 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 and expanding into new markets, including
Southern California.
Due to the continued operating losses of its catalog and e-commerce
operations and significant weaknesses in its new fulfillment and order
processing software, the Company suspended all mailing of catalogs and
e-commerce sales in November 2001. The Company believes direct selling via its
internet site represents a complementary channel of distribution to its existing
core business and can help drive store traffic. The Company is reevaluating its
direct selling strategy and intends to resume selling a limited assortment of
merchandise via its web site (www.dressbarn.com) and via telephone during fiscal
2003. The Company's fiscal 2002 earnings per share-diluted were reduced by
approximately $.11 due to the operating costs of the catalog and e-commerce
operations, versus approximately $.20 for fiscal 2001.
Gross profit (net sales less cost of goods sold, including occupancy and
buying costs) increased by 4.8% to $263.7 million, or 36.8% of net sales, in
fiscal 2002 from $251.6 million, or 36.2% of net sales, in fiscal 2001. 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 dressbarn (R) brand
merchandise and lower markdowns due to tight inventory controls, which helped
increase inventory turns and minimize markdowns. Markdowns as a percentage of
sales were lower than fiscal 2001, particularly during the fourth fiscal quarter
of fiscal 2002. 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 3.0% to
$186.4 million, or 26.0% of net sales, in fiscal 2002 from $181.0 million, also
26.0% of sales, in fiscal 2001. The increase in SG&A expenses versus the prior
year was reduced by the suspension of the catalog and e-commerce operations in
November 2001. Combined with cost controls and productivity improvements, SG&A
as a percent of sales was flat as compared to fiscal 2001. This was in spite of
the negative leverage from the 1.9% decrease in comparable store sales and its
impact on fixed costs, and increases in store operating, benefits and insurance
costs.
Depreciation expense decreased by 1.7% to $23.5 million in fiscal 2002,
versus $23.9 million in fiscal 2001, primarily due to the write-off of certain
obsolete computer equipment and software in fiscal 2001. Depreciation expense
for both periods also includes certain write-offs related to the closure of 32
stores and 37 stores during fiscal 2002 and fiscal 2001, respectively.
Interest income - net decreased by 39.0% to $5.5 million for fiscal 2002
from $8.9 million for fiscal 2001. This was the result of the dramatic reduction
in interest rates, although funds available for investment increased during the
year.
Net earnings for fiscal 2002 increased 7.4% to $37.9 million versus $35.3
million in fiscal 2001, while diluted earnings per share also increased 7.4% to
$1.01 per share versus $0.94 in fiscal 2001.
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 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 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 $.20 due to the operating costs of the catalog and
e-commerce operations.
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 dressbarn (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 $.94 per
share versus $.95 in fiscal 2000. The earnings per share decrease was less than
the decrease in net earnings primarily due to the Company's repurchase of .6
million and 4.8 million shares of its common stock in fiscal 2001 and 2000,
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, and the continued expansion of
its Combo Stores. Total capital expenditures were $28.3 million, $25.8 million
and $22.3 million in fiscal 2002, 2001 and 2000, respectively. Capital
expenditures increased $2.6 million in fiscal 2002 primarily due to the
investment in new store technology and back office operating systems. The
Company also repurchased 757,600 outstanding shares of its stock for a total
cost of $9.0 million during fiscal 2002, 620,000 outstanding shares for $7.4
million during fiscal 2001 and 4,798,800 outstanding shares for $33.9 million
during fiscal 2000. Shares repurchased are retired and treated as authorized but
unissued shares, with the cost of the reacquired shares debited to retained
earnings and the par value debited to common stock.
On September 18, 2002, the Company's Board of Directors approved the
initiation of a "Dutch Auction" Tender Offer by the Company to purchase up to 8
million shares of its outstanding common stock at a price per share of not less
than $15.00 nor in excess of $17.00 per share. The tender offer commenced
September 19, 2002 and is scheduled to expire, unless extended, October 18,
2002. The Company believes that the repurchase of its shares is consistent with
its goal of maximizing shareholder value, giving its shareholders an opportunity
to sell shares back to the Company at a favorable price with no transaction
fees. Upon completion of the tender offer, shareholders will realize a
proportionate increase in their relative ownership interest in the Company's
future earnings and assets, subject to the issuance of additional securities.
The Company will need a maximum of approximately $137 million to purchase the
maximum 8 million shares, assuming the price paid per share is $17.00, and to
pay related expenses. The Company intends to utilize its available cash to fund
the tender offer.
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 2002 increased to $77.0
million as compared to $63.2 million in fiscal 2001 and $61.5 million in fiscal
1999. The increase in fiscal 2002 was primarily due to the timing of its income
tax payments and the estimated realization of a portion of its deferred tax
asset during fiscal 2002.
At July 27, 2002, the Company had $163.5 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 $239.4 million at July
27, 2002. In addition, the Company had available $135 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 27, 2002. However, potential
borrowings were limited by approximately $38 million of outstanding letters of
credit primarily to vendors for import merchandise purchases. The Company does
not have any off-balance sheet arrangements or transactions with unconsolidated,
limited purpose entities, other than operating leases entered into in the normal
course of business and letters of credit. The Company does not have any
undisclosed material transactions or commitments involving related persons or
entities.
In fiscal 2003, the Company plans to open approximately 55 additional
stores, convert 5 to 10 single-format stores to its larger combo store format
and continue its store-remodeling program. The Company intends to 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 and expanding into new markets. The Company considers
from time to time and may in the future consider acquisition opportunities in
the following areas to enhance shareholder value and supplement our growth: (1)
real estate oriented acquisitions to gain access to attractive sites and
favorable lease terms; (2) other retail operations that could benefit from our
management and expertise; and (3) alternative channels of distribution. 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 2003. In addition, the Company's quarterly results of
operations may fluctuate materially depending on, among other things, increases
or decreases in comparable store sales, adverse weather conditions, shifts in
timing of certain holidays, the timing of new store openings, net sales
contributed by new stores, and changes in the Company's merchandise mix.
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 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 2002 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(tt), 10(uu), 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 (14)
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(ss) The Dress Barn, Inc. 2001 Stock Option Plan (14)
10(tt) Employment Agreement with Elliot S. Jaffe
10(uu) Employment Agreement with David R. Jaffe
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 Annual Report on Form 10-K for the fiscal year ended July 28,
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 27, 2002.
ITEM 14. (c) EXHIBITS
All exhibits are incorporated by reference as shown in Item 14(a)3, except
Exhibits 10(tt), 10(uu), 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 10/15/02
- --------------------
Elliot S. Jaffe Chairman of the Board
/s/ ROSLYN S. JAFFE 10/15/02
- ---------------------
Roslyn S. Jaffe Director and Secretary and Treasurer
/s/ DAVID R. JAFFE 10/15/02
- ---------------------
David R. Jaffe Director, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ BURT STEINBERG 10/15/02
- ---------------------
Burt Steinberg Director and Executive Director
/s/ KLAUS EPPLER 10/15/02
- -----------------------
Klaus Eppler Director
/s/ DONALD JONAS 10/15/02
- ----------------
Donald Jonas Director
/s/ EDWARD D. SOLOMON 10/15/02
- ---------------------
Edward D. Solomon Director
JOHN USDAN 10/15/02
- -----------
John Usdan Director
/s/ ARMAND CORREIA 10/15/02
- ---------------------
Armand Correia Chief Financial Officer (Principal
Financial and Accounting Officer)
CERTIFICATIONS
I, David R. Jaffe, President and Chief Executive Officer of The Dress Barn Inc.
("the Company"), certify that:
1. I have reviewed the Company's Annual Report on Form 10-K for the period
ending July 27, 2002.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report.
Dated: October 15, 2002
/s/ DAVID R. JAFFE
- ---------------------
David R. Jaffe
President and Chief Executive Officer
(Principal Executive Officer)
I, Armand Correia, Senior Vice President and Chief Financial Officer of The
Dress Barn Inc. ("the Company"), certify that:
1. I have reviewed the Company's Annual Report on Form 10-K for the period
ending July 27, 2002.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report.
Dated: October 15, 2002
/s/ ARMAND CORREIA
- ---------------------
Armand Correia
Senior Vice President and 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 27, 2002 and July 28, 2001, and
the related consolidated statements of earnings, shareholders' equity and cash
flows for each of the three years in the period ended July 27, 2002. 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
27, 2002 and July 28, 2001, and the consolidated results of its operations and
its consolidated cash flows for each of the three years in the period ended July
27, 2002 in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
New York, New York
September 16, 2002
The Dress Barn, Inc. and Subsidiaries
Consolidated Balance Sheets
Amounts in thousands, except share data July 27, July 28,
ASSETS 2002 2001
------------------ ------------------
Current Assets:
Cash and cash equivalents $ 75,926 $ 16,834
Marketable securities and investments (Note 2) 163,474 177,474
Merchandise inventories 113,371 104,487
Prepaid expenses and other 2,182 4,147
------------------ ------------------
Total Current Assets 354,953 302,942
------------------ ------------------
Property and Equipment:
Leasehold improvements 61,414 59,019
Fixtures and equipment 154,139 144,468
Computer software 17,344 14,277
Automotive equipment 554 547
------------------ ------------------
233,451 218,311
Less accumulated depreciation
and amortization 140,025 129,712
------------------ ------------------
93,426 88,599
------------------ ------------------
Deferred Income Taxes (Note 5) 5,869 7,278
------------------ ------------------
Other Assets 3,999 3,463
------------------ ------------------
$458,247 $402,282
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable- trade $ 62,802 $ 53,681
Accrued salaries, wages and related expenses 18,089 17,219
Other accrued expenses 27,798 27,787
Customer credits 6,650 5,811
Income taxes payable 8,655 1,187
------------------ ------------------
Total Current Liabilities 123,994 105,685
------------------ ------------------
Commitments and Contingencies (Note 6)
Shareholders' Equity:
Preferred stock, par value $.05 per share:
Authorized- 100,000 shares
Issued and outstanding- none -- --
Common stock, par value $.05 per share:
Authorized- 50,000,000 shares
Issued - 36,507,919 and
51,312,464 shares, respectively
Outstanding- 36,507,919 and
36,474,064 shares, respectively 1,825 2,566
Additional paid-in capital 52,209 44,056
Retained earnings 279,672 364,491
Treasury stock, at cost -- (114,577)
Accumulated other comprehensive income 547 61
------------------ ------------------
334,253 296,597
------------------ ------------------
$458,247 $402,282
================== ==================
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 27, July 28, July 29,
2002 2001 2000
------------------------------------------------------------
Net sales $717,136 $695,008 $656,174
Cost of sales, including
occupancy and buying costs 453,428 443,426 419,479
------------------------------------------------------------
Gross profit 263,708 251,582 236,695
Selling, general and
administrative expenses 186,375 180,991 165,336
Depreciation and amortization 23,508 23,916 21,164
------------------------------------------------------------
Operating income 53,825 46,675 50,195
Interest income- net 5,458 8,949 7,667
------------------------------------------------------------
Earnings before provision for
income taxes 59,283 55,624 57,862
Provision for income taxes 21,342 20,303 21,120
------------------------------------------------------------
Net earnings $37,941 $35,321 $36,742
============================================================
Earnings per share:
Basic $ 1.04 $ 0.97 $ 0.97
============================================================
Diluted $ 1.01 $ 0.94 $ 0.95
============================================================
Weighted average shares outstanding:
Basic 36,495 36,481 37,916
============================================================
Diluted 37,516 37,494 38,815
============================================================
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Amounts and shares in thousands.
Accumulated Total
Additional Other Share-
Common Stock Paid-In Retained Treasury Comprehensive holders'
Shares Amount Capital Earnings Stock Income(Loss) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1999 39,872 $2,464 $27,565 $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 14 2 108 110
Shares issued pursuant to exercise of stock options 884 44 4,105 4,149
Purchase of treasury stock (4,798) (38,888) (38,888)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 29, 2000 35,972 2,510 35,828 329,170 (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 16 183 183
Tax benefit from exercise of stock options 1,668 1,668
Employee Stock Purchase Plan activity 10 102 102
Shares issued pursuant to exercise of stock options 1,096 56 6,275 6,331
Purchase of treasury stock (620) (7,415) (7,415)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 28, 2001 36,474 2,566 44,056 364,491 (114,577) 61 296,597
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 37,941
Unrealized holding gain on marketable securities 486
-----------
Total comprehensive income 38,427
-----------
Deferred compensation 291 291
Tax benefit from exercise of stock options 2,953 2,953
Employee Stock Purchase Plan activity 9 1 90 91
Shares issued pursuant to exercise of stock options 783 39 4,819 4,858
Purchase of treasury stock (758) (8,964) (8,964)
Retirement of treasury stock (781) (122,760) 123,541 0
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 27, 2002 36,508 $1,825 $52,209 $279,672 $0 $547 $334,253
====================================================================================================================================
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Amounts in thousands Fiscal Year Ended
---------------------------------------------------
July 27, July 28, July 29,
2002 2001 2000
---------------------------------------------------
Operating Activities:
Net earnings $37,941 $35,321 $36,742
-------------------------------------------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization of property and
equipment (net) 21,827 22,309 16,481
Loss on disposal of closed store assets 1,681 1,607 4,683
Deferred income tax assets 1,409 2,586 2
Deferred compensation 291 183 ---
Changes in assets and liabilities:
(Increase) decrease in merchandise inventories (8,884) 7,414 (1,763)
Decrease (increase) in prepaid expenses and other 1,965 704 (2,813)
(Increase) decrease in other assets (536) 372 (545)
Increase (decrease) in accounts payable- trade 9,121 (11,099) 2,565
Increase (decrease) in accrued salaries and wages 870 (753) 3,879
Increase (decrease) in accrued expenses 11 6,126 (2,819)
Increase in customer credits 839 556 1,891
Increase (decrease) in income taxes payable 10,421 (2,152) 3,160
-------------------------------------------------
Total adjustments 39,015 27,853 24,790
-------------------------------------------------
Net cash provided by operating activities 76,956 63,174 61,532
-------------------------------------------------
Investing Activities:
Purchases of property and equipment - net (28,335) (25,758) (26,565)
Sales and maturities of marketable securities and investments 108,764 119,697 22,132
Purchases of marketable securities and investments (94,278) (142,275) (36,984)
-------------------------------------------------
Net cash used in investing activities (13,849) (48,336) (41,417)
-------------------------------------------------
Financing Activities:
Purchase of treasury stock (8,964) (7,415) (38,888)
Proceeds from Employee Stock Purchase Plan 91 102 110
Proceeds from stock options exercised 4,858 6,331 4,149
-------------------------------------------------
Net cash used in financing activities (4,015) (982) (34,629)
-------------------------------------------------
Net increase (decrease) in cash and cash equivalents 59,092 13,856 (14,514)
Cash and cash equivalents- beginning of year 16,834 2,978 17,492
-------------------------------------------------
Cash and cash equivalents- end of year $75,926 $16,834 $2,978
=================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $9,511 $20,005 $18,047
=================================================
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Years Ended July 27, 2002
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 majority of the
Company's locations are Combo Stores; 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 at the point of
purchase upon delivery of the merchandise to the customer and exclude sales
taxes. Sales from purchases made with gift certificates and layaway sales are
also recorded when the customer takes possession of the merchandise. Gift
certificates and merchandise credits issued by the Company are recorded as a
liability until they are redeemed.
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 at July 27, 2002
were 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 less accumulated depreciation and
amortization. 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 included in selling, general and administrative
expenses and are expensed in the period in which they are incurred. Advertising
expenses were $10.0 million, $8.6 million and $8.8 million for fiscal 2002, 2001
and 2000, respectively.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No.
141 requires that all business combinations initiated after June 30, 2001 be
accounted for under the purchase method and addresses the initial recognition
and measurement of goodwill and other intangible assets acquired in a business
combination. SFAS No. 142 addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their acquisition. SFAS
No. 142 provides that intangible assets with finite useful lives be amortized
and that goodwill and intangible assets with indefinite lives will not be
amortized, but will rather be tested at least annually for impairment. The
Company is required to adopt SFAS No. 142 in fiscal 2003. The adoption of SFAS
No. 142 will have no impact on the consolidated financial position, results of
operations, or cash flows of the Company since the Company did not have any
assets or liabilities relating to either goodwill or intangibles assets.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" (SFAS 143), which will become effective for the Company
at the beginning of fiscal 2003. SFAS 143 addresses the financial accounting and
reporting for obligations and retirement costs related to the retirement of
tangible long-lived assets, requiring the recognition of a liability for an
asset retirement obligation in the period in which it is incurred. The Company
does not expect that the adoption of SFAS No. 143 will have a significant impact
on its financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 will become effective
for the Company at the beginning of fiscal 2003. SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and the accounting and reporting provisions relating
to the disposal of a segment of a business of Accounting Principals Board No.
30. The Company does not expect that the adoption of SFAS No. 144 will have a
significant impact on its financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force Issue No. 94-3. The Company
will adopt the provisions of SFAS No. 146 for any restructuring activities
initiated after December 31, 2002. SFAS No. 146 requires that the liability for
costs associated with an exit or disposal activity be recognized when the
liability is incurred. Under Issue 94-3, a liability for an exit cost was
recognized at the date of the company's commitment to an exit plan. SFAS No. 146
also establishes that the liability should initially be measured and recorded at
fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing any
future restructuring costs as well as the amounts recognized.
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 earnings and unrealized holding 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 7. 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.
Stock Split
The Company's Board of Directors approved a 2-for-1 stock split in the form
of a 100% stock dividend on the Company's issued and outstanding common stock in
May 2002. The stock dividend was distributed on May 31, 2002 to shareholders of
record on May 17, 2002. All historic share and per share information contained
in this report have been adjusted to reflect the impact of the stock split.
Treasury (Reacquired) Shares
Shares repurchased are retired and treated as authorized but unissued
shares, with the cost of the reacquired shares debited to retained earnings and
the par value debited to common stock.
2. MARKETABLE SECURITIES AND INVESTMENTS
The amortized cost and estimated fair value of marketable securities and
investments consisted of the following:
July 27, 2002 July 28, 2001
------------- -------------
(In 000's) Estimated Estimated
Fair Value Cost Fair Value Cost
Money Market Funds $ 15,712 $15,712 $33,189 $33,189
Short Term Investments 43,041 43,041 60,985 60,985
Tax Free Municipal Bonds 102,980 102,296 81,592 81,366
US Govt. Securities Fund 1,741 1,878 1,708 1,878
--------- --------- --------- ---------
$163,474 $162,927 $177,474 $177,418
========= ========= ========= =========
The scheduled maturities of marketable securities and investments at July
27, 2002 are:
Estimated
Due In (in 000's) Fair Value Cost
- ------ ----------- --------
One year or less $100,021 $ 99,909
One year through five years 55,114 54,741
Six years through ten years -- --
Over ten years 8,339 8,277
--------- ---------
$163,474 $162,927
========= =========
Unrealized holding gains and losses at July 27, 2002 netted to an
unrealized gain of approximately $547,000. Proceeds and gross realized gains
(losses) from the sale of securities in fiscal 2002, 2001 and 2000 were $108.8
million and $1.0 million, $119.7 million and $0.3 million, and $22.1 million and
($0.1) million, respectively. For the purposes of determining gross realized
gains and losses, the cost of securities is based upon specific identification.
3. EARNINGS PER SHARE
Basic earnings per share are computed based upon the weighted average
number of common shares outstanding. Diluted earnings per share are computed
based upon the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares outstanding consist of shares covered by
stock options.
A reconciliation of basic and diluted weighted average number of common
shares outstanding is presented below:
Fiscal Year Ended
(In 000's) July 27, July 28, July 29,
2002 2001 2000
---------- ---------- ---------
Weighted average number of common shares outstanding - basic 36,495 36,481 37,916
Net effect of dilutive stock options based on the treasury
stock method using the average market price 1,021 1,013 899
-------- --------- --------
Weighted average number of common shares outstanding - diluted 37,516 37,494 38,815
======== ========= ========
Common stock equivalents of 150,000 and 275,600 for the fiscal years ended
July 27, 2002 and July 29, 2000, respectively, were excluded because such common
stock equivalents were anti-dilutive. All common stock equivalents were dilutive
for the fiscal year ending July 28, 2001.
4. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution retirement savings plan
(401(k)) covering all eligible employees. The Company also sponsors 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 2002, 2001 and 2000 the Company incurred expenses of
$1,156,000, $1,619,000 and $1,980,000, respectively, relating to the
contributions to and administration of the above plans. The Company also
sponsors an Employee Stock Purchase Plan, which allows employees to purchase
shares of Company stock during each quarterly offering period at a 10% discount
through weekly payroll deductions. The Company does not provide any additional
postretirement benefits.
5. INCOME TAXES
The components of the provision for income taxes were as follows:
Fiscal Year Ended
(In 000's) July 27, July 28, July 29,
2002 2001 2000
---------- ---------- ---------
Federal:
Current $16,517 $16,210 $18,420
Deferred 1,090 (749) (2,128)
---------- ---------- ----------
17,607 15,461 16,292
----------- ---------- ----------
State:
Current 3,415 5,562 5,734
Deferred 320 (720) (906)
---------- ---------- ----------
3,735 4,842 4,828
---------- ---------- ----------
Provision for income taxes $21,342 $20,303 $21,120
========== ========== =========
Significant components of the Company's deferred tax assets and
liabilities were as follows:
July 27, July 28,
(in 000's) 2002 2001
--------- ---------
Deferred tax assets:
Inventory capitalization for tax purposes $1,927 $2,822
Capital loss carryover 2,759 2,622
Employee benefits 2,754 1,494
Other items 4,739 8,382
--------- ---------
Total deferred tax assets 12,179 15,320
--------- ---------
Deferred tax liabilities:
Depreciation 4,878 4,630
Other items 1,432 3,412
--------- ---------
Total deferred tax liabilities 6,310 8,042
--------- ---------
Net deferred tax assets $5,869 $7,278
========= =========
The net deferred tax assets were comprised of approximately $1,168,000
in state deferred taxes and $4,701,000 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 27, July 28, July 29,
2002 2001 2000
---------- ---------- ---------
Statutory tax rate 35.0 % 35.0 % 35.0 %
State taxes - net of federal
Benefit 5.2 % 5.5 % 5.4 %
Other - net, primarily tax-free interest (4.2)% (4.0)% (3.9)%
---------- ---------- ---------
Effective tax rate 36.0 % 36.5% 36.5%
========== ========== =========
6. COMMITMENTS AND CONTINGENCIES
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 27, July 28, July 29,
(in 000's) 2002 2001 2000
---------- ---------- ---------
Base rentals $85,593 $78,920 $74,450
Percentage rentals 2,591 2,192 842
Other occupancy costs 25,349 23,114 21,168
---------- ---------- ---------
Total $113,533 $104,226 $96,460
========== ========== =========
The following is a schedule of future minimum rentals under noncancellable
operating leases as of July 27, 2002 (dollars in thousands):
Fiscal Year Amount
------------- -----------
2003 $ 85,303
2004 73,915
2005 61,824
2006 49,566
2007 36,695
Subsequent years 59,381
-----------
Total future minimum rentals $366,684
===========
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 27, 2002, included in the above schedule, are approximately
$247,000 annually and in the aggregate $0.6 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 2002, 2001 and 2000 under
these leases amounted to approximately $288,000, $346,000 and $426,000,
respectively.
Lines of credit
At July 27, 2002, the Company had unsecured lines of credit with three
banks totaling $135 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 27,
2002. However, approximately $38 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.
7. STOCK-BASED COMPENSATION PLANS
At July 27, 2002, the Company had five stock-based compensation plans. The
Company's 1993 Incentive Stock Option Plan provides for the grant of incentive
stock options ("ISO's") to purchase up to 2,500,000 shares of the Company's
common stock. As of July 27, 2002, there were 612,802 shares under the 1993 plan
available for future grant. The Company's 1995 Stock Option Plan provides for
the granting of either ISO's or non-qualified options to purchase up to
4,000,000 shares of common stock. As of July 27, 2002, there were 253,714 shares
under the 1995 plan available for future grant. The Company's 2001 Stock Option
Plan provides for the granting of either ISO's or non-qualified options to
purchase up to 4,000,000 shares of common stock. As of July 27, 2002, no options
had been granted under the 2001 plan.
The exercise price of ISO's granted under any of the option plans may not
be less than the market price of the common stock at the date of grant.
Generally, all options granted under these plans vest over a five-year period
and expire after ten years from the date of grant.
The Company's 1983 Incentive Stock Option Plan expired on April 4, 1993,
and the Company's 1987 Non-Qualified Stock Option Plan expired December 7, 1997.
Accordingly, the Company can no longer grant options under either of the two
expired plans. 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 27, 2002 July 28, 2001 July 29, 2000
------------- ------------- -------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------------------------------------------------------------------------------
Options outstanding - beginning of
year 3,164,870 $7.26 3,641,286 $6.16 2,878,334 $5.19
Granted 797,266 10.95 716,938 10.50 1,769,486 7.03
Cancelled (444,580) 10.26 (95,848) 6.92 (122,462) 6.32
Exercised (783,204) 6.21 (1,097,506) 5.77 (884,072) 4.70
----------------------------------------------------------------------------------------------
Outstanding end of year 2,734,352 $8.14 3,164,870 $7.26 3,641,286 $6.16
==============================================================================================
Options exercisable
at year-end 334,108 $4.09 469,044 $5.61 638,992 $5.69
==============================================================================================
Weighted-average fair
value of options granted
during the year
$4.81 $4.92 $3.16
============== ============== ==============
The following table summarizes information about stock options outstanding
at July 27, 2002:
Number Weighted Average Number Weighted
Outstanding as of Weighted Average Exercise Price Exercisable as Average
Range of Exercise Prices 7/27/02 Remaining Life of 7/27/02 Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------
$ 2.50 - $ 4.65 273,086 4.08 years $3.26 259,600 $3.21
5.25 - 5.69 201,500 5.44 years $5.63 12,760 $5.51
7.03 - 7.81 1,103,800 7.05 years $7.04 53,288 $7.10
9.75 - 9.86 525,800 9.16 years $9.86 --
10.38 - 15.11 630,166 8.20 years $11.58 8,460 $10.26
----------------------------------------------------------------------------------------------
$ 2.50 - $15.11 2,734,352 7.31 years $8.14 334,108 $4.09
==============================================================================================
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 (which does not apply to awards prior
to fiscal 1996), the Company's net earnings and earnings per share for fiscal
2002, fiscal 2001 and fiscal 2000 would have been reduced to the pro forma
amounts indicated on the following page:
Fiscal Year Ended
------------------------
July 27, July 28, July 29,
2002 2001 2000
--------- --------- ---------
Net earnings (in 000's):
As reported $37,941 $35,321 $36,742
Pro forma $36,512 $33,959 $35,082
Earnings per share - basic:
As reported $1.04 $0.97 $0.97
Pro forma $1.00 $0.93 $0.93
Earnings per share - diluted:
As reported $1.01 $0.94 $0.95
Pro forma $0.97 $0.91 $0.90
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 27, July 28, July 29,
2002 2001 2000
--------- --------- ---------
Weighted average risk-free interest rate 4.0% 5.4% 5.9%
Weighted average expected life (years) 5.0 5.0 5.0
Expected volatility of the market price of the Company's
common stock 43.9% 44.8% 41.0%
These pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock options.
8. QUARTERLY RESULTS OF OPERATIONS (unaudited)
(in thousands, except per share amounts)
Fourth Third Second First
Quarter Quarter Quarter Quarter
Fiscal Year ended July 27, 2002
Net Sales $186,697 $177,119 $171,241 $182,079
Gross Profit,
less occupancy
and buying costs 74,267 65,315 61,752 62,374
Income Taxes 7,547 5,359 3,999 4,437
Net Earnings 13,418 9,526 7,109 7,888
Earnings Per Share
Basic $0.37 $0.26 $0.19 $0.22
Diluted $0.36 $0.25 $0.19 $0.21
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 $0.23 $0.17 $0.22 $0.36
Diluted $0.22 $0.16 $0.21 $0.34
(*) 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.