I - 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended October 26, 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 [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
.05 par value - 29,114,276 shares on December 9, 2002
Page 1 of 18
THE DRESS BARN, INC.
FORM 10-Q
QUARTER ENDED OCTOBER 26, 2002
TABLE OF CONTENTS
Page
Number
Part I. FINANCIAL INFORMATION (Unaudited):
Item 1. Financial Statements:
Consolidated Balance Sheets
October 26, 2002 (unaudited)
and July 27, 2002 I-3
Consolidated Statements of Earnings
(unaudited) for the Thirteen weeks ended
October 26, 2002 and October 27, 2001 I-4
Consolidated Statements of Cash Flows
(unaudited) for the Thirteen weeks ended
October 26, 2002 and October 27, 2001 I-5
Notes to Unaudited Condensed Financial
Statements (unaudited) I-6 through I-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations I-9 through I-13
Item 3. Quantitative and Qualitative Disclosure
About Market Risk I-14
Item 4 Controls and Procedures I-14
Part II. OTHER INFORMATION:
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submissions of Matters to a Vote
of Security Holders I-15
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K I-15
Signatures I-16
Certifications I-17
* Not applicable in this filing.
The Dress Barn, Inc. and Subsidiaries
Consolidated Balance Sheets
Dollars in thousands except share data
October 26, 2002 July 27, 2002
-------------------- --------------
ASSETS
Current Assets: (unaudited)
Cash & cash equivalents $166,928 $75,926
Marketable securities and investments 82,667 163,474
Merchandise inventories 115,540 113,371
Prepaid expenses and other 2,300 2,182
-------------------- --------------
Total Current Assets 367,435 354,953
-------------------- --------------
Property and Equipment:
Leasehold improvements 63,698 61,414
Fixtures and equipment 158,687 154,139
Computer software 17,993 17,344
Automotive equipment 636 554
-------------------- --------------
241,014 233,451
Less accumulated depreciation and amortization 147,972 140,025
-------------------- --------------
93,042 93,426
-------------------- --------------
Deferred Taxes 5,830 5,869
-------------------- --------------
Other Assets 3,805 3,999
-------------------- --------------
Total Assets $470,112 $458,247
==================== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable- trade $61,381 $62,802
Accrued salaries, wages and related expenses 18,311 18,089
Other accrued expenses 26,695 27,798
Customer credits 6,584 6,650
Income taxes payable 10,539 8,655
-------------------- --------------
Total Current Liabilities 123,510 123,994
-------------------- --------------
Commitments
Shareholders' Equity:
Preferred stock, par value $.05 per share:
Authorized- 100,000 shares
Issued and outstanding- none -- --
Common stock, par value $.05 per share:
Authorized- 50,000,000 shares
Issued- 37,106,176 and 36,507,919
shares, respectively
Outstanding- 37,106,176 and 36,507,919
shares, respectively 1,855 1,825
Additional paid-in capital 56,187 52,210
Retained earnings 288,430 279,671
Treasury stock, at cost -- --
Accumulated other comprehensive income 130 547
-------------------- --------------
Total Shareholders' Equity 346,602 334,253
-------------------- --------------
Total Liabilities and Shareholders' Equity $470,112 $458,247
==================== ==============
See notes to unaudited condensed consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Earnings - First Quarter (unaudited) Dollars in
thousands except per share amounts
Thirteen Weeks Ended
----------------------------------------
October 26, 2002 October 27, 2001
------------------ ------------------
Net sales $185,926 $182,079
Cost of sales, including
occupancy and buying costs 119,706 119,705
------------------ ------------------
Gross profit 66,220 62,374
Selling, general and
administrative expenses 47,618 45,859
Depreciation and amortization 6,468 5,760
------------------ ------------------
Operating income 12,134 10,755
Interest income- net 1,552 1,570
------------------ ------------------
Earnings before
income taxes 13,686 12,325
Provision for income taxes 4,927 4,437
------------------ ------------------
Net earnings $8,759 $7,888
================== ==================
Earnings per share
Basic $0.24 $0.22
================== ==================
Diluted $0.23 $0.21
================== ==================
Weighted average shares outstanding:
Basic 36,682 36,657
------------------ ------------------
Diluted 37,455 37,327
------------------ ------------------
See notes to unaudited condensed consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
Dollars in thousands
Thirteen Weeks Ended
-----------------------------------
October 26, October 27,
2002 2001
----------------- ----------------
Operating Activities:
Net earnings $8,759 $7,888
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization
6,468 5,760
Change in deferred income taxes
39 512
Changes in assets and liabilities:
(Increase) in merchandise inventories (2,169) (5,023)
(Increase) in prepaid expenses and other
(118) (430)
Decrease (increase) in other assets
194 (6)
(Decrease) in accounts payable- trade (1,421) 3,881
Increase (decrease) in accrued salaries, wages and related expenses (98)
222
(Decrease) increase in other accrued expenses (1,103) 808
(Decrease) increase in customer credits
(66) 17
Increase in income taxes payable
1,884 3,910
----------------- ----------------
Total adjustments
3,930 9,331
----------------- ----------------
Net cash provided by operating activities 12,689 17,219
----------------- ----------------
Investing Activities:
Purchases of property and equipment - net (6,084) (8,158)
Sales and maturities of marketable securities and investments
84,195 29,251
Purchases of marketable securities and investments
(3,805) (37,666)
----------------- ----------------
Net cash provided by (used in) investing activities 74,306 (16,573)
----------------- ----------------
Financing Activities:
Proceeds from Employee Stock Purchase Plan
22 23
Purchase of treasury stock
--- (1,823)
Proceeds from stock options exercised
3,985 1,885
----------------- ----------------
Net cash provided by financing activities
4,007 85
----------------- ----------------
Net increase in cash and cash equivalents 91,002 731
Cash and cash equivalents- beginning of period 75,926 16,834
----------------- ----------------
Cash and cash equivalents- end of period $166,928 $17,565
================= ================
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $3,004 $15
================= ================
See notes to unaudited condensed consolidated financial statements
THE DRESS BARN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) which management considers necessary to present fairly the
consolidated financial position of The Dress Barn Inc. and its wholly owned
subsidiaries (the "Company") as of October 26, 2002 and July 27, 2002, the
consolidated results of its operations and its cash flows for the thirteen weeks
ended October 26, 2002 and October 27, 2001. The results of operations for a
thirteen-week period may not be indicative of the results for the entire year.
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.
Significant accounting policies and other disclosures necessary for
complete financial statements in conformity with generally accepted accounting
principles have been omitted since such items are reflected in the Company's
audited financial statements and related notes thereto. Accordingly, these
consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's July 27, 2002
Annual Report to Shareholders. The condensed balance sheet as of July 27, 2002
was derived from the audited balance sheet included in the Form 10-K for the
fiscal year ended July 27, 2002. Certain reclassifications have been made to the
condensed consolidated financial statements of prior periods to conform to the
current period presentation.
2. Stock Repurchase Program and Dutch Auction Tender Offer
In October 1998, the Board of Directors authorized the Company to
repurchase its outstanding common stock for up to an aggregate amount of $75
million. The $75 million stock repurchase program was completed in March 2000,
with a total of approximately 9.6 million shares repurchased at an average price
of $7.74 per share. On March 30, 2000, The Board of Directors authorized an
additional $50 million stock repurchase program, which was increased to $75
million on April 5, 2001. As of the date of this filing, the Company had
repurchased 2,323,000 shares under the second $75 million stock repurchase
program at an aggregate purchase price of approximately $24.8 million. During
the 13 weeks ended October 26, 2002 no shares were repurchased under this
authorization.
On September 18, 2002, the Company's Board of Directors approved the
initiation of a "Dutch Auction" Tender Offer (the "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 was successfully completed subsequent to October 26, 2002, resulting in
the Company's purchase of 8 million shares of its common stock at $15 per share
for a cost of $120 million.
Treasury (Reacquired) shares 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.
THE DRESS BARN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Earnings Per Share
Basic EPS is based upon the weighted average number of common shares
outstanding and diluted EPS is based upon the weighted average number of common
shares outstanding plus the dilutive effect of stock options outstanding during
the period. Antidilutive options are excluded from the earnings per share
calculations when the option price exceeds the average market price of the
common shares for the period. The following is a reconciliation of the
denominators of the basic and diluted EPS computations shown on the face of the
accompanying consolidated statements of earnings:
Thirteen Weeks Ended
October 26, October 27,
Shares in thousands 2002 2001
--------------- ---------------
Basic weighted average outstanding shares 36,682 36,657
Dilutive effect of options outstanding 773 670
--------------- ---------------
Diluted weighted average shares outstanding 37,455 37,327
--------------- ---------------
Anti-dilutive options excluded from calculations 150 --
--------------- ---------------
4. Comprehensive Income
The Company's short-term investments are classified as available for sale
securities, and therefore, are carried at fair value, with unrealized gains and
losses reported as a component of other comprehensive income. Total
comprehensive income for the three months ended October 26, 2002 was $8.3
million versus comprehensive income of $8.0 million for the three months ended
October 27, 2001. Total comprehensive income is composed of net earnings and net
unrealized gains or losses on available for sale securities.
5. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (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 adopted SFAS No. 142 at the beginning of its fiscal year ending July 26,
2003 ("fiscal 2003") with no impact on its financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". 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
adopted SFAS No. 143 at the beginning of fiscal 2003 with no impact on its
financial statements.
THE DRESS BARN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." 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 adopted SFAS No. 144 at the beginning of fiscal 2003 with no
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 (the "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 a 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.
THE DRESS BARN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates
The Company's accounting policies are more fully described in Note 1 of the
Notes to Consolidated Financial Statements in the Company's Annual Report to
Shareholders. 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. 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.
THE DRESS BARN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND 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 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.
THE DRESS BARN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the percentage change in dollars from last
year for the thirteen-week period ended October 26, 2002, and the percentage of
net sales for each component of the Consolidated Statements of Earnings for each
of the periods presented:
First Quarter
% Change % of Sales
From L/Y T/Y L/Y
Net sales 2.1% 100.0% 100.0%
Cost of sales, including occupancy & buying 0.0% 64.4% 65.7%
Gross profit 6.2% 35.6% 34.3%
Selling, general and admin. expenses 3.8% 25.6% 25.2%
Depreciation and amortization 12.3% 3.5% 3.2%
Operating income 12.8% 6.5% 5.9%
Interest income - net -1.1% 0.9% 0.9%
Earnings before income taxes 11.0% 7.4% 6.8%
Net earnings 11.0% 4.7% 4.3%
Net sales increased by 2.1% to $185.9 million for the 13 weeks ended
October 26, 2002 ("first quarter"), from $182.1 million for the 13 weeks ended
October 27, 2001 ("last year"). The sales increase can be attributed to an
approximate 5% increase in selling square footage, offset in part by a 2.3%
decrease in comparable store sales as the sales weakness in the prior year has
continued. The Company believes this continuing weakness also reflects in part
the unsettled economy and the resulting fall off in consumer confidence.
Additionally, the unseasonably warm weather through early October negatively
impacted selling of its traditional fall merchandise categories. The Company's
sales weakness has continued into November 2002, with the Company's comparable
store sales decreasing 5% versus the prior year. Accordingly, the Company
continues to exercise caution by operating conservatively and maintaining
inventory levels in line with sales trends.
During the first quarter, the Company's total selling square footage
increased approximately 5%. The increase in store square footage was due to the
opening of new combination Dress Barn/Dress Barn Woman stores ("combo stores"),
which carry both Dress Barn and Dress Barn Woman merchandise, and the conversion
of single-format stores into combo stores. During the first quarter the Company
opened 28 stores, including 3 in Southern California and closed 3
underperforming locations. The number of stores in operation increased to 779
stores as of October 26, 2002, from 754 stores in operation as of October 27,
2001. 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.
THE DRESS BARN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Gross profit (net sales less cost of goods sold, including occupancy and
buying costs) increased by 6.2% to $66.2 million, or 35.6% of net sales, in the
first quarter from $62.4 million, or 34.3% of net sales last year. The increase
in gross profit as a percentage of sales was primarily due to increased gross
margins from both higher initial margins and lower markdowns versus the prior
year. Tight inventory controls helped to increase inventory turns and minimize
markdowns. The increase in gross profit as a percentage of sales 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 3.8% to
$47.6 million, or 25.6% of net sales, in the first quarter from $45.9 million,
or 25.2% of net sales, last year. The increase in SG&A as a percentage of sales
was primarily due to negative comparable store sales leverage on increases in
store operating costs, primarily payroll, benefits, insurance and maintenance &
repairs. 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.
The Company has reevaluated its direct selling strategy and resumed selling
a limited assortment of merchandise via its web site (www.dressbarn.com) and via
telephone during November 2003. The Company's first quarter earnings per
share-diluted were minimally impacted by its direct selling operation versus
approximately $0.12 last year.
Depreciation expense in the first quarter increased 12.3% versus last year
to $6.5 million. The increase in depreciation expense reflected higher fixed
asset purchases during the last twelve months primarily due to the upgrade of
the Company's store operating system and hardware completed during the prior
fiscal year.
Principally as a result of the above factors, net earnings for the first
quarter was $8.8 million, or 4.7% of net sales, an increase of 11.0% from the
$7.9 million, or 4.3% of net sales, for the first quarter of last year.
THE DRESS BARN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company believes that its cash, cash equivalents and short-term
investments, together with cash flow from operations, will be adequate to fund
the Company's fiscal 2003 planned capital expenditures and all other operating
requirements and other proposed or contemplated expenditures. The Tender Offer
completed subsequent to October 26, 2002 was financed using the Company's cash
and cash equivalents. Immediately after the funding of the Tender Offer the
Company had approximately $128 million in cash and investments remaining.
Inventories were current and in line with sales projections.
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.
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.
Forward-Looking Statements and Factors Affecting Future Performance
This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
reflect the Company's current views with respect to future events and financial
performance. The Company's actual results of operations and future financial
condition may differ materially from those expressed or implied in any such
forward looking statements as a result of certain factors set forth in the
Company's Annual Report on Form 10-K for its fiscal year ended July 27, 2002.
Item 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's portfolio of investments consisting of cash, cash equivalents
and marketable securities can be affected by changes in market interest rates.
The portfolio consists primarily of municipal bonds that can readily be
converted to cash. 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. 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. The Company holds no
options or other derivative instruments.
A discussion of the Company's accounting policies for financial instruments
and further disclosures relating to financial instruments is included in the
Summary of Significant Accounting Policies in the Notes to Consolidated
Financial Statements in the Company's Form 10-K for the year ended July 27,
2002.
Item 4 -- CONTROLS AND PROCEDURES
In the 90-day period before the filing of this report, the Chief Executive
Officer and Chief Financial Officer of the Company (collectively, the
"certifying officers") have evaluated the effectiveness of the Company's
disclosure controls and procedures (as such term is defined in Rules 13a-14(c)
and 15d-14(c) under the Securities and Exchange Act of 1934, as amended). These
disclosure controls and procedures are designed to ensure that the information
required to be disclosed by the Company in its periodic reports filed with the
Securities and Exchange Commission (the "Commission") is recorded, processed,
summarized and reported within the time periods specified by the Commission's
rules and forms, and that the information is communicated to the certifying
officers on a timely basis.
The certifying officers concluded, based on their evaluation, that the
Company's disclosure controls and procedures are effective for the Company,
taking into consideration the size and nature of the Company's business and
operations.
No significant changes in the Company's internal controls or in other
factors were detected that could significantly affect the Company's internal
controls subsequent to the date when the internal controls were evaluated.
Part II - OTHER INFORMATION
Item 4 -- Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Company's Shareholders was held on December 9,
2002.
o The Company's shareholders voted for:
o The reelection of Edward D. Solomon, Klaus Eppler and Roslyn S. Jaffe, as
Directors of the Company for 3-year terms (22,940,234, 22,834,468 and
22,098,841 shares, respectively, voted for reelection and 3,751,874,
3,857,640 and 4,593,267 shares, respectively, withheld authority with
respect for such nominees),
o The election of John Usdan as Director of the Company for a 1-year term
(25,781,242 shares voted for election and 910,866 shares withheld authority
with respect for such nominee)
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
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10(ww) Employment Agreement with Vivian Behrens
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99.1 Certification of David R. Jaffe pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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99.2 Certification of Armand Correia pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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(b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BY: /s/ DAVID R. JAFFE
David R. Jaffe
President, Chief Executive Officer and Director
(Principal Executive Officer)
BY: /s/ ARMAND CORREIA
Armand Correia
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATIONS
I, David R. Jaffe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Dress Barn Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 10, 2002
/s/ David R. Jaffe
David R. Jaffe
President, Chief Executive Officer and Director
I, Armand Correia, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Dress Barn Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 10, 2002
/s/ Armand Correia
Armand Correia
Senior Vice President and Chief Financial Officer