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 31, 2004 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. [ ].
Indicate by check mark whether the registrant is an accelerated filer. Yes [X]
No [ ].
As of October 13, 2004, 29,660,087 shares of common shares were outstanding. The
aggregate market value of the common shares (based upon the October 13, 2004
closing price of $17.73 on the NASDAQ Stock Market) of The Dress Barn, Inc. held
by non-affiliates was approximately $387.4 million. For the purposes of such
calculation, all outstanding shares of Common Stock have been considered held by
non-affiliates, other than the 7,808,105 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 November 17, 2004 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 31, 2004
TABLE OF CONTENTS
SECTION PAGE #
PART I
Item 1 Business
General 4
Company Strengths and Strategies 4
Merchandising 7
Buying and Distribution 8
Store Locations and Properties 8
Operations and Management 10
Advertising and Marketing 11
Management Information Systems 11
Trademarks 11
Employees 12
Seasonality 12
Forward-Looking Statements and Factors Affecting Future 12
Performance
Item 2 Properties 14
Item 3 Legal Proceedings 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 4A Executive Officers of the Registrant 16
PART II
Item 5 Market for Registrant's Common Stock,
Related Security Holders Matters and Issuer
Purchases of Equity Securities 17
Item 6 Selected Financial Data 19
Item 7 Management's Discussion and Analysis of 20
Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures About Market Risk 28
Item 8 Financial Statements and Supplementary Data 28
Item 9 Changes in and Disagreements with Accountants 28
on Accounting and Financial Disclosure
Item 9A Controls and Procedures 28
Item 9B Other Information 29
PART III
Item 10 Directors and Executive Officers of the Registrant 30
Item 10 A Code of Business Conduct and Ethics 30
Item 11 Executive Compensation 30
Item 12 Security Ownership of Certain Beneficial Owners 30
and Management
Item 13 Certain Relationships and Related Transactions 30
Item 14 Principal Accountant Fees and Services 30
PART IV
Item 15 Exhibits and Financial Statement Schedules 31
PART I
ITEM 1. BUSINESS
General
The Dress Barn, Inc. and its wholly-owned subsidiaries (the "Company", or
"dressbarn") 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 unique, in-season, first-quality
merchandise, service-oriented salespeople and its comfortable shopping
environment, (ii) department stores by its value pricing, sales and convenient
locations and (iii) other specialty apparel retailers by its unique,
lifestyle-oriented merchandise and its continuous focus on Dress Barn's target
customer. As part of this focus, the Company has successfully developed its own
brand, which constituted virtually all of its net sales for the fiscal year
ended July 31, 2004 ("fiscal 2004").
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 31, 2004, the Company operated 776 stores in 45 states and
the District of Columbia, consisting of 545 Combo Stores, 178 Dress Barn stores
and 53 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.
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 differentiated current
fashion merchandise at value prices in a comfortable easy to shop environment
with a strong focus on sales. The Company caters to the time-pressured working
women who want their shopping trips to be efficient by offering one stop
shopping from career to casual sportswear, as well as dresses, suits, special
occasion clothing, accessories, jewelry and shoes. 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, with unique merchandise not
found at other stores, 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.
The Company same store sales increased 1.9% in fiscal 2004 after declines
in both fiscal 2003 and 2002. To achieve continued growth in same store sales,
the Company strategy is to increase customer traffic to its store locations by
(a) bringing into its stores more unique, fashion-forward quality merchandise
not found at its competitors while maintaining its value prices, (b) investing
in technology and training to enhance its already well-known friendly sales and
the product knowledge of its sales associates and (3) increasing its marketing
and advertising budget as a percentage of sales, to focus on communicating the
brand, as an image and a lifestyle, and on special promotions and rewards to
current and potential customers and its Dress Barn credit card holders.
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 lifestyle-oriented, stylish, value-priced assortment of
career and casual fashions tailored to its customers' needs. The Company's over
775 store locations in 45 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 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 more fashion conscious 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 and a voice for the Dress Barn brand and communicating this
friendlier, more feminine spirit to customers, potential customers and
associates. To enhance the development of the Dress Barn brand, the Company
changed and updated its in-store graphics, and developed a new prototype store
design. 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.
To strengthen the Company's brand image and marketing effectiveness, the
Company has moved away from reliance on weekly newspaper advertising in favor of
targeted national magazine advertising and expanded direct mail. In addition,
the Company increased its marketing spending to 1.6% of sales in fiscal 2004
from 1.4% of sales in fiscal 2003. The Company advertises in approximately 10
national magazines, using ads design to enhance brand awareness as well as bring
in new customers into its stores. The Company is also a national sponsor for the
American Cancer Society, and the marketing department has an active public
relations effort, which has led to more public awareness through increased press
coverage for Dress Barn.
The Company's merchandise offerings reflect a focused and balanced
assortment of career and casual fashions tailored to its customers' demands. The
Company believes it offers its customers unique merchandise, generally fashion
forward with constantly updated looks and colors. The merchandise mix has
evolved to a more updated contemporary style, shifting in focus from structured,
career looks to softer outfit dressings and assortments. The Company has
upgraded its fabrications, offering value, style and fashion while maintaining
its quality and price points. The Company attempts to insure its merchandise
sizes are true, with consistent sizing; easy to care for and of quality
construction.
The Company's stores continue to 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 new store design that
features an easier to shop layout, warmer colors and new wood fixtures for
enhanced merchandise presentation. During fiscal 2004, the Company utilized this
design in its newly opened stores and updated approximately 12 stores to this
new design; the Company plans to update or completely remodel approximately 15
of its store locations during its fiscal year ending July 30, 2005 ("fiscal
2005"). At the end of fiscal 2004, more than half of the Company stores feature
this new design.
Dress Barn continues to invest in technology to improve merchandising and
sales, reduce costs and enhance productivity. 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 to include such features as
inventory scanning, quick credit approval for new applications, automated new
hire entry and store email. The Company utilizes a DVDi Learning Management
System (LMS), where sales associates are able to take tests and the Company
plans to have the results tracked centrally for consistency across all of its
stores In addition, the Company began a rollout of a new point-of-sale system
with many enhanced features to all its stores in the fourth quarter of fiscal
2004, which was completed in the first quarter of fiscal 2005. This rollout
included the installation of a wide area network. This new system allows the
Company to add functionality to its POS system with the ability to capture debit
card transactions, centralize credit authorizations, improve promotion
transactions handling, and speed up customer transaction time. The Company's
distribution center systems continue to be refined to reduce 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, sales was viewed as superior to
its competition 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 arranged for ease of shopping,
comfortable store environment and friendly sales embody Dress Barn's strong
focus on its customers. Dress Barn's training program encourages its sales
associates to assist customers in a low-key and friendly manner. The Company has
various programs to recognize and reward its best sales 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 cash and investments and its internally generated funds
provide a competitive advantage that enables the Company to pursue its long-term
strategies regarding new stores, capital expenditures and marketing and brand
development.
In January 2003, the Company, through a wholly owned subsidiary, purchased
for approximately $45.3 million a distribution/office facility in Suffern, New
York (the "Suffern facility"), of which the major portion is the Company's
corporate offices and distribution center. The acquisition of the Suffern
Facility provides flexibility for future expansion and has resulted in
significant savings in its home office and distribution center occupancy costs.
Based on the economic success of its larger size Combo Stores, most fiscal
2005 store openings will be Combo Stores between 7,000 and 8,000 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 in the past also purchased locations
from bankrupt retailers, some of which were too small for a Combo and were
opened as freestanding locations. Of the 53 stores the Company opened during
fiscal 2004, 48 were Combo locations and 5 were freestanding locations. The
Company has an ongoing program of converting its older freestanding stores to
Combo Stores. Six stores were converted to Combo stores during fiscal 2004. The
Company expects to continue to open stores primarily in strip centers, as well
as in downtown and outlet locations. In fiscal 2005, the Company plans to open
approximately 50 new stores and convert a few existing stores to Combo Stores,
including expanding into new markets.
In conjunction with its strategy of adding mostly Combo Stores, the Company
continues to close or relocate its underperforming locations and closed 47 such
locations during fiscal 2004, compared to 28 closed in fiscal 2003. The Company
also plans to close approximately 30 to 40 more such locations in fiscal 2005.
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 1.2% in fiscal 2004, after a 4.5% increase in fiscal 2003. Net of
store closings, the Company currently plans to increase its aggregate store
square footage in the low single-digits in fiscal 2005.
The Company's marketing programs focus on developing stronger relationships
with its existing customers, increasing their loyalty by making them feel better
about Dress Barn. Concurrently, the programs try to create awareness among those
who are not already customers and inspire them to visit its stores and see what
Dress Barn has to offer. One major asset is the Dress Barn credit card; with
almost 2.7 million cardholders, the Company continues to segment its best
customers and target them with exclusive offers and recognition. The credit card
purchasing information, combined with transactional data from the stores, has
created a customer database for our customer relationship management ("CRM")
system. The CRM database tracks customer transactions, with the ability to
target customers with specific offers and promotions, including coupons,
pre-sale announcements, and special events. The CRM database is used for 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 utilizes its web site (www.dressbarn.com) for reinforcing store
promotions and providing store and product information, helping to drive store
traffic and communicate with its retail customers. In addition, the Company
sells gift certificates on its website.
Merchandising
Virtually all merchandising decisions affecting the Company's stores are
made centrally. Day to day store merchandising is under the direction of Keith
Fulsher, the General Merchandise Manager, and six additional merchandise
managers. The Company utilizes a Visual Merchandising Department to communicate
various floorsets and presentations to the stores. The Company generally has six
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 volume of a particular store. To keep merchandise seasonal and in current
fashion, inventory is reviewed weekly and markdowns are taken as appropriate to
expedite selling. The Company offers first-quality, in-season merchandise, with
approximately 60% of the Company's sales volume derived from sportswear,
including sweaters, knit and woven tops, pants and skirts. The remainder of the
Company's sales volume includes of dresses, suits, blazers, outerwear and
accessories. In fiscal 2003, sportswear accounted for approximately 65% of sales
volume. The decrease in fiscal 2004 was due primarily to increases in the
jewelry and blouse categories. 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 items including in selected stores hosiery, handbags
and shoes. There are separate merchandising teams for Dress Barn and Dress Barn
Woman.
The Company's direct sourcing of its merchandise 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 by
allowing for higher initial mark-ons. The Company believes it has the expertise
to execute its brand strategy due to its extensive experience sourcing goods,
its position as a merchandiser of established fashions, and its prior experience
with private brands. Virtually all of the Company's sales are generated from its
private brand labels.
The Company continues to expand the number of its stores with shoe and
petite-size departments. As of July 31, 2004, 340 stores had shoe departments
and 198 stores featured petites.
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 six 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 2004, imports
accounted for over 50% of merchandise purchases and no vendor accounted for over
5% of the Company's import purchases. Typical lead times for the Company in
making purchases from its vendors range from approximately one month for items
purchased domestically versus up to six months for merchandise purchased
overseas.
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. There are instances where the Company does hold basic
merchandise for future distribution. 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 31, 2004, the Company operated 776 stores in 45 states and the
District of Columbia. 492 of the stores were conveniently located in strip
centers and 225 stores were located in outlet centers. During fiscal 2004, no
store accounted for as much as 1% of the Company's total sales. The table below
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 105 26 361 492
Outlet Malls and Outlet Strip Centers 47 22 156 225
Free Standing, Downtown and Enclosed Malls 26 5 28 59(1)
Total 178 53 545 776
(1) Includes 29 downtown locations
The table on the following page indicates the states in which the
stores operating on July 31, 2004 were located, and the number of stores in each
state:
Location DB DBW Combos
--- --- ---
Alabama - - 7
Arizona 1 - 9
Arkansas - - 4
California 17 2 31
Colorado 3 1 10
Connecticut 6 3 20
District of Columbia 2 1 1
Delaware 2 1 3
Florida 12 2 14
Georgia 2 20
Idaho - - 3
Illinois 3 1 29
Indiana 4 - 11
Iowa - - 6
Kansas - - 6
Kentucky 1 - 7
Louisiana - - 10
Maine 2 1 -
Maryland 6 3 19
Massachusetts 7 2 25
Michigan 7 1 22
Minnesota - - 11
Mississippi - - 6
Missouri 4 2 18
Nebraska - - 4
Nevada 1 - 5
New Hampshire - - 6
New Jersey 17 8 24
New Mexico - - 1
New York 24 5 39
North Carolina 8 4 17
North Dakota - - 1
Ohio 3 - 17
Oklahoma 1 - 2
Oregon 2 2 4
Pennsylvania 18 6 23
Rhode Island 1 - 3
South Carolina 4 1 11
Tennessee 3 2 11
Texas 5 1 42
Utah - - 4
Vermont - - 2
Virginia 9 3 20
Washington 2 1 5
West Virginia - - 2
Wisconsin 1 - 10
Total 178 53 545
--- --- ---
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 and anchor tenants in the shopping center. The Company
also seeks to expand into new markets. 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 models wearing outfits coordinated
from among the stores' fashion offerings. The Company's interior graphics and
racktop signs are designed to provide for a more open and easier to shop
environment.
All stores are directly managed and operated by the Company. The store
manager staffs each store with at least one sales associate during non-peak
hours, with additional sales associates added as needed at peak hours. The sales
associates perform all store operations, from receiving and processing
merchandise and arranging it for display, to assisting customers. Each store
manager reports to a District Sales Manager who, in turn, reports to a Regional
Sales Manager. Dress Barn employs 10 Regional Sales Managers and approximately
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 sales associates through promotion from within,
creative incentive programs, competitive wages and the opportunity for bonuses.
Sales associates compete in a broad variety of Company-wide contests involving
sales goals and other measures of performance. The contests are designed to
boost store profitability, create a friendly competitive atmosphere among
associates and offer opportunities for additional compensation. Management
believes that Dress Barn's creative incentive programs provide an important tool
for building cohesive and motivated sales teams 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 DVD training and (iii) one-on-one
training of sales associates by store managers and district sales managers.
Almost 70% of the Company's sales in fiscal 2004 and fiscal 2003 were
paid for by credit card, with the remainder being paid by cash or check.
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 31, 2004, the number of cardholders was approximately
2.7 million. The average dollar value per transaction on the Dress Barn credit
card during fiscal 2004 was approximately 50% greater than the average dollar
value of all other transactions, versus 30% in fiscal 2003 and represented
approximately 20% of the Company's sales in fiscal 2004. The increase in the
average dollar value per transaction in 2004 was due to higher units per
transaction.
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.
Advertising and Marketing
As the lifestyles of its customers changed, the Company determined it was
more cost effective to utilize direct mail to communicate its promotions and
merchandise focuses to its customers, supplemented with selected "image"
advertising in national magazines. The Company has increased and continues to
increase its direct mail program. The Company utilizes a customer relationship
management ("CRM") program to track customer transactions and use as a basis for
its direct mail efforts. The Company believes focused, targeted marketing
utilizing direct mail is the most effective means to reach and build
relationships with its customers as well as drive customers into its stores. The
marketing department sends "Fashion Flashes" to the stores which contain full
color pictures of coordinated merchandise groups and facts about the products,
boosting employee product knowledge.
The Company also utilizes select national advertising, including major
lifestyle magazines, to build its brand image as a primary source for a
lifestyle-oriented, fashionable, value-priced assortment of career and casual
fashions tailored to its customers' needs. The national ads are designed to
create awareness of the dressbarn(R) brand and increase the loyalty of our
existing customers by making them feel better about dressbarn(R) and its brand
philosophy.
Management Information Systems
The Company has made a significant investment in technology to improve
sales, 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 installed a new wide area network
in fiscal 2004. In addition, the Company began a rollout of a new point-of-sale
("POS") system with many enhanced features to all its stores in the fourth
quarter of fiscal 2004, which was completed in the first quarter of fiscal 2005.
This rollout included the installation of a wide area network. This new system
allows the Company to add functionality to its POS system with the ability to
capture debit card transactions, centralize credit authorizations, improve
promotion transactions handling, and speed up customer transaction time. In
addition, Company began to sell gift cards and use merchandise credit cards in
the first quarter of fiscal 2005.
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, 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 allowing for a high level of sales. The
Company believes that investments in technology enhance operating efficiencies
and position Dress Barn for future growth. The Company utilizes a DVDi Learning
Management System (LMS), where sales associates are able to take tests 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.
Trademark
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 (Dress Barn(R) and Westport Ltd.(R)). During fiscal 2003, the
Company filed applications to register a number of additional trademarks, the
most significant being dressbarn(R) and its new logo. In fiscal 2004, the
dressbarn(R) trademark registration was completed. The Company believes its
Dress Barn(R) and dressbarn(R) trademarks are materially important to its
business. The Company operates a small number of outlet stores under the names
Westport Ltd.(R) and SBX.
Employees
As of July 31, 2004, the Company had approximately 8,500 employees of whom
approximately 5,000 worked part time. The decrease in employees from fiscal 2003
was the result of fewer part time employees utilized by the Company. 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 in some cases are expanding into markets in
which the Company has a significant market presence. 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 continued success is largely dependent on the efforts and
abilities of its senior management team. Also, the continued success of the
Company will depend upon a number of factors, including the identification of
suitable markets and sites for new 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.
Failure of the Company to maintain its existing customer base or the
failure to attract new customers may negatively impact sales and profits.
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 resulting from 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 effect of the expiration of quotas in January 2005 on the Company's result
of operations is uncertain.
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 31, 2004, 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
2005 143 80 63
2006 139 122 17
2007-2009 363 319 44
2010 and thereafter 131 118 13
--- ---- - --
Total 776 639 137
--- --- ---
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 31, 2004, and excluding locations acquired after July 31, 2004, for
fiscal 2005 are approximately $92 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 510,000 square foot office and distribution center
in Suffern, New York from Dunnigan Realty, LLC, a wholly-owned subsidiary which
was formed solely to purchase, own and operate the entire Suffern Facility
including the portion occupied by the Company. The Suffern facility consists of
approximately 65 acres of land, with a current total of approximately 900,000
square feet of rentable distribution and office space, the majority of which is
occupied by the Company. The remainder of the rentable square footage is 100%
leased through 2012. The Company's lease with Dunnigan Realty, LLC expires in
2023, which coincides with the term of the underlying mortgage that Dunnigan
Realty, LLC utilized to finance the purchase of the Suffern facility. The
Dunnigan Realty, LLC mortgage loan (the "mortgage") is collateralized by a
mortgage lien on the Suffern facility. Payments of principal and interest on the
mortgage, which is a 20-year fully amortizing loan with a fixed interest rate of
5.33%, net of closing costs, are due monthly through July 2023. Dunnigan Realty,
LLC receives rental income and reimbursement for taxes and common area
maintenance charges from the Company and two additional tenants that occupy the
Suffern facility that are not affiliated with the Company. The rental income
from the other tenants is shown as "other income" on the Company's Consolidated
Statements of Earnings. All intercompany transactions are eliminated.
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 for the acquisition of the
Bedford Fair business which the Company never concluded.
On April 10, 2003, after a trial in the Superior Court of Connecticut,
Waterbury District, a jury returned a verdict of $30 million of compensatory
damages in the lawsuit described above. The court, on July 7, 2003, entered a
judgment of approximately $32 million in compensatory damages and expenses,
which is subject to post-judgment interest. The trial court ruled against the
plaintiffs' motion for any punitive damages or pre-judgment interest. The
Company continues to strongly believe there is no merit in the jury verdict and
both sides have appealed. The appeal is expected to be heard by the Supreme
Court of the State of Connecticut towards the end of calendar 2004.
On March 17, 2003 the Company was served with a class action lawsuit in
California. This class action lawsuit is a wage and hour case and was brought on
behalf of all Managers, Assistant Managers and Associate Managers who worked for
Dress Barn in California. The complaint alleges that Dress Barn improperly
classified these employees as "salaried exempt." The Company is in settlement
discussions with the plaintiff. Whether or not the settlement is effected, the
Company does not expect the outcome to have a material adverse effect.
Except for the above cases, 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 78 Chairman of the Board,
Co-Founder and Director
David R. Jaffe 45 President, Chief Executive
Officer and Director
Vivian Behrens 51 Senior Vice President and Chief
Marketing Officer
Armand Correia 58 Senior Vice President and Chief
Financial Officer
Keith Fulsher 50 Senior Vice President
And General Merchandise Manager
Eric Hawn 54 Senior Vice President
Store Operations
Elise Jaffe 49 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.
Ms. Behrens started with the Company in September 2002 as Senior Vice
President, Marketing. Previously, Ms. Behrens was 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 a member of the Company's Board of Directors from 2001 to
2002.
Mr. Correia has been Senior Vice President and Chief Financial Officer of
the Company since 1991.
Mr. Fulsher has been with the Company for over ten years, serving as
Merchandise Manager, Sportswear, before being promoted to Senior Vice President
and General Merchandise Manager in February 2002. 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, RELATED SECURITY HOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Prices of Common Stock
The Common Stock of The Dress Barn, Inc. (the "Company") 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 split 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 2004 Fiscal 2003
Bid Prices Bid Prices
High Low High Low
Fiscal Period
First Quarter $14.53 $12.30 $15.90 $11.06
Second Quarter $15.87 $13.90 $16.19 $13.09
Third Quarter $18.72 $14.74 $15.00 $12.43
Fourth Quarter $18.10 $15.56 $15.23 $12.20
Number of Record Holders
The number of record holders of the Company's common stock as of October 1,
2004 was approximately 2,100.
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 31,
2004.
Number of securities
remaining available
for future issuance
under equity
Number of securities Weighted average compensation plans
to be issued upon exercise price (excluding
exercise of of outstanding securities reflected
Plan Category outstanding options options in column (a))
- -----------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by security holders 2,673,979 $10.46 3,530,616
Equity compensation plans not approved by security holders --- --- ---
..........................................................
Total 2,673,979 $10.46 3,530,616
==========================================================
Issuer Purchases of Equity Securities(1)
Quarter Ending July 31, 2004
Period Total Number of Average Price Paid Total Number of Maximum Number of
Shares Purchased as Shares that May Yet
Part of Publicly Be Purchased Under
Announced Plans or the Plans or
Shares Purchased per Share Programs Programs (2)
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
May 1, 2004--
May 31, 2004 19,700 $15.86 19,700 2,881,725
(1) The Company has a $75 million Stock Buyback Program (the "Program") which
was originally announced on April 5, 2001. Under the Program, the Company may
repurchase its shares from time to time, either in the open market or through
private transactions, whenever it appears prudent to do so. The Program has no
expiration date.
(2) Based on the closing price of $16.75 at July 30, 2004.
ITEM 6. SELECTED FINANCIAL DATA
Dollars in thousands except per share
information
Fiscal Year Ended
------------------------------------------------------------------------------------
July 31, July 26, July 27, July 28, July 29,
2004 2003 2002 2001 2000
------------------------------------------------------------------------------------
Net sales $ 754,903 $ 707,121 $717,136 $695,008 $656,174
Cost of sales, including
occupancy and buying costs 476,952 453,178 453,428 443,426 419,479
------------------------------------------------------------------------------------
Gross profit 277,951 253,943 263,708 251,582 236,695
Selling, general and
administrative expenses 207,570 192,466 186,375 180,991 165,336
Depreciation & amortization 24,645 20,856 23,508 23,916 21,164
Litigation charge -- 32,000 -- -- --
------------------------------------------------------------------------------------
Operating income 45,736 8,621 53,825 46,675 50,195
Interest income 2,204 3,332 5,458 8,949 7,667
Interest (expense) (5,289) (164) -- -- --
Other income 1,527 779 -- -- --
------------------------------------------------------------------------------------
Earnings before
income taxes 44,178 12,568 59,283 55,624 57,862
Income taxes 14,037 4,524 21,342 20,303 21,120
------------------------------------------------------------------------------------
Net earnings $ 30,141 $ 8,044 $37,941 $35,321 $36,742
====================================================================================
Earnings per share - basic (1) $ 1.02 $ .26 $ 1.04 $ .97 $ .97
====================================================================================
Earnings per share - diluted (1) $ 1.00 $ .25 $ 1.01 $ .94 $ .95
====================================================================================
Balance sheet data:
Working capital $146,002 $107,859 $230,959 $197,258 $159,105
Total assets $461,835 $422,963 $462,997 $411,560 $374,236
Long-term debt $31,988 $33,021 -- -- --
Shareholders' equity $261,639 $226,893 $334,253 $296,597 $259,561
Percent of net sales:
Cost of sales, including
occupancy and buying costs 63.2% 64.1% 63.2% 63.8% 63.9%
Gross profit 36.8% 35.9% 36.8% 36.2% 36.1%
Selling, general and
Administrative expenses 27.5% 27.2% 26.0% 26.0% 25.2%
Litigation charge -- 4.5% -- -- --
Operating income 6.1% 1.2% 7.5% 6.7% 7.6%
Net earnings 4.0% 1.1% 5.3% 5.1% 5.6%
(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
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the financial
statements and accompanying notes appearing elsewhere in this report. As used in
this report, the terms "fiscal 2004," "fiscal 2003," and "fiscal 2002" refer to
our fiscal years ended July 31, 2004, July 26, 2003, and July 27, 2002,
respectively. Fiscal 2004 consisted of 53 weeks. Fiscal 2003 and fiscal 2002
consisted of 52 weeks. The term "fiscal 2005" refers to our fiscal year that
will end on July 30, 2005. For comparison purposes, it is more meaningful for
certain items to use fiscal 2004's results less the extra week, or the fifty-two
week period ended July 24, 2004 ("fifty-two week"" period or "fifty-two weeks").
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; changes in levels of store traffic or
consumer apparel buying patterns; import risks, including potential disruptions,
an increase in the rate of import duties or the expiration of export quotas on
January 2005 and increased U.S. Customs regulation of importing activities,
effectiveness of the Company's brand awareness and marketing programs, 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, claims and contingencies and litigation. 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 are recorded as a liability until they are
redeemed. The Company has a reserve for estimated sales returns.
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.
Physical inventories are conducted in January and July to calculate actual
shrinkage and inventory on hand. Estimates are used to charge inventory
shrinkage for the first and third fiscal quarters of the fiscal year. 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 and other matters arising out of the normal course of business.
The Company is self-insured for expenses related to its employee medical and
dental plans, and its worker's compensation plan, up to certain thresholds.
Claims filed, as well as claims incurred but not reported, are accrued based on
management's estimates, using information received from plan administrators,
historical analysis, and other relevant data. The Company has stop-loss
insurance coverage for individual claims in excess of $250,000. The Company
accrues its estimate of probable settlements of Federal and state 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. Although the
Company is generally conservative in the estimation of its claims and
contingencies and believes its accruals for claims and contingencies are
adequate, it is possible that actual results could significantly differ from the
recorded accruals for claims and contingencies.
Litigation
The Company is subject to various claims and contingencies relating to
litigation arising out of the normal course of business. 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.
On July 7, 2003, after an unforeseen jury verdict, a trial court entered a final
judgment of approximately $32 million in compensatory damages and expenses
against the Company in a previously disclosed lawsuit. As a result, the Company
recorded a litigation charge of $32 million for the judgment, even though the
Company continues to strongly believe there is no merit in the jury verdict and
is vigorously pursuing an appeal. If upon appeal the entire judgment or a
portion thereof is modified, the Company will adjust its litigation accrual
accordingly (see note 5 of the Notes to the Consolidated Financial Statements
for additional information). In the fourth quarter of fiscal 2004, as required
as part of the above legal judgment the Company deposited $38.6 million in an
escrow account, utilizing its operating funds. The escrow account is an interest
bearing account and is included in restricted cash on the Company's balance
sheet. The amount deposited includes interest on the unpaid judgment through
December 31, 2004. This escrow will terminate when a final non-appealable
judgment is entered. At that time, the amount of the judgment, if any, will be
paid to the plaintiff with any balance returned to the Company. On March 17,
2003 the Company was served with a class action lawsuit in California. This
class action lawsuit is a wage and hour case and was brought on behalf of all
Managers, Assistant Managers and Associate Managers who worked for Dress Barn in
California. The Company is in settlement discussions with the plaintiff. Whether
or not the settlement is effected, the Company does not expect the outcome to
have a material adverse effect.
Inflation
The Company does not believe that inflation has had a material effect on
the results of operations during the periods presented. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
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 below sets forth certain financial data of the Company expressed
as a percentage of net sales for the periods indicated:
Fiscal Year Ended
July 31, July 26, July 27,
2004 2003 2002
----- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales, including
occupancy and buying costs 63.2% 64.1% 63.2%
Selling, general and
administrative expenses 27.5% 27.2% 26.0%
Depreciation and amortization 3.3% 2.9% 3.3%
Litigation charge -- 4.5% --
Interest income 0.3% 0.4% 0.8%
Interest (expense) (0.7%) - -
Earnings before income taxes 5.9% 1.8% 8.3%
Net earnings 4.0% 1.1% 5.3%
Fiscal 2004 Compared to Fiscal 2003
The results of the Company for fiscal 2004 were favorably impacted by the
extra reporting week. Net sales increased by 6.8% to $754.9 million for fiscal
2004, from $707.1 million in fiscal 2003. Net sales for the fifty-two week
period ended July 24 2004, were $743.2 million, an increase of $36.1 million or
5.1% from the prior year. The increase from fiscal 2003 was due to a 1.9%
increase in same store sales, as well as a 2.9% increase in average store square
footage. Same store sales are the primary means most retailers use to evaluate
their sales performance. Same store sales represented approximately 86% of total
sales for fiscal 2004. The increase in store square footage was due to the
opening of 53 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 closings of
47 underperforming stores. The Company had 776 stores in operation at July 31,
2004 compared to 772 stores in operation as of July 25, 2003.
The sales increase was the result of several factors. More customer traffic
to its stores resulted in more customer transactions and higher sales associate
productivity and increased jewelry sales resulted in increased units sold per
transaction. These factors were partially offset by a slight decrease in the
average price per transaction due primarily to an increase in jewelry sales. The
Company believes the increase in the number of customer transactions was the
result of greater customer acceptance of the Company's more updated and
fashionable merchandise assortment and intensified marketing and store
presentation efforts.
The Company's real estate strategy for fiscal 2005 is to continue opening
primarily Combo Stores and converting its existing single-format stores into
Combo Stores, while closing its underperforming locations. In addition, the
Company will target certain Combo stores to increase sales productivity by
enhancing the merchandise selection with an expanded "missy" presentation
through the layering on of new and expanded classifications. Store expansion
will focus on both expanding in the Company's existing major trading areas and
developing and expanding into new markets. For fiscal 2005 the Company is
currently projecting net square footage growth in the low single-digit
percentage range.
Gross profit (net sales less cost of goods sold, including occupancy and
buying costs), increased 9.5% to $277.9 million, or 36.8% of net sales, in
fiscal 2004 from $253.9 million, or 35.9% of net sales in fiscal 2003. The
increase in gross profit as a percentage of net sales, is due to higher
maintained margins, the leverage on buying costs gained from increased same
store sales, and the leverage from the extra fifty-third week of net sales on
fixed occupancy costs. For the fifty-two weeks, gross profit was 36.6% of net
sales.
Selling, general and administrative (SG&A) expenses increased by 8% to
$207.6 million, or 27.5% of net sales, in fiscal 2004 from $192.5 million or
27.2% of net sales, in fiscal 2003. For the fifty-two weeks, SG&A increased by
6% to $204.7 million, or 27.5% of net sales from $192.5 million, or 27.2% of net
sales last fiscal year. The increase of 30 basis points reflects lack of sales
leverage, increased marketing expense, as well as increased costs associated
with impending Sarbanes-Oxley compliance and training costs for the Company's
new POS system. The Company continues to focus on controlling its costs and
enhancing productivity.
Other income for fiscal 2004 increased 96% to $1.5 million from $0.8
million in fiscal 2003. The Company received a full year's rent versus a partial
year in fiscal 2003 by Dunnigan Realty, LLC from the unaffiliated tenants of the
Suffern facility. In January 2003 Dunnigan Realty, LLC, a wholly-owned
subsidiary of the Company, acquired a distribution/office facility in Suffern,
New York (the "Suffern facility"), of which the major portion is the Company's
corporate offices and distribution center.
Depreciation expense increased by 18% to $24.6 million in fiscal 2004,
versus $20.9 million in fiscal 2003. The increase resulted from a higher number
of closed stores (47 stores closed in fiscal 2004 versus 28 stores closed in
fiscal 2003) and related write-offs ($4.9 million in fiscal 2004 versus $1.5
million in fiscal 2003), the first year depreciation of the new Point of Sale
(POS) system, and the first full year of depreciation of the Company
headquarters.
Interest income decreased by 33% to $2.2 million for fiscal 2004 from $3.3
million for fiscal 2003. The decrease was due primarily to a reduction in funds
available for investment for most of the fiscal year after the purchase of the
Company headquarters for $45.4 million in the fourth quarter of 2003, partially
offset by an increase in interest rates.
Interest expense for the fiscal year was $5.3 million. Interest expense
includes a $3.3 million charge related to the $32 million legal accrual recorded
in fiscal 2003. This legal accrual was necessary as the result of court judgment
against the Company relating to a previously disclosed lawsuit arising from an
unsuccessful acquisition. On July 7, 2003, after a jury trial the trial court
entered a final judgment of approximately $32 million in compensatory damages
and expenses, which is subject to post-judgment interest. The trial court ruled
against the plaintiffs' motion for any punitive damages or pre-judgment
interest. The Company believes there is no merit in the jury verdict. Both
parties have appealed, with the plaintiff seeking prejudgment interest from
1997. If upon appeal the judgment is subsequently modified, the Company will
adjust its litigation accrual accordingly (see note 5 of the Notes to the
Consolidated Financial Statements). Interest accrues on the unpaid judgment at
the statutory rate of 10% annually which the Company has provided for at the
rate of approximately $800,000 each quarter in its litigation accrual. The
remaining interest expense represents the mortgage interest from the financing
of the Suffern facility in July 2003 (a 5.3% fixed rate over a 20 year term).
The effective tax rate for fiscal 2004 was 31.8% versus 36.0% in fiscal
2003. The decrease resulted from the reversal of certain income tax reserves of
approximately $2.0 million. Such reversal resulted from the Company finalizing
certain pending tax audits. Going forward, the Company expects the effective tax
rate to remain in the 36% range.
Net earnings for fiscal 2004 increased to $30.1 million from $8.0 million
in fiscal 2003. Net earning were favorably impacted by approximately $1.6
million or $0.05 per share by the extra reporting week in fiscal 2004. Diluted
earnings per share also increased to $1.00 per share versus $0.25 per share in
fiscal 2003. Operating income for fiscal 2004 increased to $45.7 million from
$8.6 million in fiscal 2003. Excluding the litigation charge of $32 million in
fiscal 2003, net earnings and operating income would have been $28.5 million and
$40.6 million, respectively. Diluted earnings per share would have been $0.89
per share in fiscal 2003.
Fiscal 2003 Compared to Fiscal 2002
Net sales decreased by 1.4% to $707.1 million for fiscal 2003, from $717.1
million for fiscal 2002. The sales decrease from fiscal 2003 was due to a 4.6%
decrease in same store sales, offset by approximately 4% increase in total
selling square footage. The increase in store square footage was due to the
opening of 46 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
28 underperforming stores. The number of stores in operation increased to 772
stores as of July 26, 2003, from 754 stores in operation as of July 27, 2002.
The Company believes the sales decrease was the result of less customer traffic
to its stores resulting in fewer customer transactions. The Company believes the
war, the economy, unemployment, as well as unseasonable weather all affected its
customer traffic.
The Company suspended all mailing of catalogs and e-commerce sales in
November 2001. The Company discontinued all e-commerce operations, choosing to
utilize its internet site to reinforce store promotions and provide store and
product information, helping to drive store traffic and communicate with its
retail customers. Fiscal 2002 earnings per diluted share were reduced by
approximately $0.11 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) decreased by 3.7% to $253.9 million, or 35.9% of net sales, in
fiscal 2003 from $263.7 million, or 36.8% of net sales, in fiscal 2002. The
decrease in gross profit as a percentage of sales was primarily due to negative
leverage on buying and occupancy costs from decreased same store sales. In
addition, fiscal 2003 markdowns were higher as a percentage of sales due to
lower than expected sales volumes requiring increased promotional activities to
maintain inventory levels in line with sales trends. These additional markdowns
were slightly offset by higher initial margins due to continued sourcing
improvements and efficiencies. Inventory levels as of the end of fiscal 2003
were more current and lower per store than the prior year.
Selling, general and administrative ("SG&A") expenses increased by 3.3% to
$192.5 million, or 27.2% of net sales, in fiscal 2003 from $186.4 million, or
26.0% of net sales, in fiscal 2002. The increase in SG&A as a percentage of net
sales for fiscal 2003 was primarily due to negative same store sales leverage on
SG&A expenses. SG&A expenses increased primarily due to increased store
operating costs, primarily selling, benefits, maintenance and repair and
insurance costs resulting from the increase in the Company's store base. In
addition, the colder than normal winter in most parts of the country put added
pressure on utility costs in the second and third quarters. The Company
continues to focus on controlling its costs and enhancing productivity.
Depreciation expense decreased by 11.1% to $20.9 million in fiscal 2003,
versus $23.5 million in fiscal 2002. Fiscal 2003 was favorably impacted by the
fiscal 2002 fourth quarter writedown of obsolete software and equipment. This
offset the increase in depreciation from the acquisition by Dunnigan Realty,
LLC, a wholly-owned subsidiary of the Company, of a distribution/office facility
in Suffern, New York (the "Suffern facility"), of which the major portion is the
Company's corporate offices and distribution center. Fiscal 2003 also benefited
from lower store construction costs than the prior year as the Company opened 50
stores in fiscal 2003 versus 74 stores opened during the prior year.
The litigation charge of $32 million is the result of court judgment
against the Company relating to a previously disclosed lawsuit arising from an
unsuccessful acquisition.
Interest income - net decreased by 42.0% to $3.2 million for fiscal 2003
from $5.5 million for fiscal 2002. This decrease was due to lower investment
rates versus last year coupled with less cash available for investments. During
fiscal 2003, the Company used approximately $120.8 million for the Dutch Auction
Tender Offer completed at the end of October 2002 (the "Tender Offer"), in which
the Company repurchased 8 million of its common shares. The Company used
approximately $45 million to acquire the Suffern facility in January 2003.
Other income for fiscal 2003 was approximately $0.8 million. Other income
represents rental income by Dunnigan Realty, LLC from the unaffiliated tenants
of the Suffern facility.
Net earnings for fiscal 2003 decreased 78.8% to $8.0 million versus $37.9
million in fiscal 2002. Diluted earnings per share also decreased 75.1% to $0.25
per share versus $1.01 in fiscal 2002. Excluding the litigation charge of $32
million, net earnings would have been $28.5 million, a decrease of 24.8% from
$37.9 million. Operating income would have been $40.6 million, compared to $53.8
million last year. Diluted earnings per share would have been $0.89, a decrease
of 11.9% from earnings of $1.01 last year.
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. In fiscal 2004, total capital expenditures were $29.8 million,
net of landlord construction allowances. Excluding the $45.3 million for the
acquisition of the Suffern facility in fiscal 2003, capital expenditures were
$18.0 million and $28.3 million in fiscal 2003 and fiscal 2002, respectively,
net of landlord construction allowances. The increase in fiscal 2004 capital
expenditures was due to the investment in new store point of sale equipment and
more total store remodelings. The Company repurchased 19,700 outstanding shares
of its stock for a total cost of $ 0.3 million on the open market in fiscal
2004. In fiscal 2003, the Company repurchased 8,000,000 outstanding shares of
its stock in the Tender Offer for a total cost of $120.8 million. The Company
repurchased in the open market 757,600 outstanding shares of its stock for a
total cost of $9.0 million during fiscal 2002. In fiscal 2003 and 2002, shares
repurchased were 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 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 2004 decreased to $14.7
million as compared to $56.8 million in fiscal 2003 and $72.3 million in fiscal
2002. The decrease in fiscal 2004 was primarily due to the required funding of
the escrow account of $38.6 million,(see following paragraph) while the decrease
in fiscal 2003 versus fiscal 2002 was primarily due to the decrease in net
earnings.
In the fourth quarter of fiscal 2004, as required as part of an outstanding
legal judgment (see note 5 of the Notes to the Consolidated Financial
Statements) the Company deposited $38.6million in an escrow account, utilizing
its operating funds. The escrow account is an interest bearing account and is
included in restricted cash on the Company's balance sheet. The amount deposited
includes interest on the unpaid judgment through December 31, 2004. This escrow
will terminate when a final non-appealable judgment is entered. At that time,
the amount of the judgment, if any, will be paid to the plaintiff with any
balance returned to the Company.
In January 2003, Dunnigan Realty, LLC, a wholly-owned consolidated
subsidiary of the Company, purchased the Suffern facility, of which the major
portion is the Company's corporate offices and distribution center for
approximately $45.3 million utilizing the Company's internally generated funds.
In July 2003, Dunnigan Realty, LLC borrowed $34.0 million under a favorable
fixed rate mortgage loan. The mortgage has a twenty-year term with annual
payments of $2.8 million including principal and interest and is secured by a
first mortgage lien on the Suffern facility. Dunnigan Realty, LLC receives
rental income and reimbursement for taxes and common area maintenance charges
from the Company and two additional tenants that occupy the Suffern facility
that are not affiliated with the Company. These rental payments are more than
sufficient to cover the mortgage payments and planned capital and maintenance
expenditures.
At July 31, 2004, the Company had $122.7 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 $146.0 million at July
31, 2004. In addition, the Company had available $70 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 31, 2004. However, potential
borrowings were limited by approximately $ 43 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 2005, the Company plans to open approximately 50 additional
stores and continue its store remodeling program. Total fiscal 2005 capital
expenditures, which are primarily attributable to the Company's store opening,
renovation and refurbishment programs, are expected to be approximately $20
million net of landlord construction allowances. The Company intends to focus on
both expanding in the Company's existing major trading markets and developing
and expanding into new markets. 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 other anticipated obligations.
Contractual obligations and commercial commitments
The estimated significant contractual cash obligations and other commercial
commitments at July 31, 2004 are summarized in the following table:
Payments Due by Period (000's)
-----------------------------------------------------------------------------
Contractual Fiscal Fiscal Fiscal 2008- Fiscal 2010
2006-
Obligations Totals 2005 2007 2009 And Beyond
- ----------------------------------------------------------------------------------------------------------------------
Operating lease obligations $388,269 $92,026 $139,267 $77,485 $79,491
Mortgage principal and interest 52,583 2,768 5,535 5,535 38,745
-----------------------------------------------------------------------------
$440,852 $94,794 $144,802 $83,020 $118,236
=============================================================================
Amount of Commitment Expiration Period (000's)
-----------------------------------------------------------------------------
Other Commercial Fiscal Fiscal Fiscal 2008- Fiscal 2010
2006-
Commitments Totals 2005 2007 2009 And Beyond
- ----------------------------------------------------------------------------------------------------------------------
Trade letters of credit $38,048 $38,048 $--- $--- $---
Standby letters of credit 4,575 4,575 --- --- ---
Firm purchase orders 130 130
-----------------------------------------------------------------------------
$42,753 $42,753 $--- $--- $---
=============================================================================
In addition to the commitments represented in the above table, the Company
enters into a number of cancelable and non-cancelable commitments during the
year. Typically, these commitments are for less than a year in duration and are
principally focused on the construction of new retail stores and the procurement
of inventory. The Company does not maintain any long-term or exclusive
commitments or arrangements to purchase merchandise from any single supplier.
Preliminary commitments with the Company's private label merchandise vendors
typically are made five to seven months in advance of planned receipt date.
Substantially all of the Company's merchandise purchase commitments are
cancelable up to 30 days prior to the vendor's scheduled shipment date.
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 2005. In addition, the Company's quarterly results of
operations may fluctuate materially depending on, among other things, increases
or decreases in same 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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. 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 majority of the
Company's money market funds at July 31, 2004 were maintained with one financial
institution.
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 16.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including
the Company's principal executive officer and principal financial officer, the
Company evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of the end of the period covered by this
annual report, as such term is defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this
evaluation, such officers have concluded that the Company's disclosure controls
and procedures were effective in ensuring that all material information required
to be filed in this report has been made known to them in a timely manner.
Changes in Internal Control over Financial Reporting
There have been no significant changes in the Company's internal control
over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act) that occurred during the Company's most recently
completed fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial reporting.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the internal
control system are met. Because of the inherent limitations of any internal
control system, no evaluation of controls can provide absolute assurance that
all control issues, if any, within a company have been detected.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item is incorporated by reference from the
Registrant's definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.
ITEM 10A. CODE OF BUSINESS CONDUCT AND ETHICS
The Company has adopted a Code of Ethics for the Chief Executive Officer
and Senior Financial Officers. The Code of Ethics for the Chief Executive
Officer and Senior Financial Officers is posted on the company's website,
www.dressbarn.com (under the "Governance" caption). The company intends to
satisfy the disclosure requirement regarding any amendment to, or a waiver of, a
provision of the Code of Ethics by posting such information on its website. The
Company undertakes to provide to any person a copy of this Code of Ethics upon
request to the Secretary of the Company at the Company's principal executives
offices.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated by reference from the
Registrant's definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is incorporated by reference from the
Registrant's definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the Registrant's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item is incorporated by reference from
the Registrant's definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the Registrant's fiscal year.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information with respect to this item is incorporated by reference from
the Registrant's definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the Registrant's fiscal year.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. (a) (1) FINANCIAL STATEMENTS PAGE NUMBER
- --------------------------------------- -----------
Report of Independent Registered Public Accounting Firm 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-17
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 15. (a) (3) LIST OF EXHIBITS
The following exhibits are filed as part of this Report and except Exhibits
21, 23, 31.1, 31.2, 32.1 and 32.2 are all incorporated by reference (utilizing
the same exhibit numbers) from the sources shown.
Incorporated By
Exhibit
Number Description 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 Purchase and Sale Agreement- 30 Dunnigan Drive, Suffern NY (17)
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 Dunnigan Realty, LLC for 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 (15)
10(uu) Employment Agreement with David R. Jaffe (15)
10(ww) Employment Agreement with Vivian Behrens (16)
10(xx) Mortgage Agreement- Dunnigan Realty, LLC (18)
14. Code of Ethics for the Chief Executive Officer and Senior
Financial Officers (18)
21. Subsidiaries of the Registrant
23. Independent Auditors' Consent
31.1 Section 302 Certification of President and Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32.1 Section 906 Certification of President and Chief Executive Officer
32.2 Section 906 Certification of Chief Financial Officer
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.
(15) The Company's Annual Report on Form 10-K for the fiscal year ended July 27, 2002.
(16) The Company's Quarterly Report on Form 10-Q for the quarter ended October 26, 2002.
(17) The Company's Quarterly Report on Form 10-Q for the quarter ended January 26, 2003.
(18) The Company's Annual Report on Form 10-K for the fiscal year ended July 26, 2003.
ITEM 15. (c) EXHIBITS
All exhibits are incorporated by reference as shown in Item 14(a)3,
except Exhibits 21, 23, 31.1, 31.2, 32.1 and 32.2 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 10/13/04
- --------------------
Elliot S. Jaffe Chairman of the Board
/s/ ROSLYN S. JAFFE 10/13/04
- ---------------------
Roslyn S. Jaffe Director and Secretary and Treasurer
/s/ DAVID R. JAFFE 10/13/04
- ---------------------
David R. Jaffe Director, President
and Chief Executive Officer
(Principal Executive Officer)
/s/ BURT STEINBERG 10/13/04
- ---------------------
Burt Steinberg Director and Executive Director
/s/ KLAUS EPPLER 10/13/04
- -----------------------
Klaus Eppler Director
/s/ EDWARD D. SOLOMON 10/13/04
- ---------------------
Edward D. Solomon Director
/s/JOHN USDAN 10/13/04
- --------------
John Usdan Director
/s/ KATE BUGGELN 10/13/04
- ----------------
Kate Buggeln Director
/s/ MARC LASRY 10/13/04
- --------------
Marc Lasry Director
/s/ ARMAND CORREIA 10/13/04
- ---------------------
Armand Correia Chief Financial Officer (Principal
Financial and Accounting Officer)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 31, 2004 and July 26,
2003, and the related statements of earnings, shareholders' equity and
comprehensive income, and cash flows for each of the three years in the period
ended July 31, 2004. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 financial position of The Dress Barn, Inc. and
Subsidiaries as of July 31, 2004 and July 26, 2003, and their results of
operations and their cash flows for each of the three years in the period ended
July 31, 2004 in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
October 13, 2004
The Dress Barn, Inc. and Subsidiaries
Consolidated Balance Sheets
Amounts in thousands, except share data July 31, July 26,
2004 2003
---------------------- -----------------
ASSETS:
Current Assets:
Cash and cash equivalents $15,141 $37,551
Restricted cash and cash equivalents (see note 1) 38,661 --
Marketable securities and investments (see note 2) 122,700 113,897
Merchandise inventories 116,912 110,348
Deferred income tax asset (see note 7) 10,583 11,437
Prepaid expenses and other 8,898 7,383
---------------------- -----------------
Total Current Assets
312,895 280,616
---------------------- -----------------
Property and Equipment:
Land and buildings 45,391 45,391
Leasehold improvements 60,978 61,014
Fixtures and equipment 173,466 164,163
Computer software 23,302 19,369
---------------------- -----------------
303,137 289,937
Less accumulated depreciation
and amortization 162,346 154,033
---------------------- -----------------
140,791 135,904
---------------------- -----------------
Other Assets 8,149 6,625
---------------------- -----------------
TOTAL ASSETS $461,835 $423,145
====================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable- trade $ 66,776 $ 65,090
Accrued salaries, wages and related expenses 21,349 18,882
Litigation accrual (see note 5) 36,128 35,592
Other accrued expenses 27,089 28,134
Customer credits 8,970 7,284
Income taxes payable 5,548 7,088
Current portion of long-term debt 1,033 979
---------------------- -----------------
Total Current Liabilities 166,893 163,049
---------------------- -----------------
Long-Term Debt (See note 3) 31,988 33,021
---------------------- -----------------
Long-Term Deferred Tax Liability (See note 7) 1,315 182
---------------------- -----------------
Commitments and Contingencies (See note 8)
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 and outstanding- 29,618,660 and
29,169,559 shares, respectively 1,482 1,458
Additional paid-in capital 63,554 58,200
Retained earnings 197,438 167,297
Treasury stock, to be retired (313) --
Accumulated other comprehensive loss (522) (62)
---------------------- -----------------
261,639 226,893
---------------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $461,835 $423,145
====================== =================
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 31, July 26, July 27,
2004 2003 2002
------------------------------------------------------------
Net sales $754,903 $707,121 $717,136
Cost of sales, including
occupancy and buying costs 476,952 453,178 453,428
------------------------------------------------------------
Gross profit 277,951 253,943 263,708
Selling, general and
administrative expenses 207,570 192,466 186,375
Depreciation and amortization 24,645 20,856 23,508
Litigation charge (see note 5) -- 32,000 --
------------------------------------------------------------
Operating income 45,736 8,621 53,825
Interest income 2,204 3,332 5,458
Interest expense (5,288) (164) --
Other income 1,526 779 --
------------------------------------------------------------
Earnings before provision for
income taxes 44,178 12,568 59,283
Provision for income taxes 14,037 4,524 21,342
------------------------------------------------------------
Net earnings $30,141 $8,044 $37,941
============================================================
Earnings per share:
Basic $1.02 $0.26 $1.04
============================================================
Diluted $1.00 $0.25 $1.01
============================================================
Weighted average shares outstanding:
Basic 29,413 31,219 36,495
============================================================
Diluted 30,120 31,942 37,516
============================================================
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Amounts and shares in thousands.
Accumulated
Additional Total
Common Stock Paid-In Retained Treasury Other Shareholders'
-------------------- Comprehensive
Shares Amount Capital Earnings Stock Income (Loss) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 28, 2001 36,474 $2,566 $44,056 $364,491 $(114,577) $61 $296,597
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 37,941 37,941
Unrealized holding gain on marketable securities 486 486
----------
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 --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 27, 2002 36,508 1,825 52,209 279,672 -- 547 334,253
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 8,044 8,044
Unrealized holding loss on marketable securities (609) (609)
----------
Total comprehensive income 7,435
----------
Deferred compensation 20 1 264 265
Tax benefit from exercise of stock options 1,381 1,381
Employee Stock Purchase Plan activity 7 87 87
Shares issued pursuant to
exercise of stock options 635 32 4,259 4,291
Purchase of treasury stock - Tender Offer (8,000) (120,819) (120,819)
Retirement of treasury stock (400) (120,419) 120,819 --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 26, 2003 29,170 1,458 58,200 167,297 -- (62) 226,893
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 30,141 30,141
Unrealized holding loss on marketable securities (460) (460)
----------
Total comprehensive income 29,681
----------
Deferred compensation (1) 67 67
Tax benefit from exercise of stock options 1,460 1,460
Employee Stock Purchase Plan activity 6 83 83
Shares issued pursuant to
exercise of stock options 464 24 3,744 3,768
Purchase of treasury stock (20) (313) (313)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 2004 29,619 $1,482 $63,554 $197,438 $(313) $(522) $261,639
====================================================================================================================================
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Amounts in thousands
Fiscal Year Ended
-----------------------------------------------------
July 31, July 26, July 27,
2004 2003 2002
-----------------------------------------------------
Operating Activities:
Net earnings $30,141 $8,044 $37,941
-----------------------------------------------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization of property and
equipment 19,740 19,317 21,827
Loss on disposal of closed store assets 4,906 1,539 1,681
Deferred income tax expense (benefit) 1,987 (5,386) 1,409
Amortization of debt issuance cost 152 -- --
Increase in cash surrender value of life insurance (600) (1,060) (566)
Deferred compensation 67 265 291
Changes in assets and liabilities:
(Increase) decrease in restricted cash (38,661) --- ---
(Increase) decrease in merchandise inventories (6,564) 3,023 (8,884)
(Increase) decrease in prepaid expenses and other (1515) (3,790) 1,910
(Increase) decrease in other assets (232) 164 30
Increase in accounts payable- trade 1,686 1,056 4,484
Increase in accrued salaries and wages 2,467 793 870
Increase in litigation accrual 536 31,544 1,600
(Decrease) increase in accrued expenses (1,045) 866 (1,480)
Increase in customer credits 1,686 634 839
(Decrease) increase in income taxes payable (80) (187) 10,421
-----------------------------------------------------
Total adjustments (15,470) 48,778 34,432
-----------------------------------------------------
Net cash provided by operating activities 14,671 56,822 72,373
-----------------------------------------------------
Investing Activities:
Purchases of property and equipment (29,533) (63,334) (28,335)
Sales and maturities of marketable securities and investments 62,887 138,346 109,142
Purchases of marketable securities and investments (72,004) (93,803) (94,278)
Purchases of long term investments (900) -- --
-----------------------------------------------------
Net cash used in investing activities (39,550) (18,791) (13,472)
-----------------------------------------------------
inancing Activities:
(Repayment of) proceeds from long-term debt (979) 34,000 --
Payment for debt issuance cost (90) (1,730) --
Purchase of treasury stock (313) (120,818) (8,964)
Proceeds from Employee Stock Purchase Plan 83 87 91
Proceeds from stock options exercised 3,768 4,291 4,858
----------------------------------------------------
Net cash used in financing activities 2,469 (84,170) (4,015)
-----------------------------------------------------
Net (decrease) increase in cash and cash equivalents (22,410) (46,139) 54,886
ash and cash equivalents- beginning of year 37,551 83,690 28,804
-----------------------------------------------------
ash and cash equivalents- end of year $15,141 $37,551 $83,690
=====================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $12,130 $10,206 $9,511
=====================================================
Cash paid for interest $1,789 $35 ---
=====================================================
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Years Ended July 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Fiscal year ended July 31, 2004 consists of 53 weeks. Fiscal
years 2003 and 2002 consist of 52 weeks. Certain reclassifications have been
made to the prior years' consolidated financial statements to conform to fiscal
2004's presentation.
Business
The Dress Barn, Inc. (including The Dress Barn, Inc. and its 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 similarities of the
economic characteristics and how the Company manages its different store
formats, the operations of the Company are aggregated into one reportable
segment.
Dunnigan Realty, LLC, a wholly-owned subsidiary of the Company, was formed
in fiscal 2003 to purchase, own and operate a distribution/office facility in
Suffern, New York (the "Suffern facility"), of which the major portion is the
Company's corporate offices and distribution center. Dunnigan Realty, LLC
receives rental income and reimbursement for taxes and common area maintenance
charges from the Company and two additional tenants that occupy the Suffern
facility that are not affiliated with the Company. The rental income from the
unaffiliated tenants is shown as "other income" on the Company's Consolidated
Statements of Earnings. Intercompany rentals between the Company and Dunnigan
Realty, LLC are eliminated in consolidation.
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. The Company records a reserve for estimated
product returns based on historical return trends.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers its
highly liquid investments with maturities 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 31, 2004
were maintained with one financial institution. The Company's cash management
process provides for the daily funding of checks as they are presented to the
bank. Included in accounts payable at July 31, 2004 and July 26, 2003 are $7.1
million and $16.9 million, respectively, representing outstanding checks.
Restricted cash and cash equivalents
Restricted cash consists of $38.6 million held in escrow as required as
part of an outstanding legal judgment. The escrow account is an interest bearing
account at the current Federal funds rate plus a margin.
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 following estimated useful lives:
Building 25 years
Leasehold improvements 10 years or term of lease, if shorter
Fixtures and equipment 10 years
Software 5-7 years
Automotive equipment 5 years
Valuation of long-lived assets
The Company regularly reviews the carrying value of its long-lived assets.
Whenever events or changes in circumstances indicate that the carrying amount of
its assets might not be recoverable, the Company, using its best estimates based
on reasonable and supportable assumptions and projections, has reviewed for
impairment the carrying value of long-lived assets. Based on the review of
certain underperforming stores, the Company recorded impairment charges that are
included in depreciation expense of $4.9 million, $1.5 million and $1.7 million
in 2004, 2003 and 2002, respectively.
Income taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for 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. The
Company establishes valuation allowances against deferred tax assets when it is
more likely than not the realization of those deferred tax assets will not
occur.
Store preopening costs
Non-capital expenditures, such as advertising and payroll costs incurred
prior to the opening of a new store are charged to expense in the period they
are 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.
Marketing and advertising costs
Marketing and advertising costs are included in selling, general and
administrative expenses and are expensed in the period in which they are
incurred. marketing and advertising expenses were $12.3 million, $10.1 million
and $10.0 million for fiscal 2004, 2003 and 2002, respectively.
Recent accounting pronouncements
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements". This interpretation applies
immediately to variable interest entities created after January 31, 2003 and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after
December 15, 2003, to variable interest entities in which an enterprise holds a
variable interest it acquired before February 1, 2003. The Company has no
variable interest entities; therefore, the implementation of this interpretation
will not impact the Company's financial statements.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" ("SFAS 148"). SFAS 148 amends Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to
provide alternative methods of transition for companies that voluntarily change
to a fair value-based method of accounting for stock-based employee
compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 for
both interim and annual financial statements. The disclosure provisions of SFAS
148 are effective for annual reports for fiscal years ending after December 15,
2002, and for interim financials for periods beginning after December 15, 2002.
The Company adopted the interim reporting provisions of SFAS 148 for its third
quarter ended April 26, 2003 and the annual reporting provisions for fiscal
2003.
In April 2003, the FASB issued SFAS No.149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 149 is generally effective for contracts entered into or modified after
June 30, 2003 and for hedging relationships designated after June 30, 2003. The
adoption of SFAS No. 149 on July 1, 2003, as required, had no impact on the
Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that certain financial instruments be classified as liabilities
that were previously considered equity. The adoption of this standard on July 1,
2003, as required, had no impact on the Company's financial statements.
In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 03-1, The Meaning of Other-Than-Temporary Impairments and Its
Application to Certain Investments ("EITF 03-1"). EITF 03-1 provides a
three-step impairment model for determining whether an investment is
other-than-temporarily impaired and requires the Company to recognize such
impairments as an impairment loss equal to the difference between the
investment's cost and fair value at the reporting date. The guidance is
effective for the Company during the first quarter of fiscal 2005. The Company
does not believe that the adoption of EITF 03-1 will have a significant effect
on its financial statements.
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.
Stock-based compensation
The Company uses the intrinsic value method to account for stock-based
compensation in accordance with 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. In accordance with SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment
of SFAS No. 123" ("SFAS 148"), the Company discloses the pro forma effects of
recording stock-based employee compensation plans at fair value on net earnings
and net earnings per common share--basic and dilute as if the compensation
expense was recorded in the financial statements.
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. 148 (which does not apply to awards prior
to fiscal 1996), the Company's net earnings and earnings per share for fiscal
2004, fiscal 2003 and fiscal 2002 would have been reduced to the pro forma
amounts indicated below:
Fiscal Year Ended
-----------------------
July 31, July 26, July 27,
(In thousands, except per share amounts) 2004 2003 2002
------------------------------------------------------------
Net earnings as reported $30,141 $8,044 $37,941
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards net of related tax effects (2,060) (1,939) (1,429)
------------------------------------------------------------
Pro forma net earnings $28,081 $6,105 $36,512
============================================================
Earnings per share
Basic - as reported $1.02 $0.26 $1.04
------------------------------------------------------------
Basic - pro forma $0.95 $0.20 $1.00
------------------------------------------------------------
Diluted - as reported $1.00 $0.25 $1.01
------------------------------------------------------------
Diluted - pro forma $0.93 $0.19 $0.97
------------------------------------------------------------
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 31, July 26, July 27,
2004 2003 2002
--------- --------- ---------
Weighted average risk-free interest rate 3.3% 3.1% 4.0%
Weighted average expected life (years) 5.0 5.0 5.0
Expected volatility of the market price of the Company's
common stock 39.1% 43.9% 43.9%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
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. The Dunnigan
Realty LLC mortgage loan is a 20-year fully amortizing loan with a fixed rate of
5.33%.
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 usually 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 31, 2004 July 26, 2003
------------- -------------
(In 000's) Estimated Estimated
Fair Value Cost Fair Value Cost
Money Market Funds $ 4,676 $ 4,676 $ 10,301 $10,301
Short- Term Investments 35,545 35,545 27,581 27,581
Tax Free Municipal Bonds 80,746 81,176 74,286 74,199
US Govt. Securities Fund 1,733 1,878 1,729 1,878
--------- --------- --------- ---------
$122,700 $123,275 $113,897 $113,959
========= ========= ========= =========
The scheduled maturities of marketable securities and investments at
July 31, 2004 are:
Estimated
Due In (in 000's) Fair Value Cost
- ------ ----------- --------
One year or less $62,746 $ 63,002
One year through five years 59,954 60,273
Six years through ten years -- --
Over ten years -- --
--------- ---------
$122,700 $123,275
========= ========
Unrealized holding gains and (losses) at July 31, 2004 netted to an
unrealized loss of approximately $522,000. Proceeds and gross realized (losses)
gains from the sale of securities in fiscal 2004, 2003 and 2002 were $62.9
million and $0.8 million, $138.3 million and $(0.7) million, $109.1 million and
$1.0 million, respectively. For the purposes of determining gross realized gains
and losses, the cost of securities is based upon specific identification.
3. LONG-TERM DEBT
Long-term debt consists of the following:
July 31, July 26,
(In 000's) 2004 2003
--------- ---------
Dunnigan Realty, LLC mortgage loan $ 33,021 $ 34,000
Less: current portion (1,033) (979)
-------- -------
Total $31,988 $33,021
======== =======
The Dunnigan Realty, LLC mortgage loan (the "mortgage") is collateralized
by a mortgage lien on a distribution/office facility in Suffern, New York (the
"Suffern facility"), of which the major portion is the Company's corporate
offices and distribution center. Dunnigan Realty, LLC, a wholly owned subsidiary
of the Company, receives rental income and reimbursement for taxes and common
area maintenance charges from the Company and two additional tenants that occupy
the Suffern facility that are not affiliated with the Company. All intercompany
transactions are eliminated. Payments of principal and interest on the mortgage,
a 20-year fully amortizing loan with a fixed interest rate of 5.33%, are due
monthly through July 2023. In connection with the mortgage, the Company paid
approximately $1.7 million in debt issuance costs. These costs were capitalized
and will be amortized over the life of the mortgage. Scheduled maturities of the
mortgage in each of the next five fiscal years are as follows: 2005-$1.0
million; 2006-$1.1 million; 2007-$1.1 million; 2008-$1.2 million and 2009-$1.4
million; 2010 and thereafter- $27.4 million. Interest expense relating to the
mortgage for fiscal 2004 was approximately $1.8 million.
4. 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 31, July 26, July 27,
2004 2003 2002
---------- ---------- ---------
Weighted average number of common shares outstanding - basic 29,413 31,219 36,495
Net effect of dilutive stock options based on the treasury
stock method using the average market price 707 723 1,021
---------- ---------- ---------
Weighted average number of common shares outstanding - diluted 30,120 31,942 37,516
========== ========== =========
Common stock equivalents of 2,000, 170,000 and 150,000 for the fiscal
years ended July 31, 2004, July 26, 2003 and July 27, 2002, respectively, were
excluded because such common stock equivalents were anti-dilutive.
5. LITIGATION
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 for alleged unfair trade
practices and alleged breach of contract arising out of negotiations for an
acquisition the Company never concluded. The case went to a jury trial in 2003,
and a jury verdict of $30 million of compensatory damages was awarded against
the Company. On July 7, 2003, the court entered a final judgment of
approximately $32 million in compensatory damages and expenses, which is subject
to post-judgment interest. The trial court ruled against the plaintiffs' motion
for any punitive damages or pre-judgment interest.
Based on this judgment, the Company recorded a litigation charge of $32
million in its fiscal 2003 fourth quarter results. The Company believes there is
no merit in the jury verdict and is vigorously pursuing an appeal. Plaintiffs
have cross-appealed seeking an increase in the amount of the judgment. If upon
appeal the judgment is subsequently modified or reversed, the Company will
adjust its litigation charge accordingly. Interest accrues on the unpaid
judgment at the statutory rate of 10% annually which the Company has provided
for at the rate of approximately $800,000 each quarter in its litigation
accrual. The Company has also accrued for other pending litigation in its
litigation accrual. In the fourth quarter of fiscal 2004, as required as part of
an outstanding legal judgment, the Company deposited $38.6 million in an escrow
account, utilizing its operating funds. The escrow account is an interest
bearing account and is included in restricted cash and cash equivalents on the
Company's balance sheet.
6. 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. 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
2004, 2003 and 2002 the Company incurred expenses of $1,815,000, $1,363,000, and
$1,156,000, 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.
7. INCOME TAXES
The components of the provision for income taxes were as follows:
Fiscal Year Ended
(In 000's) July 31, July 26, July 27,
2004 2003 2002
-------- ------- -------
Federal:
Current $10,268 $7,772 $16,517
Deferred 1,177 (4,314) 1,090
-------- ------- -------
11,445 3,458 17,607
-------- ------- -------
State:
Current 1,782 2,138 3,415
Deferred 810 (1,072) 320
-------- ------- -------
2,592 1,066 3,735
-------- ------- -------
Provision for income taxes $14,037 $4,524 $21,342
======== ======= =======
Significant components of the Company's deferred tax assets and
liabilities were as follows:
Fiscal Year Ended
(In 000's) July 31, July 26, July 27,
2004 2003 2002
---------- ---------- ---------
Deferred tax assets:
Inventory capitalization and inventory-related items $4,121 $4,293 $1,927
Capital loss carryover 85 2,847 2,759
Employee benefits 3,050 2,438 2,754
Litigation accrual 14,248 14,308 ---
Other items 2,964 2,973 4,739
---------- ---------- ---------
Total deferred tax assets 24,468 26,858 12,179
---------- ---------- ---------
Deferred tax liabilities:
Depreciation 13,425 11,098 4,878
Other items 1,690 1,659 1,432
---------- ---------- ---------
Total deferred tax liabilities 15,115 12,757 6,310
---------- ---------- ---------
Valuation allowance (85) (2,847) ---
---------- ---------- ---------
Net deferred tax assets $9,268 $11,255 $5,869
========== ========== =========
The fiscal 2004 the total net deferred tax asset is presented on the
balance sheet as a current asset of $10.5 million and a non-current liability of
$1.3 million. For fiscal 2003, the net deferred tax asset is presented on the
balance sheet as a current asset of $11.4 million and a non-current liability of
$0.2 million. The net deferred tax assets were comprised of approximately
$1,429,000 in state deferred taxes and $7,839,000 in federal deferred taxes. In
fiscal 2003, a valuation allowance of approximately $2,847,000 had been
established relating to the capital loss carryforward, as it was more likely
than not that the utilization of such amount will not occur. In addition, the
Company successfully resolved several state and Federal audits during fiscal
2004 and 2003, resulting in credits to its tax provision for approximately
$2,000,000 and $2,645,000, respectively. The majority of the capital loss
carryforward expired during fiscal 2004 resulting in a reduction in the deferred
tax asset and related valuation allowance.
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 31, July 26, July 27,
2004 2003 2002
-------- ------- -------
Statutory tax rate 35.0% 35.0 % 35.0 %
State taxes - net of federal
Benefit 3.8% 5.5 % 5.2 %
Valuation allowance - loss carryforward -- 22.7 % ---
Provision adjustment- resolution of tax audits (4.6)% (22.5)% ---
Other - net, primarily tax-free interest (2.4)% (4.7)% (4.2)%
-------- ------- -------
Effective tax rate 31.8% 36.0 % 36.0 %
======== ======= ========
8. 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 from Dunnigan Realty,
LLC, a wholly-owned subsidiary which was formed solely to purchase, own and
operate the entire facility (the "Suffern facility") including the portion
occupied by the Company. The Company's lease with Dunnigan Realty, LLC expires
in 2023, which coincides with the term of the underlying mortgage Dunnigan
Realty, LLC utilized to finance the purchase of the Suffern facility (see Note 3
for additional information regarding the mortgage). Dunnigan Realty, LLC
receives rental income and reimbursement for taxes and common area maintenance
charges from two additional tenants that occupy the Suffern facility that are
not affiliated with the Company. The rental income from the other tenants is
shown as "other income" on the Company's Consolidated Statements of Earnings.
All intercompany transactions are eliminated.
A summary of occupancy costs follows:
Fiscal Year Ended
(In 000's) July 31, July 26, July 27,
2004 2003 2002
-------- ------- -------
Base rentals $ 92,094 $ 87,447 $85,593
Percentage rentals 2,761 3,898 2,591
Other occupancy costs 30,056 29,069 25,349
-------- ------- -------
124,911 120,414 113,533
-------- ------- -------
Less: Rental income from third parties (1,527) (779) ---
-------- ------- -------
Total $123,384 $119,635 $113,533
========= ========= ========
The following is a schedule of future minimum rentals under noncancellable
operating leases as of July 31, 2004, including rents payable to Dunnigan
Realty, LLC for the Suffern facility (in thousands):
Fiscal Year Total
------------- -------------
2005 $ 92,026
2006 77,134
2007 62,133
2008 45,829
2009 31,656
Subsequent years 79,491
--------
Total future minimum rentals $388,269
========
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. The rent payable to Dunnigan Realty, LLC is
$2.8 million per fiscal year through fiscal year ending 2023.
Leases with related parties
The Company leases two stores from its Chairman or related trusts. Future
minimum rentals under leases with such related parties which extend beyond July
31, 2004, included in the above schedule, are approximately $247,000 annually
and in the aggregate $1.0 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 2004, 2003 and 2002 under these leases
amounted to approximately $308,000, $309,000 and $288,000, respectively.
Lines of credit
At July 31, 2004, the Company had unsecured lines of credit with two banks
totaling $70 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 31, 2004.
However, approximately $43 million of outstanding letters of credit reduced the
credit lines available.
Contractual obligations and commercial commitments
The estimated significant contractual cash obligations and other commercial
commitments at July 31, 2004 are summarized in the following tables:
Payments Due by Period (000's)
-----------------------------------------------------------------------------
Contractual Fiscal Fiscal Fiscal 2008- Fiscal 2010
2006-
Obligations Totals 2005 2007 2009 And Beyond
- ----------------------------------------------------------------------------------------------------------------------
Operating lease obligations $388,269 $92,026 $139,267 $77,485 $79,491
Mortgage principal and interest 52,583 2,768 5,535 5,535 38,745
-----------------------------------------------------------------------------
$440,852 $94,794 $144,802 $83,020 $118,236
=============================================================================
Amount of Commitment Expiration Period (000's)
-----------------------------------------------------------------------------
Other Commercial Fiscal Fiscal Fiscal 2008- Fiscal 2010
2006-
Commitments Totals 2005 2007 2009 And Beyond
- ----------------------------------------------------------------------------------------------------------------------
Trade letters of credit $38,048 $38,048 $--- $--- $---
Standby letters of credit 4,575 4,575 --- --- ---
Firm purchase orders 130 130 --- --- ---
-----------------------------------------------------------------------------
$42,753 $42,753 $--- $--- $---
=============================================================================
In addition to the commitments represented in the above table, the Company
enters into a number of cancelable and non-cancelable commitments during the
year. Typically, these commitments are for less than a year in duration and are
principally focused on the construction of new retail stores and the procurement
of inventory. The Company does not maintain any long-term or exclusive
commitments or arrangements to purchase merchandise from any single supplier.
Preliminary commitments with the Company's private label merchandise vendors
typically are made five to seven months in advance of planned receipt date.
Substantially all of the Company's merchandise purchase commitments are
cancelable up to 30 days prior to the vendor's scheduled shipment date.
Legal proceedings
The Company is involved in various routine legal proceedings incident to
the ordinary course of business. The Company believes that the outcome of all
pending and threatened legal proceedings (except for the matter as discussed in
Note 5) will, on the whole, not have a material adverse effect on its financial
condition or results of operations.
9. STOCK-BASED COMPENSATION PLANS
At July 31, 2004, 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 31, 2004, there were no 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 31, 2004, there were 98,949 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 31, 2004, there were
3,431,667 shares under the 2001 plan available for future grant.
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 31, 2004 July 26, 2003 July 27, 2002
------------- ------------- -------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------------------------------------------------------------------------------
Options outstanding - beginning of
year 2,950,495 $9.80 2,734,352 $8.14 3,164,870 $7.26
Granted 269,625 13.82 909,883 12.54 797,266 10.95
Cancelled (81,860) 10.92 (59,200) 8.27 (444,580) 10.26
Exercised (464,281) 8.11 (634,540) 6.76 (783,204) 6.21
------------------------------------------------------------------------------------------------
Outstanding end of year 2,673,979 $10.46 2,950,495 $9.80 2,734,352 $8.14
================================================================================================
Options exercisable
at year-end 860,647 $8.77 528,208 $7.56 334,108 $4.09
================================================================================================
Weighted-average fair
value of options granted
during the year $5.50 $5.34 $4.81
============== =============== ===============
The following table summarizes information about stock options
outstanding at July 31, 2004:
Number Weighted Average Number Weighted
Outstanding as of Weighted Average Exercise Price Exercisable as Average
Range of Exercise Prices 7/31/04 Remaining Life of 7/31/04 Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------
$2.50 - $5.69 152,336 2.58 years $3.50 151,536 $3.49
7.03 - 7.81 621,700 5.04 years 7.04 288,040 7.06
9.75 - 11.25 952,885 7.23 years 10.50 236,031 10.38
11.30 - 13.25 109,100 7.81 years 12.51 25,940 11.34
13.51 - 15.90 837,958 8.48 years 13.94 159,100 14.11
----------------------------------------------------------------------------------------------
$2.50 - $15.90 2,673,979 6.87 years $10.46 860,647 $8.77
==============================================================================================
QUARTERLY RESULTS OF OPERATIONS (unaudited)
(in thousands, except per share amounts)
Fiscal Fourth Third Second First
Year Quarter Quarter Quarter Quarter
Fiscal Year Ended July 31, 2004
Net sales $754,903 $207,975 $183,331 $171,053 $192,544
Gross profit,
less occupancy
and buying costs 277,951 81,260 64,251 63,535 68,905
Income tax expense 14,037 4,539 3,098 2,592 3,808
Net earnings 30,141 13,472 5,389 4,510 6,770
Earnings per share (1)
Basic $1.02 $0.45 $0.18 $0.15 $0.23
Diluted $1.00 $0.44 $0.18 $0.15 $0.23
Fiscal Fourth Third Second First
Year Quarter Quarter Quarter Quarter
Fiscal Year Ended July 26, 2003
Net sales $707,121 $188,131 $165,692 $167,372 $185,926
Gross profit,
less occupancy
and buying costs 253,943 72,278 55,338 60,107 66,220
Income tax expense 4,524 (4,498) 1,468 2,627 4,927
(benefit)
Net earnings (loss) 8,044 (7,992) 2,609 4,668 8,759
Earnings (loss) per share (1)
Basic $0.26 $(0.27) $0.09 $0.16 $0.24
Diluted $0.25 $(0.27) $0.09 $0.15 $0.23
(1) 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.
EXHIBIT 21
THE DRESS BARN, INC.
SUBSIDIARIES OF THE REGISTRANT
(All 100% Owned)
State of
Subsidiary Incorporation
Dress Barn Credit Management, LLC Virginia
Dunnigan Realty, LLC Delaware
D.B.X. Inc. New York
D.B.R., Inc. Delaware
The Dress Barn, Inc. of
New Hampshire, Inc. (**) New Hampshire
Raxton Corp. (**) Massachusetts
(**) Inactive Subsidiary
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos.
33-47415, 33-17488, 33-60196, 333-18135 of The Dress Barn, Inc. on Form S-8 and
in Registration Statement No. 333-25377 on Form S-3 of The Dress Barn, Inc., of
our report dated October 13, 2004 appearing in this Annual Report on Form 10-K
of The Dress Barn, Inc. and Subsidiaries for the year ended July 31, 2004.
/S/ DELOITTE & TOUCHE LLP
New York, New York
October 13, 2004