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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1999 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)
(914) 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. [X].
As of October 25, 1999, 20,058,287 shares of common shares were outstanding. The
aggregate market value of the common shares (based upon the October 25, 1999
closing price of $17.8125 on the NASDAQ Stock Market) of The Dress Barn, Inc.
held by non-affiliates was approximately $74.1 million. For the purposes of such
calculation, all outstanding shares of Common Stock have been considered held by
non-affiliates, other than the 4,157,555 shares beneficially owned by Directors
and Officers of the registrant. In making such calculation, the registrant does
not determine the affiliate or non-affiliate status of any shares for any other
purpose.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on December 21, 1999 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, 1999
TABLE OF CONTENTS
PART I PAGE
Item 1 Business
General 3
Company Strengths and Strategies 3
Merchandising 6
Buying and Distribution 7
Store Locations and Properties 8
Store Development, Operations and Management 10
Management Information Systems 11
Trademarks 11
Employees 12
Seasonality 12
Forward-Looking Statement and Factors 12
Affecting Future Performance
Item 2 Properties 14
Item 3 Legal Proceedings 15
Item 4 Submission of Matters to a Vote 15
of Security Holders
Item 4A Executive Officers of the Registrant 16
PART II
Item 5 Market for Registrant's Common Stock and 17
Related Security Holders Matters
Item 6 Selected Financial Data 18
Item 7 Management's Discussion and Analysis of 19
Financial Condition and Results of Operations
Item 8 Financial Statement and Supplementary Data 22
Item 9 Changes in and Disagreements with Accountants 22
on Accounting and Financial Disclosure
PART III
Item 10 Directors and Executive Officers 23
of the Registrant
Item 11 Executive Compensation 23
Item 12 Security Ownership of Certain Beneficial Owners 23
and Management
Item 13 Certain Relationships and Related Transactions 23
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 24
PART I
ITEM 1. BUSINESS
General
Dress Barn operates a national chain of specialty stores offering
in-season, moderate to better quality career and casual fashion to the working
woman at value prices. Over the past several years, the Company has evolved from
an off-price chain to a value-priced specialty retailer. The Company
distinguishes itself from (i) off-price retailers by its carefully edited
selection of in-season, first-quality merchandise, service-oriented salespeople
and its comfortable shopping environment, (ii) department stores by its value
pricing and convenient locations and (iii) other specialty apparel retailers by
its continuous focus on Dress Barn's target customer. As part of this focus, the
Company has successfully developed its own line of private brands, which
constituted approximately 70% of net sales for the fiscal year ended July 31,
1999 ("fiscal 1999").
The Company's stores operate primarily under the names Dress Barn and
Dress Barn Woman, the latter featuring larger sizes of styles similar to those
found in the Dress Barn stores. The Company also operates combination Dress
Barn/Dress Barn Woman stores ("Combo Stores"), which carry both Dress Barn and
Dress Barn Woman merchandise. As of July 31, 1999, the Company operated 674
stores in 43 states and the District of Columbia, consisting of 319 Combo
Stores, 290 Dress Barn stores and 65 Dress Barn Woman stores. The Dress Barn and
Dress Barn Woman stores average approximately 4,500 and approximately 4,000
square feet, respectively, and the Combo Stores average approximately 9,000
square feet. Based on the success of its Combo Stores, the Company is focusing
its expansion strategy on opening new Combo Stores and converting existing Dress
Barn and Dress Barn Woman stores to the combination format. The Company plans to
open or convert approximately 70 additional Combo Stores by the end of its
fiscal year ending July 30, 2000 ("fiscal 2000").
Company Strengths and Strategies
Dress Barn is one of the largest national specialty store chains
offering women's career and casual fashions at value prices. Dress Barn
attributes its success to its: (i) strong name recognition and loyal customer
base; (ii) long-standing relationships with vendors of quality merchandise;
(iii) experienced management team; (iv) commitment to technology; (v) strong,
consistent customer focus; (vi) low cost operating structure; and (vii) strong
balance sheet.
Since the Company's formation in 1962, Dress Barn has established and
reinforced its image as a source of fashion and value for the working woman. The
Company's 674 store locations in 43 states and the District of Columbia provide
it with a nationally recognized name. In addition, the Company believes it has
developed high awareness among its target customers through on-going advertising
and local marketing activities.
The Company has developed and maintains strong and lasting
relationships with its domestic and offshore vendors, often being one of the
vendors' largest accounts. These relationships, along with the Company's buying
power and strong credit profile, enable the Company to receive favorable
purchase terms, exclusive merchandise and expedited delivery times.
The three senior members of the Company's merchandising team have
worked together at Dress Barn for over 15 years, with each having substantial
previous fashion retailing experience. The Company's executive officers have an
average tenure at Dress Barn of 17 years. The stability of its management has
enabled the Company to develop a shared culture and vision and to maintain its
focus on growing and refining its business.
In fiscal 1999, the Company has taken steps to reposition itself to
appeal to a younger feeling customer while maintaining the Company's focus on
its target customer. This repositioning will include evolving the existing Dress
Barn image, building brand awareness and creating a "personality" for Dress Barn
that is unique and proprietary to the marketplace. An implementation strategy,
including updating the Dress Barn store logo and interior signage, store design
improvements and a national "lifestyle" marketing campaign, is currently in
progress. The Company is expanding the use of the "Dress Barn" label,
emphasizing attributes over price. The merchandise mix is becoming somewhat more
casual, younger in style, including more soft separates that can be coordinated
together. Assortments are being narrowed to provide better edited, but broader,
assortments for added depth in stock and more appealing merchandise
presentation. In addition, store interiors and fixturing are being redesigned
for a more open and easier to shop environment.
Dress Barn has used technology to improve merchandising and customer
service, reduce costs and enhance productivity. The Company continues to enhance
its management information systems. The Company is planning to upgrade all of
its store personal computers and related software during fiscal 2000. The
Company's distribution center systems continue to be refined, further reducing
per-unit distribution costs.
All aspects of Dress Barn's business are designed to be responsive to
the Dress Barn customer. Since 1962, the Company has been consistent in
targeting price-conscious and fashion-minded working women. The convenient
locations of the Company's stores primarily in strip and outlet centers,
carefully edited merchandise arranged for ease of shopping, comfortable store
environment and friendly customer service embody Dress Barn's strong focus on
its customers. Dress Barn's comprehensive training program encourages its sales
associates to assist customers in a low-key and friendly manner. The Company
believes it enhances its customers' shopping experience by avoiding aggressive
sales tactics that would result from a commission-based compensation structure.
The Company continually seeks to reduce costs in all aspects of its
operations and to create cost-consciousness at all levels. The Company believes
that its highly liquid balance sheet and internally generated funds provide a
competitive advantage that enables the Company to pursue its long-term
strategies regarding new stores, capital expenditures and acquisitions. The
Company has an ongoing strategy of supplementing the Company's growth and
enhancing shareholder value through expansion into related businesses.
During fiscal 1999, the Company established its Catalog division to
develop and launch the Dress Barn Catalog, and to cross market the Dress Barn
brand between the retail and catalog customers. The Company recruited a catalog
executive to manage the development of the catalog and its support staff,
including buyers, media and circulation planners and catalog marketing
executives. The first catalog was mailed in September 1999, with plans for seven
additional mailings during fiscal 2000. The Company is outsourcing the call
center and fulfillment operations to speed the implementation process and
minimize the initial capital investment required to establish the Dress Barn
Catalog. The Company intends to utilize the catalog infrastructure to develop
its e-commerce venture, which the company plans to launch in Spring 2000.
The Company's objective is to become the leading national chain of
valued-priced specialty stores offering career and casual fashions to the
moderate-income working woman. Dress Barn seeks to be the destination value
specialty retailer brand in the immediate trading area of its units for
consumers, regardless of their fashion attitude, at moderate and upper moderate
price points. The Company has developed the following strategies to achieve this
goal: (i) develop Dress Barn as a brand, have it recognized as an authority in
its core categories with merchandise that provides shoppers desired and value
added features at better prices than branded large space retailers; (ii)
gradually evolve Dress Barn's merchandise focus to include more fashion with a
"soft separates" focus; (iii) continue to open Combo Stores with added
concentration on downtown and urban locations; (iv) further develop customer
targeted marketing, utilizing cross marketing between its retail and catalog
customers, and (v) further improve customer service. In connection with its
strategy, the Company is seeking a senior marketing executive.
The Company has gradually increased the percentage of sales from goods
manufactured under Dress Barn's private brands, as well as goods produced by
national brand manufacturers exclusively for Dress Barn, to approximately 70%
and 10%, respectively, of the Company's net sales for fiscal 1999. The Company
intends to focus its future private label development primarily on its Dress
Barn (R) label, which the Company intends to market both as a brand and a
"lifestyle" on a national basis and co-brand through its Catalog and its stores.
Consequently, the Company plans to limit the use of its other private brands and
other national brand merchandise.
The Company's stores carry a broad assortment of career wear, including
dresses, sweaters and other knitwear, separates, suits, as well as casual wear
items, that are carefully edited to suit the lifestyle needs of its target
customer. Dress Barn does not seek to dictate fashion trends; rather it offers
current styles but avoids fashion-forward merchandise that is subject to rapidly
changing trends.
Based on the success of its larger size Combo Stores, the Company
expects most fiscal 2000 store openings to be Combo Stores between 9,000 and
10,000 square feet. Future store openings will likely include Combo Stores over
10,000 square feet, with expanded areas for shoes, petites and other new
merchandise categories, as the Company seeks to become a destination specialty
store. The Company plans to open a 15,000 square foot prototype Combo Store in
Spring 2000. 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. Of the approximately 70 additional Combo stores
which the Company plans to open by the end of fiscal 2000, 50 are expected to be
new stores and 20 are expected to be conversions from existing Dress Barn or
Dress Barn Woman stores. The Company expects to continue to open stores
primarily in strip centers, though it is accelerating its focus on seeking
downtown and urban locations.
In conjunction with its strategy of adding Combo Stores, the Company
continues to close or relocate its underperforming locations and expects to
close approximately 40 such locations during fiscal 2000, compared to 56 closed
in fiscal 1999. The Company has the option under a substantial number of its
store leases to terminate the lease at little or no cost if specified sales
volumes are not achieved, affording the Company greater flexibility to close
certain underperforming stores. The Company's continued opening of new Combo
Stores, net of store closings, is expected to result in an approximately 8%
increase in the Company's aggregate store square footage for fiscal 2000.
The Company uses several marketing tools, such as transactional
analyses through point-of-sale systems and customer surveys, in order to
determine the preferences of its target customers, working women ages 25-55. The
Company continues to collect data from its credit card program for use in its
targeted marketing programs. In addition, the Company in fiscal 1999 engaged two
highly regarded retail consultants to assist in the development of the Company
repositioning strategy for the future.
Dress Barn continually seeks to improve the customer's shopping
experience. For example, the Company's enhanced management information systems
enable store managers and sales associates to spend more time servicing
customers. The Company utilizes an ongoing video-training program to improve
customer service and sales associates' product knowledge and selling skills.
To further enhance shareholder value, in December 1998, the Company's
Board of Directors authorized the Company to repurchase up to $75 million of the
Company's common stock. Through July 31, 1999, the Company has repurchased 3.0
million shares for an aggregate $47.3 million pursuant to this authorization.
Merchandising
In addition to the Company's broad assortment of career and casual
wear, the Company offers other wardrobe items including accessories, jewelry,
hosiery and shoes. There are separate merchandising teams for Dress Barn, Dress
Barn Woman and Catalog merchandise. The Company intends for the Catalog to have
some unique merchandise, but primarily to cross-market the Dress Barn
merchandise between the Catalog and retail stores, utilizing a channel-neutral
strategy for merchandising, pricing and returns.
A key component of the Company's merchandising strategy is to increase
the percentage of its sales derived from its private labels, especially the
"Dress Barn" label. The Company strategy is to develop Dress Barn as a national
brand; have it recognized as an authority in its core categories with
merchandise that provides shoppers desired and value added features at better
prices than branded large space retailers. This should allow the Company to
differentiate itself from other retailers by providing an assortment of
merchandise that is not available elsewhere and value to the customer by
providing department store taste and quality but at everyday prices that equal
or are below their sale prices. The use of private labels in general improves
the Company's control over the flow of merchandise into its stores and enables
the Company to better specify quantities, styles, colors, size breaks and
delivery dates. In addition, the Company believes its private brands provide it
with more flexibility in the marketing process by allowing for higher initial
mark-ons. The Company believes it has the expertise to execute its Dress Barn
brand strategy due to its extensive experience sourcing goods, primarily
overseas, its position as a merchandiser of established fashions and its prior
experience with private brands. The percentage of the Company's sales generated
from all private brand labels has increased to approximately 70% in fiscal 1999
from 65% in fiscal 1998, and 55% in fiscal 1997.
The Company continues to expand its successful shoe and petite-size
departments. As of July 31, 1999, 261 stores had shoe departments and 84 stores
featured petites. The Company expects to add approximately 50 shoe departments
and approximately 15 petite departments in fiscal 2000.
Virtually all merchandising decisions affecting the Company's stores
are made centrally. Merchandising policy is under the direction of the Chairman,
the President and six merchandise managers. Prices and markdowns are determined
centrally but may be adjusted locally in response to competitive situations.
Generally, the majority of the merchandise sold by the Company is uniformly
carried by all stores, with a percentage varied by management according to
regional or consumer tastes or the size of particular stores. To keep
merchandise seasonal and in current fashion, inventory is reviewed weekly and
markdowns are taken as appropriate to expedite selling. The Company's stores
offer first-quality current merchandise, with slightly more than half of the
Company's sales volume derived from sportswear, and the remainder consisting of
dresses, suits, blazers and accessories.
Buying and Distribution
Buying is conducted on a departmental basis for Dress Barn, Dress Barn
Woman and Catalog merchandise by the Company's staff of over 45 buyers and
assistant buyers supervised by the President and six merchandise managers and a
vice president of catalog operations. The Company also uses independent buying
representatives in New York and overseas. The Company obtains its nationally
branded merchandise from approximately 350 vendors and its private brand
merchandise from more than 50 vendors. Typical lead times for the Company in
making purchases from its vendors range from approximately one month for items
such as dresses, t-shirts, socks and hosiery to approximately six months for
items such as suits and sweaters. Generally, lead times do not vary
significantly between the Company's private brands and nationally branded
merchandise.
The Company has in the past always been able to purchase sufficient
quantities of first-quality imported and domestic merchandise at attractive
prices from vendors who typically sell to department and specialty stores, and
management believes that there will continue to be an adequate supply of such
merchandise available. The Company has also established strong relationships
with its private label manufacturers, and does not anticipate any difficulties
in obtaining sufficient quantities of its private label merchandise. No vendor
accounted for as much as 5% of the Company's purchases in fiscal 1999.
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 seeks to use its
strong relationships with vendors to lower its operating costs by shifting
freight and insurance costs to the vendors and by requiring them to provide
ancillary services. For example, over 90% of the Company's merchandise is
pre-ticketed by vendors and over 40% is pre-packaged for distribution to stores,
which allows cross-docking in the distribution center to the stores. In
addition, over half of the hanging garments purchased by the Company are
delivered on floor-ready hangers. Merchandise for the Catalog division is
received at its third-party fulfillment center, where the merchandise is stored,
processed and shipped directly to the customer.
The Company generally does not warehouse store merchandise, but
distributes it promptly to stores. Turnaround time between the receipt of
merchandise from the vendor and shipment to the stores is usually three days or
less, and shipments are made daily to most stores, maintaining the freshness of
merchandise. Because of such frequent shipments, the stores do not require
significant storage space. The Company may on occasion buy certain basic
clothing that does not change in style from year to year at attractive prices
and warehouse such items at its distribution center until needed.
Store Locations and Properties
As of July 31, 1999, the Company operated 674 stores in 43 states and
the District of Columbia. 352 of the stores were conveniently located in strip
centers and 253 stores were located in outlet centers. During fiscal 1999, no
store accounted for as much as 1% of the Company's total sales. The following
table indicates the type of shopping facility in which the stores were located:
Dress Barn
Dress Barn Woman Combo
Type of Facility Stores Stores Stores Total
Strip Shopping Centers 169 29 154 352
Outlet Malls and Outlet Strip Centers 82 31 140 253
Free Standing, Downtown and Enclosed Malls 39 5 25 69(*)
Total 290 65 319 674
(*) Includes 18 downtown locations
The table on the following page indicates the states in which the
stores operating on July 31, 1999 were located, and the number of stores in each
state:
Location DB DBW Combos
------- ------- ------
Alabama 1 - 3
Arizona 5 1 5
Arkansas - - 2
California 19 4 18
Colorado 4 1 6
Connecticut 12 3 13
District of Columbia 1 - 1
Delaware 3 - 2
Florida 12 1 8
Georgia 7 2 16
Idaho - - 2
Illinois 6 - 20
Indiana 7 - 3
Iowa - - 2
Kansas 1 1 4
Kentucky 1 - 4
Louisiana - - 2
Maine 2 1 -
Maryland 8 2 10
Massachusetts 17 4 17
Michigan 14 2 16
Minnesota 1 - 2
Mississippi 1 - 4
Missouri 3 2 12
Nebraska - - 2
Nevada 2 - 2
New Hampshire 3 - 4
New Jersey 25 11 12
New York 30 5 25
North Carolina 14 6 13
Ohio 7 1 10
Oklahoma 1 - 1
Oregon 2 2 2
Pennsylvania 27 6 16
Rhode Island 2 - 2
South Carolina 12 1 4
Tennessee 8 3 10
Texas 12 1 18
Utah 2 1 2
Vermont - - 1
Virginia 16 3 13
Washington 2 1 4
West Virginia - - 1
Wisconsin - - 5
--- -- ---
Total 290 65 319
--- -- ---
Store Development, Operations and Management
In considering new store locations, the Company's focus is expanding in
its existing major trading and high-density markets, in many cases seeking a
downtown or urban location and/or adding to a cluster of suburban or other
locations. Downtown and urban locations are considered based on pedestrian and
mass transit traffic patterns, proximity to major corporate centers and office
towers and occupancy costs at the location, which are substantially higher than
in suburban locations. With respect to suburban and other locations the Company
considers the concentration of the Company's target customer base, the average
household income in the surrounding area and the location of the proposed store
relative to competitive retailers. Within the specific strip or outlet center,
the Company evaluates the proposed co-tenants, the traffic count of the existing
center and the location of the store within the center. The Company's real
estate committee, which includes members of senior management, must approve each
new lease. The committee receives input from field management.
The Company's stores are designed to create a comfortable and pleasant
shopping environment for its customers. Merchandise and displays at all of the
stores are set up according to uniform guidelines and plans distributed by the
Company. The Company's merchandise is carefully arranged by lifestyle category
(e.g., career, casual and weekend wear) for ease of shopping. The stores also
have private fitting rooms, drive aisles, appealing lighting, carpeting,
background music and centralized cashier desks. Strategically located throughout
the stores are "lifestyle" posters showing the customer complete outfits
coordinated from among the stores' fashion offerings. The Company is updating
its store interiors, interior signage and fixturing for a more open and easier
to shop environment.
All stores are directly managed and operated by the Company. Each store
is staffed by a supervisor, who may be the store manager, and at least one sales
associate during non-peak hours, with additional sales associates added as
needed at peak hours. The supervisors and sales associates perform all store
operations, from receiving and processing merchandise and arranging it for
display, to assisting customers. Each store manager reports to a District Sales
Manager who, in turn, reports to a Regional Sales Manager. Dress Barn employs 10
Regional Sales Managers and approximately 90 District Sales Managers. District
sales managers typically visit each store at least once a week to review
merchandise levels and presentation, staff training and personnel performance,
expense control, security, cleanliness and adherence to Company operating
procedures.
The Company motivates its sales associates through promotion from
within, creative incentive programs, competitive wages and the opportunity for
bonuses. Sales associates compete in a broad variety of Company-wide contests
involving sales goals and other measures of performance. The contests are
designed to boost store profitability, create a friendly competitive atmosphere
among associates and offer opportunities for additional compensation. Management
believes that Dress Barn's creative incentive programs provide an important tool
for building cohesive and motivated sales teams. The Company utilizes
comprehensive training programs at the store level in order to ensure that the
customer will receive friendly and helpful service, which include (i) on-going
video training, (ii) workbooks and manuals and (iii) one-on-one training of
sales associates by store managers.
In fiscal 1999, approximately 59% of the Company's sales were paid for
by credit card, with the remainder being by cash or check. The Company utilizes
its own Dress Barn credit card. Consistent with the other credit cards it
accepts, the Company assumes no credit risk with respect to its Dress Barn card
but pays a percentage of sales as a service charge. As of July 31, 1999, the
number of cardholders was approximately 1.2 million. The average transaction on
the Dress Barn credit card during fiscal 1999 was approximately 50% more than
the average of all other transactions and represented approximately 12% of the
Company's sales.
The Company mainly uses print advertising. The Company also uses
direct mail programs, with six mailings during fiscal 1999, each to
approximately one million households including its credit card holders. In
addition, there were several smaller, more targeted mailings during fiscal 1999.
In fiscal 2000, the Company has launched a national brand awareness campaign,
using cable, local television and radio to promote Dress Barn as a national
brand and as a "lifestyle" to help drive customer traffic. The Company's
advertising and marketing is evolving to more image and less price-driven ads;
more television, radio, magazine and direct mail. At the store level, the store
supervisors host local marketing programs, including fashion shows and in-store
events designed to create greater awareness of Dress Barn's merchandise. The
Company intends to use its credit card program, its Catalog and its internet
site (www.dressbarn.com) as significant components in the development of its
targeted marketing efforts, enabling it to develop segmented marketing programs.
Virtually all of the Company's stores are open seven days a week.
Stores located in strip and outlet centers conform to the hours of other stores
in the center and are open most evenings, while downtown and freestanding stores
are usually open two nights per week.
Management Information Systems
In the past several years, the Company has made a significant
investment in technology to improve customer service, gain efficiencies and
reduce operating costs. Dress Barn has a management information system which
integrates all major aspects of the Company's business, including sales,
distribution, purchasing, inventory control, merchandise planning and
replenishment, and financial systems. All stores utilize a point-of-sale system
with price look-up capabilities for both inventory and sales transactions. The
Company continues to refine its laptop system that delivers up-to-date
store-related information to its Regional and District Sales Managers and
automates many of their reporting functions.
The Company's merchandising system tracks merchandise from the
inception of the purchase order, through receipt at the distribution center,
through the distribution planning process, and ultimately to the point of sale.
To monitor the performance of various styles, management reviews sales and
inventory levels on-line, organized by department, class, vendor, style, color
and store. The system enables the Company to mark down slow-moving merchandise
or efficiently transfer it to stores selling such items more rapidly. Through
sophisticated yet inexpensive off-the-shelf systems, the Company analyzes
historical hourly and projected sales trends to efficiently schedule sales
personnel, minimizing labor costs while producing a higher level of customer
service. The Company believes that such investments in technology enhance
operating efficiencies and position Dress Barn for future growth. The Catalog
division utilizes their third-party provider's operating system for the call
center and fulfillment operations, which tracks merchandise from the initial
purchase order to the eventual fulfillment of customer orders. The Catalog
division also utilizes a sophisticated marketing and forecasting system, which
is separately leased by the Company.
Trademarks
The Company has previously been issued U.S. Certificates of
Registration of Trademark for the operating names of its stores and its major
private label merchandise. The Company believes its Dress Barn (R) trademark is
materially important to its business. Approximately 4% of the Company's stores
currently in operation, primarily located in outlet centers, operate under the
name Westport Ltd. and Westport Woman. Subject to landlord approval and
underlying lease restrictions, if any, the Company seeks to convert as many of
these stores as possible to the Dress Barn or Dress Barn Woman name.
Employees
As of July 31, 1999, the Company had approximately 7,000 employees of
whom approximately 4,000 worked part time. A number of temporary employees are
usually added during the peak selling periods. None of the Company's employees
are covered by any collective bargaining agreement. The Company considers its
employee relations to be good.
Seasonality
The Company's sales are evenly split between its Fall and Spring
seasons. Though the Company does not consider its business seasonal, it has
historically experienced substantially lower earnings in its second fiscal
quarter ending in January than during its other three fiscal quarters,
reflecting the intense promotional atmosphere that has characterized the
Christmas shopping season in recent years. In addition, the Company's quarterly
results of operations may fluctuate materially depending on, among other things,
increases or decreases in comparable store sales, adverse weather conditions,
shifts in timing of certain holidays, the timing of new store openings, net
sales contributed by new stores, 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 below and elsewhere in this Form 10-K.
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; competitive factors and pricing pressures, including the
promotional activities of major departments stores; consumer apparel buying
patterns, such as the ongoing shift to more casual apparel; import risks,
including potential disruptions and duties, tariffs and quotas on imported
merchandise, including economic and political problems in countries from which
merchandise is imported; 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.
The women's retail apparel industry is subject to rapid change and is
highly competitive. The industry is subject to changes in the retail environment
which may be affected by overall economic conditions, women's apparel fashions,
demographics, macroeconomic factors such as consumer confidence that may affect
the level of spending for the types of merchandise sold by the Company, as well
as other factors. The Company's sales and results of operations may also be
affected by unusual weather patterns in areas where the Company has its greatest
concentration of stores. The level of occupancy costs, merchandise, labor and
other costs will affect future results of operations.
The Company competes primarily with department stores, specialty
stores, discount stores, mass merchandisers and off-price retailers, many of
which have substantially greater financial, marketing and other resources than
the Company. Many department stores offer a broader selection of merchandise
than the Company. In addition, many department stores continue to be promotional
and reduce their selling prices, and certain of the Company's competitors and
vendors have opened outlet stores which offer off-price merchandise. The
Company's sales and results of operations may also be affected by close-outs 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 growth of the Company is dependent, in large part, upon the
Company's ability to successfully execute its strategy of adding new stores and
expanding into related businesses, such as the Dress Barn Catalog and
e-commerce. The success of the Company's growth strategy will depend upon a
number of factors, including the identification of suitable markets and sites
for new Combo Stores, negotiation of leases on acceptable terms, construction or
renovation of sites in a timely manner at acceptable costs, and maintenance of
the productivity of the existing store base. In addition, the Company must be
able to hire, train and retain competent managers and personnel and manage the
systems and operational components of its growth. The failure of the Company to
open new Combo Stores on a timely basis, attract qualified management and
personnel or appropriately adjust operational systems and procedures would
adversely affect the Company's future operating results. In addition, there can
be no assurance that the opening of new Combo Stores in existing markets will
not have an adverse effect on sales at existing stores in these markets. There
can be no assurance that the Company will be able to successfully implement its
growth strategy of continuing to introduce the Combo Stores or to maintain its
current growth levels.
The Company's growth is also dependent on the success of its
repositioning strategy as described earlier in this Form 10-K. As part of this
repositioning, the Company is gradually transitioning itself to appeal to a
younger-feeling customer while still maintaining its focus on its existing
target customer. If the Company fails to maintain its existing customer base
during this transition, sales may be negatively impacted. The reposition may not
generate new customers, or fail to increase per store sales. The expansion of
the "Dress Barn" label to the majority of the Company's merchandise offerings
and the marketing campaign to promote the Company's brand and image may not
generate positive reaction from its customers.
As part of the Company's planned growth, it has invested significant
management resources and created a new division to launch the Dress Barn
Catalog. If the Catalog does not generate its planned sales and profit results,
the Company's operating results may be negatively impacted. The Company intends
to utilize the Catalog infrastructure to develop its e-commerce venture, which
the Company plans to launch in Spring 2000. E-commerce for specialty apparel
retailers is relatively new, with few success stories. The Company's e-commerce
launch will require significant resources, both internal and external, and may
not add any material revenues to the Company's operating results while incurring
additional operating costs.
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. In addition, the Company has increased its use of private brands.
The nature of the Company's obligations with respect to private brand purchases
may make it more difficult to respond to changing trends by reducing order
quantities. These factors could result in higher markdowns and lower gross
profits to the extent that sales of private brand merchandise are lower than
expected.
The Company's success is largely dependent on the efforts and abilities
of its executive officers. The loss of the services of any of its executive
officers could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company relies upon its existing management information systems in
operating and monitoring all major aspects of the Company's business, including
sales, warehousing, distribution, purchasing, inventory control, merchandising
planning and replenishment, as well as various financial systems. Any disruption
in the operation of the Company's management information systems, or the
Company's failure to continue to upgrade, integrate or expend capital on such
systems as its business expands, would have a material adverse effect on the
Company. In addition, any disruption in the operations of the Company's
distribution center would have a material adverse effect on the Company's
business.
The Company is committed to being leaner and more productive. The
Company is planning to continue to close or relocate underperforming stores and
maintain tight cost controls in all areas with a view to increasing shareholder
value. There can be no assurance that the Company's strategy will result in a
continuation of revenue and profit growth. Future economic and industry trends
that could impact revenue and profitability remain difficult to predict.
ITEM 2. PROPERTIES
The Company leases all its stores. Store leases generally have an
initial term ranging from 5 to 15 years with one or more 5-year options to
extend the lease. The table below, covering all stores operated by the Company
on July 31, 1999, 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
2000 147 101 46
2001 101 93 8
2002 131 116 15
2003-2005 229 193 36
2006 and thereafter 66 60 6
Total 674 563 111
--- --- ---
New store leases generally provide for a base rent of between $10 and
$20 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, 1999, and excluding locations acquired after July 31,
1999, for fiscal 2000 are approximately $60.9 million. In addition, the Company
is also responsible under its store leases for its pro rata share of maintenance
expenses and common charges in strip and outlet centers.
Most of the store leases give the Company the option to terminate the
lease at little or no cost if certain specified sales volumes are not achieved.
This affords the Company greater flexibility to close underperforming stores.
Usually these provisions are operative only during the first few years of the
lease.
The Company's investment in new stores consists primarily of inventory,
leasehold improvements, fixtures and equipment. Dress Barn often receives tenant
improvement allowances from the landlords to offset these initial investments.
The Company's stores are typically profitable within the first 12 months of
operation.
The Company leases its executive offices and distribution facilities in
Suffern, New York. The Suffern facility has a total of 510,000 square feet, with
100,000 square feet of office space and the remainder for merchandise
distribution. This lease expires on April 30, 2007, with three five-year options
to extend the lease. Management believes the Suffern facility is sufficient to
meet its current needs and any foreseeable increase in the Company's store base
resulting from expansion or acquisition. The Catalog division's call center and
fulfillment operations are conducted in facilities contracted from a third-party
provider. The contract expires in June 2001, with two options to extend the
contract for additional two-year periods. The contract provides termination
provisions for both parties under certain conditions. Management believes the
third-party provider has sufficient capacity to service the Company's current
needs and the planned increase in sales during the lease term.
ITEM 3. LEGAL PROCEEDINGS
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 for the name, age and position with the
Company of the Executive Officers of the Registrant:
Name Age Positions
Elliot S. Jaffe 73 Chairman of the Board,
Chief Executive Officer and Director
Burt Steinberg 54 President, Chief Operating Officer and
Director
David R. Jaffe 40 Executive Vice President
Armand Correia 53 Senior Vice President and Chief
Financial Officer
Eric Hawn 49 Senior Vice President
Store Operations
Elise Jaffe 44 Senior Vice President
Real Estate
Mr. Elliot S. Jaffe has been Chief Executive Officer of the Company since
1966.
Mr. Steinberg has been President and Chief Operating Officer of the Company
since 1989.
Mr. David R. Jaffe has been Executive Vice President of the Company since
1996. He joined the Company in 1992 as Vice President Business Development and
became Senior Vice President in 1995. Mr. Jaffe is the son of Elliot S. and
Roslyn S. Jaffe, Secretary, Treasurer and Director of the Company.
Mr. Correia has been Senior Vice President and Chief Financial Officer of
the Company since 1991.
Mr. Hawn has been Senior Vice President of the Company since 1989.
Ms. Elise Jaffe has been Senior Vice President of the Company since January
1, 1995. She previously was Vice President. Ms. Jaffe is the daughter of Elliot
S. and Roslyn S. Jaffe, Secretary, Treasurer and Director of the Company.
The Company's officers are elected by the Board of Directors for
one-year terms and serve at the discretion of the Board of Directors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Market Prices of Common Stock
The Common Stock of The Dress Barn, Inc. is traded over-the-counter
on the NASDAQ National Market System under the symbol DBRN.
The table below sets forth the high and low bid prices as reported by
NASDAQ for the last eight fiscal quarters. These quotations represent prices
between dealers and do not include retail mark-ups, mark-downs or other fees or
commissions and may not represent actual transactions.
Fiscal 1999 Fiscal 1998
Bid Prices Bid Prices
High Low High Low
Fiscal Period
First Quarter $24.50 $11.25 $26.38 $19.00
Second Quarter $16.38 $13.00 $28.38 $21.75
Third Quarter $16.31 $12.38 $32.38 $25.75
Fourth Quarter $16.69 $13.13 $31.00 $22.50
Number of Record Holders
The number of record holders of the Company's common stock as of
October 15, 1999 was approximately 2,000.
Dividend Policy
The Company has never paid cash dividends on its common stock. Payment
of dividends is within the discretion of the Company's Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
Dollars in thousands except per share
information
Fiscal Year Ended
------------------------------------------------------------------------------------
July 31, July 25, July 26, July 27, July 29,
1999 1998 1997 1996 1995
------------------------------------------------------------------------------------
Net sales $615,975 $598,175 $554,843 $515,522 $500,836
Cost of sales, including
occupancy and buying costs 398,282 381,354 358,093 337,998 327,166
------------------------------------------------------------------------------------
Gross profit 217,693 216,821 196,750 177,524 173,670
Selling, general and
administrative expenses 150,897 142,098 135,384 132,176 133,253
Depreciation & amortization 23,104 17,758 16,139 15,828 14,063
Write-down of underperforming
and closed store assets ---- ---- ---- 2,848 ----
------------------------------------------------------------------------------------
Operating income 43,692 56,965 45,227 26,672 26,354
Interest income- net 6,385 4,800 3,343 2,670
8,787
------------------------------------------------------------------------------------
Earnings before
income taxes 52,479 63,350 50,027 30,015 29,024
Income taxes 19,155 23,123 18,260 11,106 10,739
------------------------------------------------------------------------------------
Net earnings $33,324 $40,227 $31,767 $18,909 $18,285
====================================================================================
Earnings per share - basic $1.56 $1.75 $1.40 $0.84 $0.82
====================================================================================
====================================================================================
Earnings per share - diluted $1.53 $1.70 $1.33 $0.84 $0.82
====================================================================================
Balance sheet data:
Working capital $159,089 $170,412 $153,579 $122,730 $103,310
Total assets $363,579 $341,154 $309,502 $265,723 $243,521
Long-term debt -- -- $3,500 $3,500 $3,500
Shareholders' equity $253,600 $265,608 $232,822 $199,096 $178,938
Percent of net sales:
Cost of sales, including
occupancy and buying costs 64.7% 63.8% 64.5% 65.6% 65.3%
Gross profit 35.3% 36.2% 35.6% 34.4% 34.7%
Selling, general and
administrative expenses 24.5% 23.8% 24.4% 25.6% 26.6%
Operating income 7.1% 9.5% 8.2% 5.2% 5.3%
Net earnings 5.4% 6.7% 5.7% 3.7% 3.7%
Certain reclassifications have been made to prior years' data to conform with
the current year's presentation
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements contained in this Annual Report are
forward-looking and involve a number of risks and uncertainties. Among the
factors that could cause actual results to differ materially are, but are not
limited to, the following: general economic conditions and consumer confidence;
competitive factors and pricing pressures, including the promotional activities
of major departments stores; consumer apparel buying patterns, such as the
ongoing shift to more casual apparel; import risks, including potential
disruptions and duties, tariffs and quotas on imported merchandise, including
economic and political problems in countries from which merchandise is imported;
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.
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 25, July 26,
1999 1998 1997
Net sales 100.0% 100.0% 100.0%
Cost of sales, including
occupancy and buying costs 64.7% 63.8% 64.5%
Selling, general and
administrative expenses 24.5% 23.8% 24.4%
Depreciation and amortization 3.8% 3.0% 2.9%
Interest income - net 1.4% 1.1% 0.9%
Earnings before income taxes 8.5% 10.6% 9.0%
Net earnings 5.4% 6.7% 5.7%
Fiscal 1999 Compared to Fiscal 1998
Net sales increased by 3.0% to $616.0 million for the 53 weeks ended
July 31, 1999 ("fiscal 1999"), from $598.2 million for the 52 weeks ended July
25, 1998 ("fiscal 1998"). The sales increase was due to the extra week in fiscal
1999, which added $9.4 million to fiscal 1999 revenues, and an approximately 8%
increase in total selling square footage. These were offset by a 3.7% decrease
in comparable store sales. The Company believes the decrease in comparable store
sales resulted primarily from the continued and growing customer preference for
casual career wear, rather than the tailored career clothing the Company is
generally known for. The increase in square footage was due to the opening of
new combination Dress Barn/Dress Barn Woman stores ("combo stores"), which carry
both Dress Barn and Dress Barn Woman merchandise, and the conversion of
single-format stores into combo stores. This offset the square foot reduction
from the closing of underperforming stores. The number of stores in operation
increased to 674 stores as of July 31, 1999, from 669 stores in operation as of
July 25, 1998. The Company's strategy for fiscal 2000 is to continue opening
primarily combo stores and converting its existing single-format stores into
combo stores, while closing its underperforming locations. Store expansion will
focus primarily on expanding in the Company's existing major trading markets, in
many cases seeking a downtown location and/or adding to a cluster of suburban or
other locations.
Gross profit (net sales less cost of goods sold, including occupancy
and buying costs) increased by 0.4% to $217.7 million, or 35.3% of net sales, in
fiscal 1999 from $216.8 million, or 36.2% of net sales, in fiscal 1998. The
decline in gross profit as a percentage of sales was primarily due to increased
store occupancy costs as a percentage of sales and slightly lower margins
resulting from increased markdowns. Store occupancy costs increased due to the
increase in square footage and higher rents for new stores, store expansions and
lease renewals that were not accompanied by a similar increase in store sales.
Selling, general and administrative ("SG&A") expenses increased by 6.2%
to $150.9 million, or 24.5% of net sales, in fiscal 1999 from $142.1 million, or
23.8% of net sales, in fiscal 1998. Cost controls and productivity improvements
were not sufficient to offset the negative leverage from the decline in
comparable store sales on relatively fixed costs.
Depreciation expense increased by 30.1% to $23.1 million for fiscal
1999 from $17.8 million for fiscal 1998. This was primarily due to $22.7 million
of fixed asset additions in fiscal 1999 and an increase in the provision for
future store closings from $3.3 million in fiscal 1998 to $6.8 million in fiscal
1999. The Company's fiscal 1999 provision for future store closings includes an
additional charge for the planned replacement of its store personal computers
during fiscal 2000. Depreciation expense for both periods also includes certain
write-offs related to the closure of 56 stores and 60 stores during fiscal 1999
and fiscal 1998, respectively.
Interest income - net increased by 37.6% to $8.8 million for fiscal
1999 from $6.4 million for fiscal 1998, due to $1.2 million of net capital gains
from the redemption of equity funds made during the fiscal year, as well as
higher rates and higher available funds for investment.
Fiscal 1998 Compared to Fiscal 1997
Net sales increased by 7.8% to $598.2 million for the 52 weeks ended
July 25, 1998 ("fiscal 1998"), from $554.8 million for the 52 weeks ended July
26, 1997 ("fiscal 1997"), due primarily to a 3.6% increase in comparable store
sales. The increase in comparable store sales resulted primarily from the
positive reaction by customers to the Company's merchandise offerings and the
generally improved retail climate for apparel during fiscal 1998. The
improvement in net sales was also attributable to an approximately 6% increase
in total selling square footage. This increase in square footage was due to the
opening of new combination Dress Barn/Dress Barn Woman stores ("combo stores"),
which carry both Dress Barn and Dress Barn Woman merchandise, and the conversion
of single-format stores into combo stores. This offset the square foot reduction
from the closing of underperforming stores. The number of stores in operation
declined to 669 stores as of July 25, 1998, from 690 stores in operation as of
July 26, 1997.
Gross profit (net sales less cost of goods sold, including occupancy
and buying costs) increased by 10.2% to $216.8 million, or 36.2% of net sales,
in fiscal 1998 from $196.7 million, or 35.5% of net sales, in fiscal 1997. The
increase in gross profit as a percentage of net sales was primarily due to
decreased markdowns, higher initial margins resulting from the increased
percentage of private brand merchandise and lower shrinkage.
Selling, general and administrative ("SG&A") expenses increased by 5.0%
to $142.1 million, or 23.8% of net sales, in fiscal 1998 from $135.4 million, or
24.4% of net sales, in fiscal 1997. The Company's continued productivity
improvements from the larger-size combo stores, focus on controlling costs and
the comparable store sales increase all contributed to the decline in SG&A as a
percentage of sales.
Depreciation expense increased by 10.0% to $17.8 million for fiscal
1998 from $16.1 million for fiscal 1997. This was primarily due to the increase
in fixed asset additions in fiscal 1998 to $21.7 million from $16.5 million in
fiscal 1997. Depreciation expense for both periods also includes certain
write-offs related to the closure of 60 stores and 61 stores during fiscal 1998
and fiscal 1997, respectively.
Interest income - net increased by 33.0% to $6.4 million for fiscal
1998 from $4.8 million for fiscal 1997. The increase resulted primarily from an
increase in the Company's investment portfolio.
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 successful combination store format. Total capital expenditures
were $22.7 million, $21.7 million, $16.5 million in fiscal 1999, 1998 and 1997,
respectively. The Company also repurchased 3,042,300 outstanding shares of its
stock for a total cost of $47.3 million during fiscal 1999.
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 1999 increased
to $84.5 million as compared to $62.1 million in fiscal 1998 and $48.4 million
in fiscal 1997. The increase in fiscal 1999 was due primarily to the $21.0
million increase in accounts payable (while inventory increased $7.4 million)
and to a decrease in taxes paid. As a result of the accounts payable increase,
the Company's quick ratio (i.e., the ratio of current assets less inventory to
current liabilities) declined to 1.45 in fiscal 1999 from 1.95 in fiscal 1998
and 1.75 in fiscal 1997.
At July 31, 1999, the Company had $139.4 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 $159.1 million at July 31,
1999. In addition, the Company had available $100 million in unsecured lines of
credit bearing interest at below the prime rate. The Company had no debt
outstanding under any of the lines at July 31, 1999. However, potential
borrowings were limited by approximately $30 million of outstanding letters of
credit primarily to vendors for import merchandise purchases.
In fiscal 2000, the Company plans to open approximately 50 additional
stores, convert approximately 20 single-format stores to its larger combination
store format and continue its store remodeling program. The Company intends to
focus on its current markets, and enter into new markets where economically
justified. The Company intends to pursue downtown locations, where possible, as
these stores are performing better than the Company's average store locations.
The Company mailed its first Dress Barn catalog in September 1999, and plans to
enter the e-commerce arena by selling over the Internet by Spring, 2000. In
addition, the Company continues to pursue acquisition opportunities. The Company
believes that its cash, cash equivalents, marketable securities and investments,
together with cash flow from operations, will be adequate to fund the Company's
proposed capital expenditures and any other operating requirements.
Seasonality
The Company has historically experienced substantially lower earnings
in its second fiscal quarter ending in January than during its other three
fiscal quarters, reflecting the intense promotional atmosphere that has
characterized the Christmas shopping season in recent years. The Company expects
this trend to continue for fiscal 2000. 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.
Information Systems and "Year 2000" Compliance
The Company completed during fiscal 1999 a comprehensive review of its
information systems and an enterprise-wide program to update computer systems
and applications in preparation for the year 2000. We have successfully tested
our systems and believe we are year 2000 compliant. The Company incurred
internal staff costs as well as outside consulting and other expenditures
related to this process. Total costs related to remediation to bring current
systems into compliance, testing, conversion, the purchase of new package
systems and upgrading system applications was not material. The Company has not
developed any contingency plans in the event that the Company itself should fail
to become year 2000 compliant, as it believes it to be in compliance now.
The Company has contacted its key suppliers and other key third party
service providers to determine their year 2000 readiness. Although the Company
is not currently aware of material year 2000 compliance issues relating to
systems of other companies with which the Company does business, there is no
assurance that the Company will not be adversely affected by such issues
affecting the systems of such other companies. If any of the Company's
merchandise vendors fail to be in compliance, a vendor that is in compliance
will be substituted. The Company's most reasonably likely worst case year 2000
scenario relates to the inability of the banking system to insure the Company's
access to its funds. The Company has received assurances from its primary
financial service providers that they are or will be year 2000 compliant. The
Company does not anticipate that any of its other key third party service
providers will not be year 2000 compliant. If any such provider is not year 2000
compliant, the Company would seek a substitute provider. The Company does not
believe that the year 2000 compliance issue will have a material effect on its
financial condition or results of operations. However, no assurance can be given
that any failure to achieve year 2000 compliance will not have a material
adverse impact on the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of The Dress Barn, Inc. and
subsidiaries are filed together with this report: See Index to Financial
Statements, Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information called for by Items 10, 11, 12 and 13 is incorporated
herein by reference from the definitive proxy statement to be filed by the
Company in connection with its 1999 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ITEM 14. (a) (1) FINANCIAL STATEMENTS PAGE NUMBER
- --------------------------------------- -----------
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Earnings F-3
Consolidated Statements of Shareholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 to F-11
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
ITEM 14. (a) (3) LIST OF EXHIBITS
The following exhibits are filed as part of this Report and except
Exhibits 22 and 24 are all incorporated by reference (utilizing the same exhibit
numbers) from the sources shown.
Incorporated By
Reference From
3(c) Amended and Restated Certificate of Incorporation (1)
3(e) Amended and Restated By-Laws (1)
3(f) Amendments to Amended and Restated Certificate of Incorporation (5)
3(g) Amendments to Amended and Restated By-Laws (5)
3(h) Amendments to Amended and Restated By-Laws (6)
4. Specimen Common Stock Certificate (1)
10(a) 1993 Incentive Stock Option Plan (10)
10(b) Employment Agreement With Burt Steinberg (1)
10(e) Agreement for Issuance of Stock to Arthur Ziluck (1)
10(f) Agreement terminating Agreement for Purchase of Certain Stock
from Elliot S. Jaffe upon death (6)
Incorporated By
Reference From
10(g) Agreement terminating Agreement for Purchase of Certain Stock
from Roslyn S. Jaffe upon death (6)
Leases of Company premises of which the lessor is Elliot S. Jaffe or members of
his family or related trusts:
10(k) Wilton, CT store (1)
10(l) Danbury, CT store (1)
10(m) Branford, CT store (1)
10(o) Mt. Kisco, NY store (1)
10(hh) Norwalk, CT Dress Barn Woman store (8)
10(ii) Branford, CT Dress Barn Woman store (8)
10(r) Amendments to Employment Agreement with Burt Steinberg (2)
10(v) Employment Agreement with Eric Hawn (4)
10(w) Agreement for Advances with Eric Hawn (4)
10(z) Extension of Employment Agreement with Burt Steinberg (5)
10(aa) The Dress Barn, Inc. 1987 Non-Qualified Stock Option Plan (5)
10(cc) Employment Agreement with Armand Correia (7)
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(kk) Employment Agreement with David Jaffe (8)
10(mm) Lease between Dress Barn and AT&T for (9)
Office and Distribution Space in Suffern, New York
10(nn) The Dress Barn, Inc. 1995 Stock Option Plan (11)
10(oo) Split Dollar Agreement between Dress Barn and (12)
Steinberg Family Trust f/b/o Michael Steinberg
Incorporated By
Reference From
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
22. Subsidiaries of the Registrant
24. Independent Auditors' Consent
(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.
ITEM 14. (b) REPORT ON FORM 8-K
The Company has not filed any reports on Form 8-K during the last
quarter of the fiscal year ended July 31, 1999.
ITEM 14. (c) EXHIBITS
All exhibits are incorporated by reference as shown in Item 14(a)3,
except Exhibits 22 and 24 which are filed as part of this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
The Dress Barn, Inc.
by /s/ ELLIOT S. JAFFE
Elliot S. Jaffe
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ ELLIOT S. JAFFE 10/26/99
Elliot S. Jaffe Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ ROSLYN S. JAFFE 10/26/99
Roslyn S. Jaffe Director and Secretary and Treasurer
/s/ BURT STEINBERG 10/26/99
Burt Steinberg Director and President
and Chief Operating Officer
/s/ KLAUS EPPLER 10/26/99
Klaus Eppler Director
/s/ DONALD JONAS 10/26/99
Donald Jonas Director
Mark S. Handler Director
/s/ EDWARD D. SOLOMON 10/26/99
Edward D. Solomon Director
/s/ ARMAND CORREIA 10/26/99
Armand Correia Chief Financial Officer (Principal
Financial and Accounting Officer)
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The Dress Barn, Inc.
Suffern, New York
We have audited the accompanying consolidated balance sheets of The Dress Barn,
Inc. and Subsidiaries as of July 31, 1999 and July 25, 1998, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended July 31, 1999. 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 generally accepted auditing
standards. 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Dress Barn, Inc.
and Subsidiaries as of July 31, 1999 and July 25, 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
July 31, 1999, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
September 14, 1999
The Dress Barn, Inc. and Subsidiaries
Consolidated Balance Sheets
Dollars in thousands, except share data
July 31, July 25,
ASSETS 1999 1998
----------------- -----------------
Current Assets:
Cash and cash equivalents $17,492 $3,032
Marketable securities and investments (Note 2) 139,400 139,994
Merchandise inventories 110,138 102,706
Prepaid expenses and other 4,201 2,038
----------------- -----------------
Total Current Assets 269,068 249,933
----------------- -----------------
Property and Equipment:
Leasehold improvements 54,201 55,542
Fixtures and equipment 119,723 104,500
Computer software 9,018 7,007
Automotive equipment 415 499
----------------- -----------------
182,771 168,134
Less accumulated depreciation
and amortization 101,416 86,399
----------------- -----------------
81,735 81,355
----------------- -----------------
Deferred Income Taxes (Note 4) 9,866 3,076
----------------- -----------------
Other Assets 6,410 3,290
----------------- -----------------
$363,579 $341,154
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable- trade $62,215 $41,211
Accrued expenses 31,508 38,504
Customer credits 2,827 3,364
Income taxes payable -- 5,896
----------------- -----------------
Total Current Liabilities 109,979 75,546
----------------- -----------------
Commitments (Note 5)
Shareholders' Equity:
Preferred stock, par value $.05 per share:
Authorized- 100,000 shares
Issued and outstanding- none -- --
Common stock, par value $.05 per share:
Authorized- 30,000,000 shares
Issued- 24,646,278 and 24,506,559
shares, and outstanding- 19,936,478 and
22,839,059 shares, respectively 1,232 1,225
Additional paid-in capital 25,175 28,797
Retained earnings 292,428 259,104
Treasury stock, at cost (68,274) (21,005)
Accumulated other comprehensive (loss) income (583) 1,109
----------------- -----------------
253,600 265,608
================= =================
$363,579 $341,154
================= =================
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 25, July 26,
1999 1998 1997
------------------------------------------------------------
Net sales $615,975 $598,175 $554,843
Cost of sales, including
occupancy and buying costs 398,282 381,354 358,093
------------------------------------------------------------
Gross profit 217,693 216,821 196,750
Selling, general and
administrative expenses 150,897 142,098 135,384
Depreciation and amortization 23,104 17,758 16,139
------------------------------------------------------------
Operating income 43,692 56,965 45,227
Interest income- net 6,385 4,800
8,787
------------------------------------------------------------
Earnings before
income taxes 52,479 63,350 50,027
Income taxes 19,155 23,123 18,260
------------------------------------------------------------
Net earnings $33,324 $40,227 $31,767
============================================================
Earnings per share:
Basic $1.56 $1.75 $1.40
============================================================
Diluted $1.53 $1.70 $1.33
============================================================
Weighted average shares outstanding:
Basic 21,336 23,032 22,738
------------------------------------------------------------
------------------------------------------------------------
Diluted 21,758 23,654 23,941
------------------------------------------------------------
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Dollars and shares in thousands.
Accumulated
Additional Other Total
Common Stock Paid-In Retained Treasury Comprehensive Shareholders'
Shares Amount Capital Earnings Stock Income (Loss) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 27, 1996 22,568 $1,179 $16,530 $187,110 $(5,706) $(17) $199,096
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 31,767
Unrealized holding gain on marketable securities 1,126
--------------------
Total comprehensive income 32,893
--------------------
Deferred compensation 1,160 1,160
Employee Stock Purchase Plan activity 13 1 149 150
Shares issued pursuant to exercise
of stock options 302 14 2,017 2,031
Purchase of treasury stock (140) (2,508) (2,508)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 26, 1997 22,743 1,194 19,856 218,877 (8,214) 1,109 232,822
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 40,227
--------------------
Total comprehensive income 40,227
--------------------
Deferred compensation 18 18
Tax benefit from exercise of stock options 404 404
Employee Stock Purchase Plan activity 5 -- 131 131
Shares issued pursuant to exercise
of stock options 613 31 4,766 4,797
Purchase of treasury stock (522) (12,791) (12,791)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 25, 1998 22,839 1,225 25,175 259,104 (21,005) 1,109 265,608
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 33,324
Unrealized holding loss on marketable securities (1,692)
--------------------
Total comprehensive income 31,632
--------------------
Deferred compensation 10 -- 164 164
Tax benefit from exercise
of stock options 2,431 2,431
Employee Stock Purchase Plan activity 10 -- 133 133
Shares issued pursuant to exercise
of stock options 119 7 894 901
Purchase of treasury stock (3,042) (47,269) (47,269)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1999 19,936 $1,232 $28,797 $292,428 ($68,274) $(583) $253,600
====================================================================================================================================
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Dollars in thousands
Fiscal Year Ended
--------------------------------------------------
July 31, July 25, July 26,
1999 1998 1997
--------------------------------------------------
Operating Activities:
Net earnings $33,324 $40,227 $31,767
--------------------------------------------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization of property and
equipment (net) 16,296 14,489 13,351
Write-down of non-trading equity investment 3,000 7,000 ---
Loss on disposal of closed store assets 6,808 3,269 2,788
Increase in deferred income tax assets (6,790) (3,519) (1,548)
Deferred compensation 164 18 1,159
Changes in assets and liabilities:
Increase in merchandise inventories (7,432) (2,871) (10,044)
Decrease (increase) decrease in prepaid expenses 2,163 (1,732) 301
Decrease (increase) in other assets 120 (1,977) (480)
Increase in accounts payable- trade 21,004 1,043 2,969
Increase in accrued expenses 6,996 7,669 6,410
Increase in customer credits 537 338 427
Increase (decrease) in income taxes payable 8,327 (1,862) 1,294
--------------------------------------------------
Total adjustments 51,193 21,865 16,627
--------------------------------------------------
Net cash provided by operating activities 84,517 62,092 48,394
--------------------------------------------------
Investing Activities:
Purchases of property and equipment - net (22,724) (21,715) (16,487)
Sales and maturities of marketable securities and investments 84,078 118,686 38,911
Purchases of marketable securities and investments (85,176) (135,792) (78,885)
Purchase of non-trading equity investment --- (10,000) ---
--------------------------------------------------
Net cash used in investing activities (23,822) (48,821) (56,461)
--------------------------------------------------
Financing Activities:
Repayment of long term debt --- (3,500) ---
Purchase of treasury stock (47,269) (12,791) (2,508)
Proceeds from Employee Stock Purchase Plan 133 131 150
Proceeds from stock options exercised 901 4,797 2,032
--------------------------------------------------
Net cash used in financing activities (46,235) (11,363) (326)
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents 14,460 1,908 (8,393)
Cash and cash equivalents- beginning of period 3,032 1,124 9,517
--------------------------------------------------
Cash and cash equivalents- end of period $17,492 $3,032 $1,124
==================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $16,730 $28,190 $16,966
==================================================
See notes to consolidated financial statements
The Dress Barn, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Years Ended July 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Dress Barn, Inc. (including The Dress Barn, Inc. and it's
wholly-owned subsidiaries (the "Company")) operates a chain of women's apparel
specialty stores. The stores, operating principally under the names "Dress Barn"
and "Dress Barn Woman", offer in-season, moderate to better quality fashion
apparel.
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany balances and
transactions are eliminated. The Company reports on a 52-53 week fiscal year
ending on the last Saturday in July. The fiscal year ended July 31, 1999
consisted of 53 weeks; all other years presented consisted of 52 weeks.
Merchandise inventories
Merchandise inventories are valued at the lower of cost or market as
determined by the retail method (average cost basis).
Property and equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets which range from 3 to 10 years. For income
tax purposes, accelerated methods are generally used.
Income taxes
Deferred income taxes are provided using the asset and liability
method, whereby deferred income taxes result from temporary differences between
the tax basis of assets and liabilities and their reported amounts in the
financial statements.
Store preopening costs
Expenses associated with the opening of new stores are charged to
expense as incurred.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers its
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents. These amounts are stated at cost, which approximates
market value. The majority of the Company's money market funds are maintained
with one financial institution.
Marketable securities and investments
The Company has categorized its marketable securities as available for
sale, stated at market value. The unrealized holding gains and losses are
included in 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.
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.
Recent Accounting Pronouncements
In Fiscal 1999, the Company adopted SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information", which establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, major customers and the material
countries in which the entity holds assets and reports revenues. The Company is
a specialty retailer of women's apparel (in both regular and large sizes),
including shoes and accessories. Given the similar economic characteristics of
the Company's different store formats, the similar nature of the products sold,
gross margins, type of customer and method of distribution, the operations of
the Company are aggregated into one reportable segment.
In Fiscal 1999, the Company also adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement requires companies to classify items of
other comprehensive income by their nature in the financial statements and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the equity section of a
statement of financial position. The adoption of SFAS No. 130 had no material
impact on total shareholders' equity. Disclosure in prior year financial
statements have been modified to conform to the SFAS No. 130 requirements. At
present, the only two components of the Company's comprehensive income are net
earnings and unrealized holding gains (losses) on marketable securities.
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.
Valuation of long-lived assets
The Company periodically reviews its long-lived assets for potential
impairment, where events or changes in circumstances indicate that their
carrying amount may not be recoverable. In that event, a loss is recognized
based on the amount the carrying amount exceeds the fair market value of the
long-lived asset.
Stock based compensation
In October 1995, SFAS No. 123, "Accounting for Stock Based
Compensation" was issued. SFAS No. 123 required the Company elect to either
adopt a fair value based expense recognition method of accounting for
stock-based compensation plans or continue to use the intrinsic value method in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees",
with pro forma disclosure of net income and earnings per share as if the fair
value based method of accounting defined in SFAS 123 had been applied. The
Company accounts for stock-based awards to employees using the intrinsic value
method. Compensation expense, if any, is measured as the excess of the market
price of the stock over the exercise price on the measurement date.
Disclosure about fair value of financial instruments
The fair value of financial instruments classified as current assets or
liabilities approximate carrying amount due to the short-term maturity of the
instruments.
Other assets, as of July 25, 1998, included a $3 million non-trading,
equity investment, which was net of a $7 million write-off in fiscal 1998 to
reflect its estimated net realizable value at that time. During fiscal 1999, the
investment was deemed worthless and the remaining value written off.
2. MARKETABLE SECURITIES AND INVESTMENTS
The amortized cost and estimated fair value of marketable securities
and investments consisted of the following:
July 31, 1999 July 25, 1998
------------- -------------
(In 000's) Estimated Estimated
Fair Value Cost Fair Value Cost
Money Market Funds $6,869 $6,869 $732 $732
Short Term Investments 35,384 35,384 22,313 22,313
Other Investments 2,148 2,148 9,298 8,987
Tax Free Municipal Bonds 93,346 93,689 105,921 104,966
US Govt. Securities Fund 1,653 1,893 1,730 1,887
--------- --------- --------- --------
$139,400 $139,983 $139,994 $138,885
========= ========= ========= ========
The scheduled maturities of marketable securities and investments at
July 31, 1999 are:
Estimated
Due In Fair Value Cost
- ------------------- ----------- --------
(in 000's)
One year or less $60,548 $60,803
One year through five years 73,171 73,410
Six years through ten years 3,333 3,404
Over ten years 2,348 2,366
--------- --------
$139,400 $139,983
========= ========
Unrealized holding gains and losses at July 31, 1999 netted to an
unrealized loss of approximately $0.6 million. Proceeds and gross realized
gains/(losses) from the sale of securities in fiscal 1999, 1998 and 1997 were
$84.1 million and $1.2 million, $118.7 million and ($0.1) million and $38.9
million and ($0.3) million, respectively. For the purposes of determining gross
realized gains and losses, the cost of securities is based upon specific
identification.
3. EMPLOYEE BENEFIT PLANS
In August 1995, the Company established a defined contribution
retirement savings plan (401(k)) covering all eligible employees. This plan
succeeded the previous discretionary profit-sharing plan, with all prior
individual account balances and vesting terms transferred to the new plan. The
Company has also established an Executive Retirement Plan for certain officers
and key executives not participating in the 401(k) plan. Both plans allow
participants to defer a portion of their annual compensation and receive a
matching employer contribution on a portion of that deferral. During fiscal
1999, 1998 and 1997, the Company incurred expenses of $1,493,000, $982,000 and
$738,000, respectively, relating to the contributions to and administration of
the above plans. The Company also has an Employee Stock Purchase Plan, which
allows employees to purchase shares of Company stock during each quarterly
offering period at a 10% discount through weekly payroll deductions. The Company
does not provide any additional postretirement benefits.
4. INCOME TAXES
The components of the provision for income taxes were as follows:
Fiscal Year Ended
(In 000's) July 31, July 25, July 26,
1999 1998 1997
----------- --------- ---------
Federal:
Current $21,800 $20,349 $15,986
Deferred (6,652) (2,477) (1,240)
----------- --------- ---------
15,148 17,872 14,746
----------- --------- ---------
State:
Current 5,502 5,872 3,822
Deferred (1,495) (621) (308)
----------- --------- ---------
4,007 5,251 3,514
----------- --------- ---------
Provision for income taxes $19,155 $23,123 $18,260
========= ========= =======
Significant components of the Company's deferred tax assets were as
follows:
July 31, July 25,
(in 000's) 1999 1998
------ ------
Deferred tax assets:
Inventory capitalization for tax purposes $5,695 $2,246
Other items 12,553 11,168
------ ------
Total deferred tax assets 18,248 13,414
------ ------
Deferred tax liabilities:
Depreciation 4,125 6,618
Other items 4,257 3,720
------ ------
Total deferred tax liabilities 8,382 10,338
------ ------
Net deferred tax assets $9,866 $3,076
====== ======
The net deferred tax assets were comprised of approximately $1,880,000
in state deferred taxes and $7,986,000 in federal deferred taxes. Following is a
reconciliation of the statutory Federal income tax rate and the effective income
tax rate applicable to earnings before income taxes:
Fiscal Year Ended
July 31, July 25, July 26,
1999 1998 1997
----------- ----------- -----------
Statutory tax rate 35.0 % 35.0 % 35.0 %
State taxes - net of federal
Benefit 5.0 % 5.8 % 5.1 %
Other - net, primarily tax-free interest (3.5)% (4.3)% (3.6)%
Effective tax rat 36.5% 36.5% 36.5%
===== ===== =====
5. COMMITMENTS
Lease commitments
The Company leases all its stores and its distribution center. Certain
leases provide for additional rents based on percentages of net sales, charges
for real estate taxes, insurance and other occupancy costs. Store leases
generally have an initial term ranging from 5 to 15 years with one or more
5-year options to extend the lease. Some of these leases have provisions for
rent escalations during the initial term. The Company leases its 510,000 square
foot office and distribution center in Suffern, New York. The lease has an
initial term expiring in 2007 with three 5-year options to extend the lease.
A summary of occupancy costs follows:
Fiscal Year Ended
July 31, July 25, July 26,
(in 000's) 1999 1998 1997
----------- ----------- -----------
Base rentals $69,661 $62,880 $59,906
Percentage rentals 58 378 229
Other occupancy costs 23,862 22,477 19,526
----------- ----------- -----------
Total $93,581 $85,735 $79,661
=========== =========== ===========
The following is a schedule of future minimum rentals under
noncancellable operating leases as of July 31, 1999 (dollars in thousands):
Fiscal Year Amount
------------- --------------
2000 $ 60,886
2001 50,754
2002 42,424
2003 29,986
2004 19,959
Subsequent years 40,198
Total future minimum rentals $244,207
Although the Company has the ability to cancel certain leases if
specified sales levels are not achieved, future minimum rentals under such
leases have been included in the above table.
Leases with related parties
The Company leases five stores from its Chief Executive Officer or
related trusts. Future minimum rentals under leases with such related parties
which extend beyond July 31, 1999, included in the above schedule, are
approximately $464,000 annually and in the aggregate $1.3 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 1999, 1998
and 1997 under these leases amounted to approximately $464,000, $438,000 and
$443,000, respectively.
Lines of credit
At July 31, 1999, the Company had unsecured lines of credit with three
banks totaling $100 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,
1999. However, approximately $30 million of outstanding letters of credit
reduced the credit lines available.
Legal proceedings
The Company is involved in various routine legal proceedings incident
to the ordinary course of business. The Company believes that the outcome of all
pending and threatened legal proceedings will, on the whole, not have a material
adverse effect on its results of operations, financial statements or cash flows.
6. STOCK-BASED COMPENSATION PLANS
At July 31, 1999, the Company had five stock-based compensation plans.
The Company's 1983 Incentive Stock Option Plan expired on April 4, 1993, and
accordingly, the Company can no longer grant options under such plan. The
Company's 1993 Incentive Stock Option Plan, which contains provisions similar to
the expired plan, provides for the grant of options to purchase up to 1,250,000
shares of the Company's common stock. The exercise price of the options granted
under both plans may not be less than the market price of the common stock at
the date of grant. All options granted under both plans vest over a five year
period and generally expire after ten years from date of grant. At July 31,
1999, there were 714,750 shares under the 1993 plan available for future grant.
The Company's 1987 Non-Qualified Stock Option Plan, which expired
December 7, 1997, provides for the granting of options to purchase up to
1,000,000 shares of common stock to key employees. The Company's 1995 Stock
Option Plan provides for the granting of either incentive or non-qualified
options to purchase up to 2,000,000 shares of common stock. As of July 31, 1999,
there were 1,254,250 shares under the 1995 plan available for future grant. The
Company's Employee Stock Purchase Plan allows employees to purchase shares of
the Company's common stock during each quarterly offering period at a 10%
discount through weekly payroll deductions.
The following summarizes the activities in all Stock Option Plans and
changes during each of the fiscal years presented:
July 31, 1999 July 25, 1998 July 26, 1997
------------- ------------- -------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------------------------------------------------------------------------------
Options outstanding - beginning of
year 1,275,435 $9.83 1,746,992 $8.09 1,273,293 $8.39
Granted 319,250 11.64 167,750 19.99 882,055 7.43
Cancelled (36,432) 11.89 (12,769) 10.65 (106,154) 10.11
Exercised (119,086) 7.56 (626,538) 7.65 (302,202) 6.68
------------------------------------------------------------------------------------------------
Outstanding end of year 1,439,167 $10.37 1,275,435 $9.83 1,746,992 $8.09
================================================================================================
Options exercisable
at year-end 448,523 $10.36 187,209 $10.51 484,460 $8.23
------------------------------------------------------------------------------------------------
Weighted-average fair
value of options granted
during the year
$5.09 $8.53 $3.79
-------------- --------------- ---------------
The following table summarizes information about stock options
outstanding at July 31, 1999:
Weighted
Number Weighted Average Number Average
Outstanding as of Weighted Average Exercise Price Exercisable as Exercise Price
Range of Exercise Prices 7/31/99 Remaining Life of 7/31/99
- ----------------------------------------------------------------------------------------------------------------------------
$5.00 200,000 7.02 years $5.00 20,000 $5.00
8.25 - 9.15 579,617 6.61 years 8.66 203,123 8.68
10.50 - 11.44 500,050 7.39 years 10.93 194,300 11.08
19.50 - 22.63 159,500 8.11 years 20.28 31,100 20.30
----------------------------------------------------------------------------------------------
$5.00 - $22.63 1,439,167 7.11 years $10.37 448,523 $10.36
==============================================================================================
In fiscal 1997, the Company granted 300,000 options at $5.00 per share,
which was less than the market price on the date of grant, and had a fair value
of $5.36 per share. The Company records compensation expense for all stock-based
compensation plans using the method prescribed by Accounting Principles Board
Opinion No. 25, where compensation expense, if any, is measured as the excess of
the market price of the stock over the exercise price on the measurement date.
No compensation expense is recognized for the Company's option grants that have
an exercise price equal to the market price on the date of grant or for the
Company's Employee Stock Purchase Plan.
Had compensation cost for the Company's stock option plans been
determined based on the fair value at the option grant dates for awards in
accordance with the accounting provisions of SFAS No. 123, the Company's net
earnings and earnings per share for fiscal 1999, fiscal 1998 and fiscal 1997
would have been reduced to the pro forma amounts indicated below:
Fiscal Year Ended
July 31, July 25, July 26,
1999 1998 1997
----------- ----------- -----------
Net earnings (in 000's):
As reported $33,324 $40,227 $31,767
Pro forma $32,372 $39,530 $31,241
Earnings per share - basic:
As reported $1.56 $1.75 $1.40
Pro forma $1.52 $1.72 $1.37
Earnings per share - diluted:
As reported $1.53 $1.70 $1.33
Pro forma $1.49 $1.67 $1.30
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 25, July 26,
1999 1998 1997
----------- ----------- -----------
Weighted average risk-free interest rate 5.8% 4.6% 5.7%
Weighted average expected life (years) 5.0 5.0 5.0
Expected volatility 40.9% 38.6% 39.6%
These pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock options.
SFAS No. 123 does not apply to awards prior to fiscal 1996, and additional
awards in future years are anticipated.
QUARTERLY RESULTS OF OPERATIONS (unaudited)
(in thousands except per share amounts)
Fourth Third Second First
Quarter Quarter Quarter Quarter
Year ended July 31, 1999
Net Sales $166,692 $144,341 $146,170 $158,772
Gross Profit,
less occupancy
and buying costs 62,260 51,010 48,998 55,425
Income Taxes 6,585 3,718 3,579 5,273
Net Earnings 11,454 6,469 6,227 9,174
Earnings Per Share(*)
Basic $0.58 $0.32 $0.28 $0.40
Diluted $0.56 $0.31 $0.27 $0.39
Fourth Third Second First
Quarter Quarter Quarter Quarter
Year ended July 25, 1998
Net Sales $153,430 $144,341 $144,210 $156,194
Gross Profit,
less occupancy
and buying costs 56,896 53,545 49,904 56,476
Income Taxes 6,512 5,627 4,606 6,378
Net Earnings 11,327 9,794 8,010 11,096
Earnings Per Share
Basic $0.49 $0.42 $0.35 $0.49
Diluted $0.48 $0.41 $0.34 $0.47
(*) Earnings per share is computed independently for each period presented. As a
result, the total of the per share earnings for the four quarters does not equal
the annual earnings per share in fiscal 1999.
EXHIBIT 22
THE DRESS BARN, INC.
SUBSIDIARIES OF THE REGISTRANT
(All 100% Owned)
State of
Subsidiary Incorporation
D.B.R., Inc. Delaware
The Dress Barn, Inc. of
New Hampshire, Inc. (**) New Hampshire
Raxton Corp. (**) Massachusetts
JRL Consulting Corp. (**) New Jersey
D.B.X. Inc. New York
(**) Inactive Subsidiary
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Shareholders
The Dress Barn, Inc.
Suffern, New York
We consent to the incorporation by reference in Registration Statement Nos.
33-16857, 33-47415, 33-60196, 333-18135 and 33-17488 (on Form S-8) of our
report, dated September 17, 1998, appearing in this Annual Report on Form 10-K
of The Dress Barn, Inc. and Subsidiaries for the year ended July 31, 1999.
Deloitte & Touche LLP
Stamford, Connecticut
October 21, 1999