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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10–Q

(Mark One)

   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended            October 31, 2002           

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                        

Commission File Number            0–12188          

DEB SHOPS, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania 23-1913593
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   

9401 Blue Grass Road, Philadelphia, Pennsylvania 19114
(Address of principal executive offices) (Zip Code)


(215) 676–6000

(Registrant's telephone number, including area code)

Not Applicable

(Former name and address and former fiscal year, if changed since last report)

Indicate by check mark 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b–2 of the Exchange Act).

Yes    X                      No ___

Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date.

Common Stock, Par Value $.01 13,684,900
(Class) (Outstanding at December 6, 2002)

DEB SHOPS, INC. AND SUBSIDIARIES




I N D E X

       
PART I Item 1. Financial Information:  
       
    Consolidated Balance Sheets -
October 31, 2002 and January 31, 2002		 1
   
       
    Consolidated Statements of Operations - Nine Months and
Three Months Ended October 31, 2002 and 2001		 2
   
       
    Consolidated Statements of Cash Flows -
Nine Months Ended October 31, 2002 and October 31, 2001		 3
   
       
    Notes to Consolidated Financial Statements -
October 31, 2002		 4
   
       
  Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 - 9
       
       
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
       
       
  Item 4. Controls and Procedures 9
       
       
PART II.   Other Information 9

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DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

    OCTOBER 31,
2002		     JANUARY 31,
2002		  
   
   
 
ASSETS            
CURRENT ASSETS            
   Cash and cash equivalents $ 139,696,775   $ 135,251,663  
   Merchandise inventories   22,237,843     31,041,713  
   Prepaid expenses and other   3,414,672     2,863,473  
   Prepaid income taxes   1,551,904     —  
   Deferred income taxes   1,595,816     1,240,047  
   
   
 
               Total Current Assets   168,497,010     170,396,896  
   
   
 
PROPERTY, PLANT AND EQUIPMENT, at cost            
   Land   150,000     150,000  
   Buildings   2,365,697     4,347,697  
   Leasehold improvements   41,384,267     39,058,583  
   Furniture and equipment   17,415,377     17,025,868  
   
   
 
    61,315,341     60,582,148  
             
   Less accumulated depreciation            
     and amortization   41,508,981     41,554,322  
   
   
 
    19,806,360     19,027,826  
   
   
 
             
OTHER ASSETS            
             
   Deferred income taxes   4,391,299     4,306,068  
   Other   1,962,223     2,212,223  
   
   
 
               Total Other Assets   6,353,522     6,518,291  
   
   
 
  $ 194,656,892   $ 195,943,013  
   
   
 
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Current Liabilities            
   Trade accounts payable $ 18,026,162   $ 24,222,316  
   Accrued expenses   8,934,327     9,417,972  
   Income taxes payable   —     4,344,448  
   
   
 
               Total Current Liabilities   26,960,489     37,984,736  
   
   
 
             
             
             
Shareholders' Equity            
   Series A Preferred Stock, par value $1.00            
     a share:            
   Authorized - 5,000,000 shares            
   Issued and outstanding – 460 shares,            
     liquidation value $460,000            
   Common Stock, par value $.01 a share:   460     460  
     Authorized - 50,000,000 shares            
     Issued - 15,688,290 shares   156,883     156,883  
   Additional paid in capital   5,864,790     5,864,790  
   Retained earnings   174,098,990     164,732,974  
   
   
 
    180,121,123     170,755,107  
             
   Less common treasury shares, at cost -            
     October 31, 2002: 2,003,390;            
     January 31, 2002: 2,063,390   12,424,720     12,796,830  
   
   
 
    167,696,403     157,958,277  
   
   
 
  $ 194,656,892   $ 195,943,013  
   
   
 

See notes to consolidated financial statements.

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DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

      Nine Months Ended October 31,     Three Months Ended October 31,  
     
   
 
      2002     2001     2002     2001  
     
   
   
   
 
Revenues                          
   Net Sales   $ 234,878,505   $ 222,967,066   $ 81,231,521   $ 80,465,432  
     
   
   
   
 
                           
Costs and Expenses                          
   Cost of sales, including
     buying and occupancy costs		     162,007,445     156,536,992     58,572,362     57,917,199  
   Selling and administrative     49,480,329     46,116,226     16,976,288     15,711,467  
   Depreciation and amortization     2,811,972     2,881,038     957,922     938,354  
   Non-recurring loss on sale of
     subsidiary		     —     7,381,152     —       7,381,152  
     
   
   
   
 
      214,299,746     212,915,408     76,506,572     81,948,172  
     
   
   
   
 
                           
                           
Operating Income     20,578,759     10,051,658     4,724,949     (1,482,740 )
Other income, Principally Interest     1,508,225     3,500,936     479,610     1,017,749  
     
   
   
   
 
                           
                           
Income (Loss) Before Income Taxes     22,086,984     13,552,594     5,204,559     (464,991 )
Income Taxes (Benefit)     8,280,00     5,080,000     1,950,000     (176,000 )
     
   
   
   
 
                           
Net Income (Loss)   $ 13,806,984    $ 8,472,594   $ 3,254,559   $ (288,991 )
     
   
   
   
 
                           
Net Income (Loss) Per Common
   Share		                          
      Basic    $ 1.01    $ 0.62    $ 0.24    $ ( 0.02 )
     
   
   
   
 
      Diluted    $ 0.99    $ 0.62    $ 0.24   $ ( 0.02 )
     
   
   
   
 
                           
Cash Dividend Declared                          
   Per Common Share   $ 0.325   $ 0.250   $ 0.100   $ 0.075  
     
   
   
   
 
                           
Weighted Average Number of
   Common Shares Outstanding		                          
      Basic     13,667,798     13,539,161     13,684,900     13,554,900  
     
   
   
   
 
      Diluted     13,858,446     13,631,904     13,778,395     13,554,900  
     
   
   
   
 

See notes to consolidated financial statements.

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DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

    Nine Months Ended October 31,  
   
 
    2002     2001  
   
   
 
Cash flows provided by operating activities:            
   Net income $ 13,806,984   $ 8,472,594  
   Adjustments to reconcile net income to net
      cash provided by operating activities:		            
         Depreciation and amortization   2,811,972     2,881,038  
         Deferred income tax (benefit)   ( 441,000 )   ( 300,000 )
         Loss on retirement of property, plant and equipment   83,369     64,238  
         Non-recurring loss on sale of subsidiary, net of income tax benefit   —     4,611,152  
         Change in operating assets and liabilities:            
            Decrease in merchandise inventories   8,803,870     3,086,033  
            (Increase) in prepaid expenses and other and prepaid income taxes   ( 2,103,103 )   ( 448,719 )
            (Decrease) increase in trade accounts payable   ( 6,196,154 )   734,029  
            (Decrease) in accrued expenses   ( 279,014 )   ( 1,349,663 )
            (Decrease) in income taxes payable   ( 4,344,448 )   ( 3,360,680 )
   
   
 
            Net cash provided by operating activities   12,142,476     14,390,022  
   
   
 
             
Cash flows (used in) investing activities:            
   Purchase of property, plant and equipment, net   ( 3,673,875 )   ( 3,967,875 )
   Proceeds from sale of subsidiary, net of cash retained   —        1,008,769  
   
   
 
            Net cash (used in) investing activities   ( 3,673,875 )   ( 2,959,106 )
   
   
 
             
             
Cash flows (used in) financing activities:            
         Preferred stock cash dividends paid   ( 41,400 )   ( 41,400 )
         Common stock cash dividends paid   ( 4,100,972 )   ( 3,045,603 )
         Proceeds from exercise of stock options   420,000     585,000  
         Principal payments under capital lease obligations   ( 301,117 )   ( 329,550 )
   
   
 
            Net cash (used in) financing activities   ( 4,023,489 )   ( 2,831,553 )
   
   
 
             
Increase in cash and cash equivalents   4,445,112     8,599,363  
Cash and cash equivalents at beginning of period   135,251,663     111,648,544
   
   
 
Cash and cash equivalents at end of period $ 139,696,775   $ 120,247,907  
   
   
 
             
Supplemental disclosures of cash flow information:            
   Cash paid during the period for:            
             
            Income taxes, net $ 14,617,352   $ 11,249,866  

See notes to consolidated financial statements.

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DEB SHOPS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

OCTOBER 31, 2002

NOTE A – BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10–Q and Article 10 of Regulation S–X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the first quarter and the third quarter cost of goods sold and inventories are estimated based on the use of the gross profit method. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended October 31, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2003. The Balance Sheet at January 31, 2002 has been derived from the audited financial statements at that date. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10–K for the fiscal year ended January 31, 2002.

     Certain prior year amounts have been reclassified to conform with the current year presentation.

NOTE B – NON–RECURRING ITEMS

     Effective September 30, 2001, the Company sold the stock of its subsidiary, Books Management, Inc. (“BMI”). For the eight months ended September 30, 2001, BMI had net sales of $11,897,341 and operating income of $661,882. For the two months ended September 30, 2001, BMI had net sales of $3,789,801 and operating income of $418,271. As a result of the transaction, the Company recorded a non–recurring pre–tax loss of $7,381,152 ($4,611,152 net of tax, or a loss per share of ($0.34)).

NOTE C – NET INCOME PER SHARE

     The table below sets forth the reconciliation of the numerators and denominators of the basic and diluted net income per common share computations.

    Nine Months Ended October 31,     Three Months Ended October 31,  
   
   
 
    2002     2001     2002     2001  
   
   
   
   
 
Net income (loss) $ 13,806,984   $ 8,472,594   $ 3,254,559   $ (288,991 )
                         
Dividends on preferred stock    (41,400 )    (41,400 )    (13,800 )    (13,800 )
   
   
   
   
 
                         
Income (loss) available to
   common shareholders		 $ 13,765,584   $ 8,431,194   $ 3,240,759   $ (302,791 )
   
   
   
   
 
                         
Basic weighted average
   number of common
   shares outstanding		   13,667,798     13,539,161     13,684,900     13,554,900  
                         
Effect of dilutive stock options   190,648     92,743     93,495       —  
   
   
   
   
 
                         
Diluted weighted average
   number of common
   shares outstanding		   13,858,446     13,631,904     13,778,395     13,554,900  
   
   
   
   
 
                         

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Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward–Looking Statements

     Deb Shops, Inc. (the "Company") has made in this report, and from time to time may otherwise make, “forward–looking statements” (as that term is defined under federal securities laws) concerning the Company’s future operations, performance, profitability, revenues, expenses and financial condition. This report includes, in particular, forward–looking statements regarding store openings, closings and other matters. Such forward–looking statements are subject to various risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors. Such factors may include, but are not limited to, the Company’s ability to improve margins, respond to changes in fashion, and attract and retain key management personnel. Such factors may also include other risks and uncertainties detailed in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10–K for the fiscal year ended January 31, 2002.

Overview

     The Company operates 321 women's specialty apparel retail stores offering moderately priced, fashionable, coordinated sportswear, dresses, coats, lingerie, accessories and shoes for junior and plus sized women. The Company also operates six Tops `N Bottoms stores which sell moderately priced men's and women's apparel.

     Effective September 30, 2001, the Company sold the stock of its subsidiary, Books Management, Inc. (“BMI”). As a result of the transaction, the Company recorded a non–recurring pre–tax loss of $7,381,152 ($4,611,152 net of tax, or a loss per share of ($0.34)). For the eight months ended September 30, 2001 BMI had net sales of $11,897,000 and operating income of $662,000. For the two months ended September 30, 2001, BMI had net sales of $3,790,000 and operating income of $418,000.

     Results of operations for the Company for the three and nine months ended October 31, 2002 and 2001, are discussed below on a consolidated basis and separately for the “Apparel Business” to provide relevant information concerning the Company's retail apparel store business.

Results of Operations – Consolidated

     Consolidated net sales increased $11,911,000 (5.3%) to $234,879,000 in the nine months ended October 31, 2002 from $222,967,000 in the nine months ended October 31, 2001, and increased $18,716,000 (9.2%) in the nine months ended October 31, 2001 from the nine months ended October 31, 2000. Consolidated net sales increased $766,000 (1.0%) to $81,232,000 in the three months ended October 31, 2002 from $80,465,000 in the three months ended October 31, 2001 and increased $7,218,000 (9.9%) in the three months ended October 31, 2001 from the three months ended October 31, 2000. The increases in the three and nine month periods ended October 31, 2002 were the result of increased apparel store sales.

     The changes in net sales, cost of sales, selling and administrative expense and net income are more fully described below under the caption “Results of Operations – Apparel Business.”

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     Other income, principally interest, decreased ($1,993,000) (56.9%) to $1,508,000 in the nine months ended October 31, 2002 from $3,501,000 in the nine months ended October 31, 2001 and decreased ($296,000) (7.8%) in the nine months ended October 31, 2001 from the nine months ended October 31, 2000. Other income, principally interest, decreased ($538,000) (52.9%) to $480,000 in the three months ended October 1, 2002 from $1,018,000 in the three months ended October 31, 2001 and decreased ($245,000) (19.4%) in the three months ended October 31, 2001 from the three months ended October 31, 2000. Interest income is offset by losses on the disposition of fixed assets. The decreases in the nine and three months ended October 31, 2002 were primarily the result of lower interest rates partially offset by earnings on higher cash balances. The decreases during the nine and three months ended October 31, 2001 were primarily the result of gradually declining interest rates partially offset by higher cash balances and, to a lesser extent, decreased write–offs from the disposition of fixed assets.

     Income before income taxes was $22,087,000, $13,553,000 and $17,925,000 for the nine months ended October 31, 2002, October 31, 2001 and October 31, 2000, respectively. Excluding the non–recurring loss on the sale of BMI discussed above, income before income taxes for the nine months ended October 31, 2001 was $20,934,000. Excluding the non–recurring loss, income before income taxes increased $1,153,000 and $3,009,000 for the nine months ended October 31, 2002 and October 31, 2001, respectively. Income (loss) before income taxes (benefit) was $5,205,000, ($465,000), and $6,417,000 for the three months ended October 31, 2002, October 31, 2001 and October 31, 2000, respectively. Excluding the non–recurring loss, income before income taxes was $6,916,000 for the three months ended October 31, 2001. Excluding the non–recurring loss, income before income taxes decreased $1,712,000 for the three months ended October 31, 2002 compared to the three months ended October 31, 2001, and increased $499,000 for the three months ended October 31, 2001 compared to the three months ended October 31, 2000. The increase for the nine months ended October 31, 2002 is attributable to increased sales and margins, reduced by increased selling and administrative expenses and decreased other income. The decrease for the three months ended October 31, 2002 is attributable to the decline in comparable store sales, increased selling and administrative expenses and decreased other income. The decreases for the nine and three months ended October 31, 2001 were primarily the result of the non–recurring loss from the sale of BMI.

Results of Operations – Apparel Business

     Net sales increased $23,809,000 (11.3%) to $234,879,000 in the nine months ended October 31, 2002 from $211,070,000 in the nine months ended October 31, 2001 and increased $19,873,000 (10.4%) in the nine months ended October 31, 2001 from the nine months ended October 31, 2000. Net sales increased $4,556,000 (5.9%) to $81,232,000 in the three months ended October 31, 2002 from $76,676,000 in the three months ended October 31, 2001 and increased $8,420,000 (12.3%) in the three months ended October 31, 2001 from the three months ended October 31, 2000. The increases in net sales for the nine and three months ended October 31, 2002 resulted primarily from sales in stores open less than one year. The increases in net sales for the nine and three months ended October 31, 2001 resulted primarily from increased customer acceptance of the Company's products, which is attributable to the Company's continual refining of its focus on its younger customers.

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     The following table sets forth certain store information:

     Nine Months Ended October 31,(1)     Three Months Ended October 31,(1)
   
   
 
    2002     2001     2002     2001  
   
   
   
   
 
Stores open at end of the period   324     307     324     307  
Average number in operation during the period   318     295     322     300  
Average net sales per store (in thousands) $ 739   $ 715   $ 252   $ 256  
Average operating income per store
   (in thousands)		 $ 65   $ 57   $ 15   $ 18  
Comparable Store Sales(2) – Percent Change   2.9 %   5.3 %   (1.6 %)   6.1 %

     Cost of sales, including buying and occupancy costs, increased $14,010,000 (9.5%) to $161,990,000 in the nine months ended October 31, 2002 from $147,980,000 in the nine months ended October 31, 2001 and increased $12,824,000 (9.5%) in the nine months ended October 31, 2001 from the nine months ended October 31, 2000. Cost of sales, including buying and occupancy costs, increased $3,312,000 (6.0%) to $58,564,000 in the three months ended October 31, 2002 from $55,252,000 in the three months ended October 31, 2001 and increased $6,468,000 (13.3%) in the three months ended October 31, 2001 from the three months ended October 31, 2000. The increases in cost of sales, including buying and occupancy costs, in the nine and three months ended October 31, 2002 and October 31, 2001 were principally due to the increases in sales during the periods. As a percentage of net sales, these costs were 69.0% and 70.1% during the nine months ended October 31, 2002 and 2001, respectively, and 72.1% and 72.1% during the three months ended October 31, 2002 and 2001, respectively. The percentage decrease for the nine months ended October 31, 2002 as compared to the nine months ended October 31, 2001, resulted from increased margins. Buying and occupancy costs were 16.0% and 16.0% of net sales for the nine months ended October 31, 2002 and 2001, respectively, and 15.7% and 15.3% of net sales for the three months ended October 31, 2002 and 2001, respectively. The percentage increase for the three months ended October 31, 2002 as compared to the three months ended October 31, 2001, resulted principally from decreased comparable store sales during the period.

     Selling and administrative expenses increased $5,728,000 (13.1%) to $49,464,000 in the nine months ended October 31, 2002 from $43,736,000 in the nine months ended October 31, 2001 and increased $4,136,000 (10.4%) in the nine months ended October 31, 2001 from the nine months ended October 31, 2000. Selling and administrative expenses increased $1,888,000 (12.5%) to $16,970,000 in the three months ended October 31, 2002 from $15,082,000 in the three months ended October 31, 2001 and increased $1,506,000 (11.1%) in the three months ended October 31, 2001 from the three months ended October 31, 2000. The increase in selling and administrative costs for the nine and three months ended October 31, 2002 and 2001 was primarily due to increased store operating costs. As a percentage of net sales, these expenses were 21.1% and 20.7% in the nine months ended October 31, 2002 and 2001, respectively, and 20.9% and 19.7% in the three months ended October 31, 2002 and 2001, respectively. The percentage increase for the nine months ended October 31, 2002, as compared to the nine months ended October 31, 2001, resulted primarily from the percentage decline in sales growth during the period. The percentage increase for the three months ended October 31, 2002, as compared to the three months ended October 31, 2001, resulted from decreased comparable store sales during the period.

(1)

Includes Tops 'N Bottoms stores.

(2)

Comparable store sales include stores open for both periods in the current format and location. A store is added to the comparable store base in its 13th month of operation.

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     Depreciation expense increased $269,000 to $2,768,000 in the nine months ended October 31, 2002 from $2,499,000 in the nine months ended October 31, 2001 and decreased ($408,000) in the nine months ended October 31, 2001 from the nine months ended October 31, 2000. Depreciation expense increased $105,000 to $943,000 in the three months ended October 31, 2002 from $838,000 in the three months ended October 31, 2001 and decreased ($134,000) in the three months ended October 31, 2001 from the three months ended October 31, 2000. The increases for the nine and three months ended October 31, 2002 were primarily attributable to new store openings and remodeling of existing stores. The decreases for the nine and three months ended October 31, 2001 were primarily attributable to a revision in the estimated lives of warehouse assets.

     Operating income was $20,656,000 in the nine months ended October 31, 2002 as compared to operating income of $16,855,000 in the nine months ended October 31, 2001 and $13,533,000 in the nine months ended October 31, 2000. Operating income was $4,754,000 in the three months ended October 31, 2002 as compared to operating income of $5,503,000 in the three months ended October 31, 2001 and $4,922,000 in the three months ended October 31, 2000. As a percentage of sales, operating income was 8.8% and 8.0% in the nine months ended October 31, 2002 and 2001, respectively, and 5.9% and 7.2% in the three months ended October 31, 2002 and 2001, respectively. The increase in operating income for the nine months ended October 31, 2002 was primarily attributable to the increases in sales and margins, partially offset by increases in selling and administrative expenses. The decrease in operating income for the three months ended October 31, 2002 was primarily attributable to decreases in comparable same store sales and increases in selling and administrative expenses. The Company believes that the decreases in comparable same store sales are attributable primarily to current economic conditions and there can be no assurance that such conditions will not continue to adversely affect comparable store sales into the foreseeable future. The increases in operating income for the nine and three months ended October 31, 2001 were primarily attributable to the increases in sales, partially offset by increases in selling and administrative expenses.

Liquidity and Capital Resources – Consolidated

     During the nine months ended October 31, 2002 and 2001, the Company funded internally all of its operating needs, including capital expenditures for the opening of new apparel stores and for the remodeling of existing apparel stores. Total cash provided by operating activities for the nine months ended October 31, 2002 and 2001 was $12,143,000 and $14,390,000, respectively. For the nine months ended October 31, 2002, cash provided by operations was the result of net income, a decrease in merchandise inventories and non–cash charges for depreciation, partially offset by decreases in trade accounts payable, income taxes payable and prepaid expenses and other and prepaid income taxes. For the nine months ended October 31, 2001, cash provided by operations was the result of net income adjusted for the non–recurring loss on sale of a subsidiary, a decrease in merchandise inventories and non–cash charges for depreciation and amortization partially offset by increases in prepaid expenses and decreases in accrued expenses and income taxes payable. The inventory turnover rate for the apparel business was approximately 2.2 times during the nine months ended October 31, 2002 and 2.3 times during the nine months ended October 31, 2001.

     Net cash used in investing activities was $3,674,000 and $2,959,000 for the nine months ended October 31, 2002 and 2001, respectively. For the nine months ended October 31, 2002 these funds were principally used for the opening of new stores and the remodeling of existing stores. For the nine months ended October 31, 2001, these funds were principally used for the opening of new stores and the remodeling of existing stores partially offset by the proceeds from the sale of a subsidiary.

     Net cash used in financing activities was $4,023,000 and $2,832,000 for the nine months ended October 31, 2002 and 2001, respectively. For the nine months ended October 31, 2002 and 2001, these funds were principally used for the payment of dividends on preferred and common stock, partially offset by proceeds from stock options exercised.

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     As of October 31, 2002, the Company had cash and cash equivalents of $139,697,000 compared with $120,248,000 at October 31, 2001.

     On May 30, 2002, the Company announced a special dividend of $0.05 per share on its common stock, and an increase to its existing quarterly dividend from $0.075 to $0.10 per share of common stock. On May 16, 2001, the Company also announced a special dividend of $0.05 per share on its common stock, and an increase to its existing quarterly dividend from $0.05 to $0.075 per share of common stock. The Company believes that, despite these dividend increases, internally generated funds will be sufficient to meet its anticipated capital expenditures, none of which are material, and current operating needs.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     As of October 31, 2002, the Company had cash and cash equivalents of $139,697,000 compared to $120,248,000 as of October 31, 2001, and $98,429,000 as of October 31, 2000. These funds are invested primarily in money market funds and short–term municipal bonds, all of which are fully insured or guaranteed by letters–of–credit. The Company does not invest for trading purposes. Accordingly, the Company does not believe it has significant exposure to market risk with respect to its investments.

Item 4.

CONTROLS AND PROCEDURES

     (a)  Within 90 days prior to the date of this report, the principal executive officer and principal financial officer evaluated the Company's controls and procedures relating to its reporting and disclosure obligations. These officers have concluded that these disclosure controls and procedures are sufficient to provide that (i) material information relating to the Company, including its consolidated subsidiaries, is made known to these officers by other employees of the Company and its consolidated subsidiaries, particularly material information related to the period for which this periodic report is being prepared; and (ii) this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the rules and forms of the Securities and Exchange Commission.

     (b)  There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Part II.     Other Information

Items 1 – 5.     Not Applicable

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  Item 6. EXHIBITS AND REPORTS ON FORM 8–K.
     
    (a)     Exhibits
     
              Exhibit 99.1     Certification of Periodic Report by President and Chief Executive Officer
     
              Exhibit 99.2     Certification of Periodic Report by Vice President, Finance, and Chief Financial Officer
     
    (b)     Reports on Form 8–K
     
              No reports on Form 8–K were filed by the Company during the quarter ended October 31, 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    DEB SHOPS, INC.
               
               
               
  DATE: December 6, 2002 By /s/ Marvin Rounick
   
         
    Marvin Rounick
President and Chief Executive Officer
         
               
               
  DATE: December 6, 2002 By /s/ Lewis Lyons
   
         
    Lewis Lyons
Vice President, Finance
Chief Financial Officer
         

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Section 302 Certification by President and Chief Executive Officer

I, Marvin Rounick, certify that:

1.     I have reviewed this quarterly report on Form 10–Q of Deb Shops, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–14 and 15d–14) for the registrant and we have:

a)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)     evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.     The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

  DATE: December 6, 2002 /s/ Marvin Rounick
   
         
    Marvin Rounick, President and
Chief Executive Officer
         

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Section 302 Certification by Vice President, Finance, and Chief Financial Officer

I, Lewis Lyons, certify that:

1.     I have reviewed this quarterly report on Form 10–Q of Deb Shops, Inc.

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–14 and 15d–14) for the registrant and we have:

a)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)     evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.     The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

  DATE: December 6, 2002 /s/ Lewis Lyons
   
         
    Lewis Lyons, Vice President, Finance,
and Chief Financial Officer