UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended
January 24, 2009
|
|
Commission
file number 0-11736
|
THE DRESS BARN,
INC
.
(Exact
name of registrant as specified in its charter)
Connecticut
|
|
06-0812960
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
|
|
|
30
Dunnigan Drive, Suffern, New York
|
|
10901
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(845)
369-4500
(Registrant's
telephone number, including area code)
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
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check
one):
Large accelerated filer
x
|
Accelerated filer
¨
|
Non-accelerated filer
¨
|
Smaller reporting company
¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
No
x
The
Registrant had 60,018,421 shares of common stock outstanding as of February 23,
2009.
THE
DRESS BARN, INC
FORM
10-Q
QUARTER
ENDED JANUARY 24, 2009
TABLE
OF CONTENTS
|
Page
Number
|
|
|
Part
I. FINANCIAL INFORMATION:
|
|
|
|
|
Item
1.
|
Condensed
Consolidated Financial Statements (unaudited):
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets at January 24, 2009 and July 26,
2008
|
3
|
|
|
|
|
Condensed
Consolidated Statements of Operations
for the thirteen
weeks ended
January
24, 2009 and January 26, 2008
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Operations
for the twenty-six
weeks ended
January
24, 2009 and January 26, 2008
|
5
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the twenty-six weeks
ended
January
24, 2009 and January 26, 2008
|
6
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
8
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
24
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
35
|
|
|
|
Item
4.
|
Controls
and Procedures
|
36
|
|
|
|
Part
II. OTHER INFORMATION:
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
37
|
|
|
|
Item
1A.
|
Risk
Factors
|
37
|
|
|
|
Item
2.
|
Unregistered Sales of
Equity
Securities
and Use of Proceeds
|
38
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
39
|
|
|
|
Item
6.
|
Exhibits
|
40
|
|
|
|
SIGNATURES
|
|
41
|
Part
I. FINANCIAL INFORMATION
Item
1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The
Dress Barn, Inc. and Subsidiaries
|
Condensed
Consolidated Balance Sheets
(unaudited)
|
Amounts
in thousands, except share and per share data
|
|
January 24,
2009
|
|
|
July 26,
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
164,548
|
|
|
$
|
127,226
|
|
Short
term investment securities
|
|
|
96,230
|
|
|
|
92,697
|
|
Merchandise
inventories
|
|
|
159,199
|
|
|
|
186,983
|
|
Current
portion of deferred income tax assets
|
|
|
9,030
|
|
|
|
—
|
|
Prepaid
expenses and other current assets
|
|
|
28,014
|
|
|
|
24,882
|
|
Total
Current Assets
|
|
|
457,021
|
|
|
|
431,788
|
|
Property
and equipment, net
|
|
|
270,223
|
|
|
|
274,279
|
|
Other
intangible assets, net
|
|
|
107,340
|
|
|
|
107,802
|
|
Goodwill
|
|
|
131,318
|
|
|
|
130,656
|
|
Long
term investment securities
|
|
|
42,033
|
|
|
|
58,404
|
|
Other
assets
|
|
|
18,779
|
|
|
|
21,530
|
|
TOTAL
ASSETS
|
|
$
|
1,026,714
|
|
|
$
|
1,024,459
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
102,784
|
|
|
$
|
121,084
|
|
Accrued
salaries, wages and related expenses
|
|
|
28,136
|
|
|
|
27,934
|
|
Other
accrued expenses
|
|
|
43,119
|
|
|
|
50,970
|
|
Customer
credits
|
|
|
18,564
|
|
|
|
14,822
|
|
Current
portion of deferred income tax liabilities
|
|
|
—
|
|
|
|
401
|
|
Current
portion of long-term debt
|
|
|
1,312
|
|
|
|
1,277
|
|
Convertible
senior notes
|
|
|
—
|
|
|
|
115,000
|
|
Total
Current Liabilities
|
|
|
193,915
|
|
|
|
331,488
|
|
Long-term
debt
|
|
|
141,756
|
|
|
|
27,263
|
|
Deferred
rent and lease incentives
|
|
|
63,977
|
|
|
|
62,003
|
|
Deferred
compensation and other long-term liabilities
|
|
|
42,177
|
|
|
|
44,391
|
|
Deferred
income tax liabilities
|
|
|
14,786
|
|
|
|
3,232
|
|
Total
Liabilities
|
|
|
456,611
|
|
|
|
468,377
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
Shareholders'
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $0.05 per share:
|
|
|
|
|
|
|
|
|
Authorized-
100,000 shares, Issued and Outstanding- none
|
|
|
—
|
|
|
|
—
|
|
Common
stock: par value $0.05 per share, Authorized 165,000,000
shares
|
|
|
|
|
|
|
|
|
Issued-
60,017,071 and 60,359,617 shares, respectively Outstanding- 60,017,071 and
60,359,617 shares, respectively
|
|
|
3,001
|
|
|
|
3,018
|
|
Additional
paid-in capital
|
|
|
120,366
|
|
|
|
115,476
|
|
Retained
earnings
|
|
|
455,413
|
|
|
|
440,627
|
|
Accumulated
other comprehensive loss
|
|
|
(8,677
|
)
|
|
|
(3,039
|
)
|
Total
Shareholders’ Equity
|
|
|
570,103
|
|
|
|
556,082
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
1,026,714
|
|
|
$
|
1,024,459
|
|
See notes
to condensed consolidated financial statements (unaudited)
The Dress
Barn, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(unaudited)
Amounts
in thousands, except per share data
|
|
Thirteen Weeks Ended
|
|
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
343,201
|
|
|
$
|
345,568
|
|
Cost
of sales, including occupancy and buying costs
|
|
|
|
|
|
|
|
|
(excluding
depreciation which is shown separately below)
|
|
|
230,516
|
|
|
|
223,832
|
|
Selling,
general and administrative expenses
|
|
|
102,987
|
|
|
|
101,465
|
|
Depreciation
and amortization
|
|
|
12,111
|
|
|
|
11,761
|
|
Operating
(loss) income
|
|
|
(2,413
|
)
|
|
|
8,510
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,422
|
|
|
|
2,181
|
|
Interest
expense
|
|
|
(1,186
|
)
|
|
|
(1,202
|
)
|
Other
income
|
|
|
452
|
|
|
|
454
|
|
(Loss)
earnings before provision for income taxes
|
|
|
(1,725
|
)
|
|
|
9,943
|
|
|
|
|
|
|
|
|
|
|
(Benefit)
provision for income taxes
|
|
|
(657
|
)
|
|
|
2,529
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) earnings
|
|
$
|
(1,068
|
)
|
|
$
|
7,414
|
|
|
|
|
|
|
|
|
|
|
(Loss)
earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
0.12
|
|
Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
59,880
|
|
|
|
60,009
|
|
Diluted
|
|
|
59,880
|
|
|
|
63,252
|
|
See notes
to condensed consolidated financial statements (unaudited)
The Dress
Barn, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(unaudited)
Amounts
in thousands, except per share data
|
|
Twenty-Six Weeks Ended
|
|
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
719,599
|
|
|
$
|
709,292
|
|
Cost
of sales, including occupancy and buying costs
|
|
|
|
|
|
|
|
|
(excluding
depreciation which is shown separately below)
|
|
|
459,714
|
|
|
|
448,047
|
|
Selling,
general and administrative expenses
|
|
|
205,675
|
|
|
|
198,200
|
|
Depreciation
and amortization
|
|
|
24,315
|
|
|
|
23,342
|
|
Operating
income
|
|
|
29,895
|
|
|
|
39,703
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
3,424
|
|
|
|
3,722
|
|
Interest
expense
|
|
|
(2,412
|
)
|
|
|
(2,417
|
)
|
Other
income
|
|
|
905
|
|
|
|
832
|
|
Earnings
before provision for income taxes
|
|
|
31,812
|
|
|
|
41,840
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
12,396
|
|
|
|
14,803
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
19,416
|
|
|
$
|
27,037
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.32
|
|
|
$
|
0.45
|
|
Diluted
|
|
$
|
0.31
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
60,117
|
|
|
|
60,074
|
|
Diluted
|
|
|
62,430
|
|
|
|
64,741
|
|
See notes
to condensed consolidated financial statements (unaudited)
The Dress
Barn, Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows (unaudited)
Amounts
in thousands
|
|
Twenty-Six Weeks Ended
|
|
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
19,416
|
|
|
$
|
27,037
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
24,315
|
|
|
|
23,342
|
|
Asset
impairments and disposals
|
|
|
4,039
|
|
|
|
2,019
|
|
Deferred
taxes
|
|
|
3,123
|
|
|
|
2,227
|
|
Deferred
rent and other occupancy costs
|
|
|
(2,284
|
)
|
|
|
(2,132
|
)
|
Share-based
compensation expense
|
|
|
3,245
|
|
|
|
2,962
|
|
Restricted
stock compensation expense
|
|
|
(113
|
)
|
|
|
563
|
|
Excess
tax benefits from share-based compensation
|
|
|
(395
|
)
|
|
|
(162
|
)
|
Amortization
of debt issuance costs
|
|
|
190
|
|
|
|
201
|
|
Cash
surrender value of life insurance
|
|
|
1,760
|
|
|
|
570
|
|
Gift
card breakage
|
|
|
(1,064
|
)
|
|
|
(1,147
|
)
|
Realized
loss on investment securities
|
|
|
390
|
|
|
|
37
|
|
Other
|
|
|
494
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Merchandise
inventories
|
|
|
28,206
|
|
|
|
35,841
|
|
Prepaid
expenses and other current assets
|
|
|
(2,762
|
)
|
|
|
(1,794
|
)
|
Other
assets
|
|
|
236
|
|
|
|
258
|
|
Accounts
payable
|
|
|
(18,300
|
)
|
|
|
(42,647
|
)
|
Accrued
salaries, wages and related expenses
|
|
|
202
|
|
|
|
(5,662
|
)
|
Other
accrued expenses
|
|
|
(3,251
|
)
|
|
|
(3,914
|
)
|
Customer
credits
|
|
|
4,806
|
|
|
|
6,405
|
|
Income
taxes payable
|
|
|
—
|
|
|
|
598
|
|
Deferred
rent and lease incentives
|
|
|
4,229
|
|
|
|
5,525
|
|
Deferred
compensation and other long-term liabilities
|
|
|
(3,158
|
)
|
|
|
(19
|
)
|
Total
adjustments
|
|
|
43,908
|
|
|
|
23,134
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
63,324
|
|
|
|
50,171
|
|
See notes
to condensed consolidated financial statements (unaudited)
(continued)
The Dress
Barn, Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows (unaudited)
Amounts
in thousands
|
|
Twenty-Six Weeks Ended
|
|
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
Cash
paid for property and equipment
|
|
|
(27,527
|
)
|
|
|
(27,659
|
)
|
Purchases
of long-term investments
|
|
|
—
|
|
|
|
(230
|
)
|
Redemption
of available-for-sale investment securities
|
|
|
50,921
|
|
|
|
195,936
|
|
Purchases
of available-for-sale investment securities
|
|
|
(45,691
|
)
|
|
|
(198,312
|
)
|
Investment
in life insurance policies
|
|
|
(177
|
)
|
|
|
(2,108
|
)
|
Net
cash used in investing activities
|
|
|
(22,474
|
)
|
|
|
(32,373
|
)
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Repayments
of long-term debt
|
|
|
(639
|
)
|
|
|
(597
|
)
|
Purchase
of treasury stock
|
|
|
(4,657
|
)
|
|
|
(40,179
|
)
|
Proceeds
from employee stock purchase plan purchases
|
|
|
121
|
|
|
|
143
|
|
Excess
tax benefits from share-based compensation
|
|
|
395
|
|
|
|
162
|
|
Proceeds
from stock options exercised
|
|
|
1,252
|
|
|
|
419
|
|
Net cash used in financing
activities
|
|
|
(3,528
|
)
|
|
|
(40,052
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
37,322
|
|
|
|
(22,254
|
)
|
Cash
and cash equivalents - beginning of period
|
|
|
127,226
|
|
|
|
67,133
|
|
Cash
and cash equivalents - end of period
|
|
$
|
164,548
|
|
|
$
|
44,879
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
10,251
|
|
|
$
|
13,853
|
|
Cash
paid for interest
|
|
$
|
2,191
|
|
|
$
|
2,224
|
|
Accrual
for capital expenditures
|
|
$
|
2,865
|
|
|
$
|
3,177
|
|
See
notes to condensed consolidated financial statements
(unaudited)
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
1.
Basis of
Presentation
The
unaudited condensed consolidated financial statements included in this Form 10-Q
have been prepared by The Dress Barn, Inc. and its wholly-owned subsidiaries
(collectively, “we”, “our” the “Company” or similar terms) pursuant to the rules
and regulations of the United States Securities and Exchange Commission
(“SEC”). Certain information and disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed, or omitted,
pursuant to such rules and regulations, although we believe that the disclosures
made are adequate to make the information not misleading. These
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in our Annual Report on Form 10-K for the fiscal year ended July 26,
2008 (“our 10-K”). The results of operations for the interim periods
shown in this report are not necessarily indicative of results to be expected
for the fiscal year. In the opinion of management, the information
contained herein reflects all adjustments necessary to make the results of
operations for the interim periods a fair statement of such
operations. All such adjustments are of a normal recurring
nature. The July 26, 2008 condensed consolidated balance sheet
amounts have been derived from audited financial statements included in our
10-K. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cost of
sales consists of all costs of merchandise (net of purchase discounts and vendor
allowances), freight on inbound, outbound and internally transferred
merchandise, merchandise acquisition costs (primarily commissions and import
fees), occupancy costs excluding utilities and depreciation and all costs
associated with the buying and distribution functions. Our cost of
sales may not be comparable to those of other entities, since some entities
include all costs related to their distribution network including depreciation
and all buying and occupancy costs in their cost of sales, while other entities,
including us, exclude a portion of these expenses from cost of sales and include
them in selling, general and administrative expenses or depreciation. We include
depreciation related to our distribution centers and corporate headquarters in
depreciation and amortization, and utilities and insurance expenses, among other
expenses, in selling, general and administrative expenses on the condensed
consolidated statements of operations.
Selling,
general and administrative expenses consist of compensation and employee benefit
expenses, other than for our design and sourcing team, our buyers and our
distribution centers personnel. Such compensation and employee
benefit expenses include salaries, incentives and related benefits associated
with our stores and corporate headquarters, except as previously
noted. Selling, general and administrative expenses also include
advertising costs, supplies for our stores and home office, communication costs,
travel and entertainment, leasing costs and services purchased.
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
2. Recent
Accounting Pronouncements
Recently
Adopted
In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). The standard defines
fair value, outlines a framework for measuring fair value, and details the
required disclosures about fair value measurements. The standard was effective
for fiscal years beginning after November 15, 2007 (our fiscal 2009). In
February 2008, the FASB issued FASB Staff Position (“FSP”) 157-1, Application of
FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13, (“FSP 157-1”) and 157-2,
Effective Date of FASB Statement No. 157, (“FSP 157-2”). FSP157-1 amends
SFAS No. 157 to exclude FASB Statement No. 13, Accounting for Leases, and other
accounting pronouncements that address fair value measurements of leases from
the provisions of SFAS No. 157. FSP 157-2 delays the effective date of SFAS No.
157 for most nonfinancial assets and nonfinancial liabilities to fiscal years
beginning after November 15, 2008 (our fiscal 2010). As a result, the
application of the definition of fair value and related disclosures of SFAS
No. 157 (as impacted by these FSPs) was effective for our Company beginning
with the first quarter of fiscal 2009. This adoption did not have a
material impact on our condensed consolidated results of operations or financial
condition for the first quarter of our fiscal 2009. We have not completed
our evaluation of the potential impact, if any, from the remaining aspects of
SFAS No. 157 for which the effective date was deferred under FSP 157-2, on
our consolidated financial position, results of operations and cash flows.
On October 10, 2008, the FASB issued FSP 157-3, Fair Value Measurements
(FSP 157-3), which clarifies the application of SFAS No. 157 in an inactive
market and provides an example to demonstrate how the fair value of a financial
asset is determined when the market for that financial asset is inactive. FSP
157-3 was effective upon issuance, including prior periods for which financial
statements had not been issued. The adoption of this standard as of
October 25, 2008 did not have a material impact on our results of
operations, cash flows or financial positions. Please refer to Note 4 for
disclosures related to our initial adoption of SFAS No. 157.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS
No. 159 permits an entity to choose, at specified election dates, to
measure eligible financial instruments and certain other items at fair value
that are not currently required to be measured at fair value. An entity reports
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. Upfront costs and
fees related to items for which the fair value option is elected are recognized
in earnings as incurred and not deferred. SFAS No. 159 also
established presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. As a result, the application of
the fair value option for financial assets and financial liabilities of SFAS No.
159 was effective for our Company beginning with first quarter of fiscal
2009. At the effective date, an entity could elect the fair value option
for eligible items that existed at that date and is required to report the
effect of the first remeasurement to fair value as a cumulative-effect
adjustment to the opening balance of retained earnings. We chose not to elect
the fair value option for our financial assets and liabilities existing on July
27, 2008, and did not elect the fair value option for any financial assets and
liabilities transacted during the six months ended January 24, 2009, except for
a put option related to our auction rate securities that was recorded in
conjunction with a settlement agreement with one of our investment firms, as
more fully described in Note 4.
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Recently
Issued
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS No.
141(R)”), which replaces SFAS No. 141, Business Combinations. SFAS No. 141(R)
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquiree and the
goodwill acquired. The Statement also establishes disclosure requirements that
will enable users to evaluate the nature and financial effects of the business
combination. SFAS 141(R) is effective as of the beginning of an entity’s fiscal
year that begins after December 15, 2008 (our fiscal 2010) and will be applied
if we consummate an acquisition subsequent to the effective date.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51 (“SFAS No. 160”), which establishes accounting and reporting standards
for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS
No.160 is effective as of the beginning of an entity’s fiscal year that begins
after December 15, 2008 (our fiscal 2010). We have not completed our evaluation
of the potential impact, if any, of the adoption of SFAS No. 160 on our
consolidated financial position, results of operations and cash
flows.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS No.
161”). SFAS No. 161 amends and expands the disclosure requirements of
SFAS No. 133 with the intent to provide users of financial statements with an
enhanced understanding of: (i) how and why an entity uses derivative
instruments; (ii) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows. This Statement is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application
encouraged. We have not completed our evaluation of the potential
impact, if any, of the adoption of SFAS No. 161 on our consolidated financial
statements.
In May
2008, the FASB issued FSP APB 14-a, Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (“FSP APB 14-a”). This FSP requires
entities with cash settled convertibles to bifurcate the securities into a debt
component and an equity component and accrete the debt component to par over the
expected life of the convertible debt instrument. This FSP will be effective for
our fiscal year 2010. Early adoption will not be permitted, and the FSP must be
applied retrospectively to all instruments. When effective, we believe this FSP
will be applicable to our 2.5% Convertible Senior Notes. We have not completed
our evaluation of the potential impact, if any, of the adoption of FSP APB 14-a
on our consolidated financial position, results of operations and cash
flows.
In April
2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill and
Other Intangible Assets (“SFAS No. 142”). The objective of FSP 142-3 is to
improve the consistency between the useful life of a recognized intangible asset
under SFAS No. 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS No. 141(R) revised 2007, Business
Combinations, (“SFAS No. 141(R)”), and other U.S. GAAP. FSP 142-3 applies
to all intangible assets, whether acquired in a business combination or
otherwise, and shall be effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years and should be applied prospectively to intangible assets acquired after
the effective date. Early adoption is prohibited. We are in the process of
evaluating FSP 142-3 and do not expect it to have a significant impact on our
consolidated financial statements.
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
3.
Investment
Securities
The
following is a summary of our investment securities as of January 24, 2009 and
July 26, 2008:
(Amounts
in thousands)
|
|
January 24, 2009
|
|
|
July 26, 2008
|
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
Available-for-sale
securities short term:
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
$
|
96,230
|
|
|
$
|
95,361
|
|
|
$
|
92,642
|
|
|
$
|
92,365
|
|
Auction
rate securities
|
|
|
—
|
|
|
|
—
|
|
|
|
55
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
short term Investment Securities
|
|
|
96,230
|
|
|
|
95,361
|
|
|
|
92,697
|
|
|
|
92,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities long term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
|
36,134
|
|
|
|
45,680
|
|
|
|
58,404
|
|
|
|
61,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
securities long term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
|
5,899
|
|
|
|
5,899
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long term Investment Securities
|
|
|
42,033
|
|
|
|
51,579
|
|
|
|
58,404
|
|
|
|
61,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment
Securities
|
|
$
|
138,263
|
|
|
$
|
146,940
|
|
|
$
|
151,101
|
|
|
$
|
154,140
|
|
Our
available-for-sale investment securities are comprised of municipal bonds and
auction rate securities. The primary objective of our short term
investments securities is to preserve our capital for the purpose of funding
operations. We do not enter into short term investments for trading
or speculative purposes. The fair value for the municipal bonds is
based on unadjusted quoted market prices for the municipal bonds in active
markets with sufficient volume and frequency. Auction rate securities
(“ARS”) are variable-rate debt securities. ARS have a long-term maturity with
the interest rate being reset through Dutch auctions that are typically held
every 7, 28 or 35 days. Interest is paid at the end of each auction
period. Our auction rate securities are all AAA/Aaa rated with the
vast majority collateralized by student loans guaranteed by the U.S. government
under the Federal Family Education Loan Program and the remaining securities
backed by monoline insurance companies. The cost of securities sold
is based on the specific identification method.
The
recent and current disruptions in the credit markets have adversely affected the
auction market for ARS. We classify our net $36.1 million investment in
available-for-sale ARS as long-term assets on our Condensed Consolidated Balance
Sheets because of our inability to determine when our investments in ARS would
settle. While recent failures in the auction process have affected our ability
to access these funds in the near term, we do not believe that the underlying
securities or collateral have been permanently affected. We determined that the
$9.5 million valuation adjustment for the quarter ended January 24, 2009 was not
other-than-temporary, and therefore was recorded within the other comprehensive
(loss) income component of shareholders’ equity and did not affect our earnings.
If the current market conditions deteriorate further, or a recovery in market
values does not occur, we may be required to record additional unrealized or
realized losses in the future periods. Management believes that the working
capital available, excluding the funds held in ARS, will be sufficient to meet
our cash requirements for at least the next 12 months.
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
In
November 2008, we accepted a settlement offer whereby UBS would purchase
eligible ARS it sold to us prior to February 13, 2008 (“Settlement Agreement”).
Under the terms of the settlement agreement, at our option, UBS will purchase
eligible ARS from us at par value during the period June 30, 2010 through July
2, 2012. UBS has offered to also provide us with access to “no net cost” loans
up to 75% of the par value of eligible ARS until June 30, 2010. We held
approximately $7.2 million, at par value, of eligible ARS with UBS as of
November 2008. By entering into the Settlement Agreement, we (1) received
the right (“Put Option”) to sell these auction rate securities back to the
investment firm at par, at our sole discretion, anytime during the period from
June 30, 2010 through July 2, 2012, and (2) gave the investment
firm the right to purchase these auction rate securities or sell them on our
behalf at par anytime after the execution of the Settlement Agreement through
July 2, 2012. The Company elected to measure the Put Option under the fair
value option of SFAS No. 159, and recorded income of approximately $1.1
million pre-tax, and recorded a corresponding long term other asset.
Simultaneously, we transferred these long term auction rate securities from
available-for-sale to trading investment securities. As a result of this
transfer, we recognized an other-than-temporary impairment loss of approximately
$1.3 million pre-tax, reflecting a reversal of the related temporary valuation
allowance that was previously recorded in other comprehensive loss. The
recording of the Put Option and the recognition of the other-than-temporary
impairment loss resulted in a $0.2 million net realized loss to our condensed
consolidated statements of operations for the three and six month periods ended
January 24, 2009. We anticipate that any future changes in the fair value
of the Put Option will be offset by the changes in the fair value of the related
auction rate securities with no material net impact to our condensed
consolidated statements of operations.
We review
our impairments in accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, (“SFAS 115”), and related guidance
issued by the FASB and the Securities and Exchange Commission (“SEC”) in order
to determine if the classification of the impairment is
“other-than-temporary”. An other-than-temporary impairment charge
results in a realized loss being recorded in the statements of operations.
Otherwise, the unrealized loss is recorded as a component of other comprehensive
(loss) income in shareholders’ equity. Such an unrealized loss does
not affect net income for the applicable accounting period. To
determine the fair value of the ARS, we used the discounted cash flow model, and
considered factors such as the fact that historically, these securities had
identical par and fair value, and the fact that rating agencies see these as
AAA/Aaa. If the cost of an investment exceeds its fair value, in
making the judgment of whether there has been an other-than-temporary
impairment, we consider available quantitative and qualitative evidence,
including, among other factors, our intent and ability to hold the investment to
maturity, the duration and extent to which the fair value is less than cost,
specific adverse conditions related to the financial health of and business
outlook for the investee and rating agency actions.
We
periodically review our investment portfolio to determine if there is an
impairment that is other-than-temporary, and to date have not experienced any
impairment in our investments that were other-than-temporary with the exception
of the UBS ARS described above. In evaluating whether the individual
investments in the investment portfolio are not other-than-temporarily impaired,
we considered the credit rating of the individual securities, the cause of the
impairment of the individual securities, and the severity of the impairment of
the individual securities.
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
4. Measurement
of Fair Value
Effective
July 27, 2008, we adopted SFAS No. 157, which provides a framework for
measuring fair value under GAAP. As defined in SFAS No. 157, fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (exit price). In determining fair value in
accordance with SFAS No. 157, we utilize market data or assumptions that we
believe market participants would use in pricing the asset or liability that
maximize the use of observable inputs and minimize the use of unobservable
inputs to the extent possible, including assumptions about risk and the risks
inherent in the inputs to the valuation technique. Classification of
the financial asset or liability within the hierarchy is determined based on the
lowest level input that is significant to the fair value
measurement.
SFAS No.
157 establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurement) and the lowest priority to unobservable inputs (Level 3
measurement). The three levels of the fair value hierarchy defined by
SFAS No. 157 are as follows:
Level 1
|
Quoted
prices are available in active markets for identical assets or liabilities
as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and
volume to provide pricing information on an ongoing
basis.
|
Level 2
|
Financial
instruments lacking unadjusted, quoted prices from active market
exchanges, including over-the-counter traded financial
instruments. The prices for the financial instruments are determined
using prices for recently traded financial instruments with similar
underlying terms as well as directly or indirectly observable inputs, such
as interest rates and yield curves that are observable at commonly quoted
intervals.
|
Level 3
|
Financial
instruments that are not actively traded on a market exchange. This
category includes situations where there is little, if any, market
activity for the financial instrument. The prices are determined using
significant unobservable inputs or valuation
techniques.
|
As of January 24, 2009, our financial
assets utilizing Level 1 are our short term investment securities in municipal
bonds. The fair value is based on unadjusted quoted market prices for
the municipal bonds in active markets with sufficient volume and
frequency. We did not have any financial assets utilizing Level 2
inputs. Financial assets utilizing Level 3 inputs included long term
investments in auction rate securities consisting of securities collateralized
primarily by student loans, and a related put option (see Note 3 for further
detail). The fair value measurements for items in Level 3 have been
estimated using an income-approach model. The model considers factors
that reflect assumptions market participants would use in pricing, including,
among others: the collateralization underlying the investments; the
creditworthiness of the counterparty; expected future cash flows, including the
next time the security is expected to have a successful auction; and risks
associated with the uncertainties in the current market.
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
The table
below provides our disclosure of all financial assets and liabilities as of
January 24, 2009 that are measured at fair value on a recurring basis (at least
annually) into the most appropriate level within the fair value hierarchy based
on the inputs used to determine the fair value at the measurement
date. These financial assets are carried at fair value in accordance
with SFAS No. 159 following the requirements of SFAS No. 157.
Fair
Value Measurements as of January 24, 2009
(Amounts
in thousands)
Description
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Assets
at Fair
Market
Value
|
|
Available-for-sale
securities
|
|
$
|
96,230
|
|
|
$
|
—
|
|
|
$
|
36,134
|
|
|
$
|
132,364
|
|
Trading
securities
|
|
|
—
|
|
|
|
—
|
|
|
|
5,899
|
|
|
|
5,899
|
|
Subtotal
investment securities
|
|
|
96,230
|
|
|
|
—
|
|
|
|
42,033
|
|
|
|
138,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Put
option
|
|
|
—
|
|
|
|
—
|
|
|
|
1,086
|
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
96,230
|
|
|
$
|
—
|
|
|
$
|
$
43,119
|
|
|
$
|
139,349
|
|
The
following table provides a reconciliation of the beginning and ending balances
of the investment securities measured at fair value using significant
unobservable inputs (Level 3):
Level
3 (Unobservable inputs)
(Amounts
in thousands)
|
|
Period
ended
January
24, 2009
|
|
|
|
|
|
Balance
at beginning of period, July 27, 2008
|
|
$
|
58,459
|
|
Transfers
in and/or (out) of Level 3
|
|
|
—
|
|
Total
losses realized included in earnings
*
|
|
|
(1,251
|
)
|
Recognition
of Put Option
*
|
|
|
1,086
|
|
Change
in temporary valuation adjustment included in other comprehensive
loss
|
|
|
(6,230
|
)
|
Redemptions
at par
|
|
|
(8,945
|
)
|
Balance
as of January 24, 2009
|
|
$
|
43,119
|
|
* Recording
of Settlement Agreement. See Note 3 for further detail.
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
5.
Property and Equipment
Property
and equipment consisted of the following:
(Amounts
in thousands)
|
|
January
24,
2009
|
|
|
July
26,
2008
|
|
|
|
|
|
|
|
|
Property
and Equipment:
|
|
|
|
|
|
|
Land
|
|
$
|
6,131
|
|
|
$
|
6,131
|
|
Buildings
|
|
|
53,507
|
|
|
|
53,332
|
|
Leasehold
Improvements
|
|
|
167,653
|
|
|
|
163,216
|
|
Fixtures
and Equipment
|
|
|
211,760
|
|
|
|
203,782
|
|
Information
Technology
|
|
|
83,873
|
|
|
|
80,715
|
|
Construction
in Progress
|
|
|
17,949
|
|
|
|
18,429
|
|
|
|
|
540,873
|
|
|
|
525,605
|
|
Less
accumulated depreciation
|
|
|
(270,650
|
)
|
|
|
(251,326
|
)
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
$
|
270,223
|
|
|
$
|
274,279
|
|
We
continuously evaluate the recoverability of our long-lived assets. As a result
of this evaluation and the closing of certain stores, we recorded an asset
impairment and disposal charge of $ 2.4 million during the thirteen weeks ended
January 24, 2009 and $4.0 million during the twenty-six weeks ended January 24,
2009 in our condensed consolidated statements of operations.
6. Goodwill
and Other Intangible Assets
In
accordance with SFAS No. 142, Goodwill and Other Intangible Assets, amortization
of goodwill and indefinite life intangible assets is replaced with annual
impairment tests. We perform an impairment test at least annually on
or about June 30th or whenever events or changes in business circumstances
necessitate determining whether an impairment charge related to the carrying
value of our recorded goodwill or indefinite life intangible assets is
needed.
We have
significant goodwill and other intangible assets related to our acquisition of
maurices
in January
2005.
During the six months ended
January 24, 2009, we experienced a decline in our market
capitalization. We consider market capitalization as one of a number of
factors in our evaluation of recoverability of goodwill. We considered
and evaluated the decline in market capitalization as well as the other factors,
including the projected future cash flows. We concluded that our
goodwill balance of $131.3 million at January 24, 2009 continues to be
recoverable. As part of our ongoing monitoring efforts we will
continue to consider the uncertainty surrounding the current global economic
environment and volatility in the stock market as well as our stock price
and our estimate of projected future cash flows in assessing goodwill
recoverability.
Current
and future economic conditions may adversely impact
maurices’
ability to attract
new customers, retain existing customers, maintain sales volumes, and maintain
margins. These events could materially reduce
maurices’
profitability and
cash flow which could, in turn, lead to an impairment of
maurices’
goodwill.
Furthermore, if customer attrition were to accelerate significantly, the value
of
maurices’
customer
relationships, trade names and proprietary technology could be impaired or
subject to accelerated amortization.
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Other identifiable intangible
assets consist of trade names, customer relationships and proprietary
technology. Trade names have an indefinite life and therefore are not
amortized. Customer relationships and proprietary technology
constitute our identifiable intangible assets subject to amortization, which are
amortized on a straight-line basis over their useful lives.
Other
intangible assets were comprised of the following:
(Amounts
in thousands)
|
|
|
|
January
24,
|
|
|
July
26,
|
|
Description
|
|
Expected Life
|
|
2009
|
|
|
2008
|
|
Customer
Relationship
|
|
7
years
|
|
$
|
2,200
|
|
|
$
|
2,200
|
|
Proprietary
Technology
|
|
5
years
|
|
|
3,298
|
|
|
|
3,298
|
|
Trade
Names
|
|
Indefinite
|
|
|
106,000
|
|
|
|
106,000
|
|
Total
intangible assets
|
|
|
|
|
111,498
|
|
|
|
111,498
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
accumulated amortization
|
|
|
|
|
(4,158
|
)
|
|
|
(3,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
|
$
|
107,340
|
|
|
$
|
107,802
|
|
Based on
our customer relationship and proprietary technology balances as of January 24,
2009, we expect the related amortization expense for the remainder of fiscal
2009 to be approximately $0.4 million and the three succeeding fiscal years to
be approximately $0.5 million in 2010, $0.3 million in 2011 and $0.1
million in 2012.
7
.
Debt
Our 2.5% Convertible Senior Notes
(“Convertible Senior Notes”), which have an aggregate principal amount of $115
million, are due 2024. We may redeem some or all of the Convertible
Senior Notes for cash at any time on or after December 22, 2011 at a redemption
price equal to 100% of the principal amount of the notes plus accrued
interest. Holders may convert their notes into cash and shares of our
common stock, if any, at a conversion rate of 95.1430 shares per $1,000
principal amount of Convertible Senior Notes (equal to a conversion price of
approximately $10.51 per share), during specified periods. Upon
conversion, we would deliver cash for the aggregate principal amount of
Convertible Senior Notes to be converted. The excess, if any, of the
price of our common stock above $10.51 per share would be payable in common
shares. If the market price of the common stock exceeds the
conversion price, we are required to use the treasury stock method in
calculating diluted earnings per share for the number of shares to be issued for
the excess value. On January 23, 2009, the market value of the
Convertible Senior Notes was $107.2 million as valued on PORTAL (Private
Offering Resale and Trading through Automated Linkage).
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
As of
January 26, 2009 and continuing through April 24, 2009, the holders of the
Convertible Senior Notes may not convert their notes, as described above,
because our stock price did not close above $12.61 per share for 20 trading days
within the last 30 trading-day period of the quarter or following a request by a
holder the trading price per $1,000 principal amount of the Convertible Senior
Notes is less than 98% of the conversion rate multiplied by the last reported
sales price of the common stock during each day of any five consecutive trading
day period. Accordingly, the Convertible Senior Notes were classified as a
non-current liability as of January 24, 2009 because the market-based conversion
provisions were not met as of that date. The Convertible Senior Notes
were classified as a current liability as of July 26, 2008 because the
market-based conversion provisions were met as of that date. If
our common stock maintains a closing price above $12.61 per share for the
required time period during certain subsequent periods, the convertible senior
notes would be available for immediate conversion and would be reclassified as a
current liability.
On
December 21, 2005, we entered into a credit agreement with several lenders (the
“Credit Agreement”). Our Credit Agreement provides a senior secured revolving
credit facility that provides for borrowings and issuance of letters of credit
for up to $100 million, which we may request be increased up to $150
million. The Credit Agreement will terminate on December 21, 2010 or
earlier under certain conditions. Borrowings under the Credit
Agreement are based on either LIBOR or the higher of the prime rate of JPMorgan
Chase Bank, N.A. or the Federal Funds Effective Rate plus 0.50%. The
interest rates under the Credit Agreement vary depending upon our adjusted
leverage ratio. The Credit Agreement contains affirmative, negative
and financial covenants, the most restrictive of which include a fixed charge
coverage ratio and a limit on capital expenditures in any fiscal
year. The Credit Agreement is collateralized by substantially all of
our assets exclusive of the Dunnigan Realty, LLC assets, and Maurices
Incorporated assets, and none of our subsidiaries have guaranteed the credit
agreement. As of January 24, 2009, $68 million was available under
the Credit Agreement, which represents the $100 million from our senior secured
revolving credit facility less $32 million of outstanding trade and standby
letters of credit at January 24, 2009. Our letter of credit exposure
peaked at approximately $45 million due to normal business activity during our
first quarter of fiscal 2009.
On
November 5, 2008, we entered into a second amendment to the Credit
Agreement. This amends the Credit Agreement by allowing investments
in unconsolidated entities that do not constitute subsidiaries, in an aggregate
amount not to exceed $35 million and repurchases of shares of our common stock
pursuant to our stock buyback program, in an aggregate amount not to exceed $100
million in any fiscal year. The amendment also limits standby letter of credit
exposure to $15 million.
In
connection with the purchase of the Suffern facility, Dunnigan Realty, LLC
(“Dunnigan”), in July 2003, borrowed $34 million under a 5.33% rate mortgage
loan. The Dunnigan mortgage loan (the “Mortgage”) is collateralized
by a mortgage lien on the Suffern facility, of which the major portion is our
corporate offices and
dressbarn’s
distribution
center. Payments of principal and interest on the mortgage, a 20-year
fully amortizing loan, are due monthly through July 2023. In
connection with the mortgage, we paid approximately $1.7 million in debt
issuance costs. These costs were deferred and included in “Other
assets” on our Condensed Consolidated Balance Sheets and are being amortized to
interest expense over the life of the Mortgage.
Debt
consists of the following:
|
|
|
|
|
|
|
(Amounts
in thousands)
|
|
January
24,
2009
|
|
|
July
26,
2008
|
|
|
|
|
|
|
|
|
Dunnigan
Mortgage
|
|
$
|
27,910
|
|
|
$
|
28,540
|
|
Convertible
Senior Notes
|
|
|
115,000
|
|
|
|
115,000
|
|
Other
|
|
|
158
|
|
|
|
—
|
|
|
|
$
|
143,068
|
|
|
$
|
143,540
|
|
|
|
|
|
|
|
|
|
|
Less:
current portion
|
|
|
(1,312
|
)
|
|
|
(116,277
|
)
|
Total
long-term debt
|
|
$
|
141,756
|
|
|
$
|
27,263
|
|
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
8. Income
Taxes
We
adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), Accounting for
Uncertainty in Income Taxes, on July 29, 2007. As of January 24,
2009, our gross unrecognized tax benefits were $19.0 million, including accrued
interest and penalties of $4.5 million. If recognized, the portion of
the liabilities for gross unrecognized tax benefits that would affect our
effective tax rate is $13.0 million. There has been no material
change in our gross unrecognized tax benefits during the six month period ended
January 24, 2009.
We file
income tax returns in the U.S. federal jurisdiction and various state
jurisdictions. Federal periods that remain subject to examination include fiscal
2005 to fiscal 2007 and state jurisdictions that remain subject to examination
range from fiscal 2001 to 2007, with few exceptions. Our federal tax return for
the fiscal period ended July 29, 2006 is currently under
examination. During the six month period ended January 24, 2009,
there has been no material change in the amount of total gross unrecognized tax
benefits that are reasonably possible to reverse in the next twelve
months.
9.
Share-Based
Compensation
Our 2001
Stock Incentive Plan, as amended November 30, 2005, provides for the granting of
either incentive stock options (ISO’s) or non-qualified options to purchase
shares of common stock, with a total of 12 million shares authorized for
grant. As of January 24, 2009 there were approximately 4.1 million
shares under the 2001 plan available for future grant. All of our
prior stock option plans have expired as to the ability to grant new
options.
Stock
option awards outstanding under our current plans have been granted at exercise
prices that are equal to the market value of our stock on the date of grant,
generally vest over five years and expire no later than ten years after the
grant date. We recognize compensation expense ratably over the
vesting period, net of estimated forfeitures. During the thirteen
weeks ended January 24, 2009 and January 26, 2008, we recognized a total of
approximately $1.7 million in share-based compensation expense. During the
twenty-six weeks ended January 24, 2009 and January 26, 2008, we recognized a
total of approximately $3.2 million in share-based compensation expense. As of
January 24, 2009, there was $19.3 million of total unrecognized compensation
cost related to nonvested options, which is expected to be recognized over a
remaining weighted-average vesting period of 3.6 years. The
total intrinsic value of options exercised during the thirteen weeks ended
January 24, 2009 was approximately $1.4 million and during the twenty-six weeks
ended January 24, 2009 was approximately $1.5 million.
Following
is a summary of the changes in stock options outstanding during the twenty-six
weeks ended January 24, 2009:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
(000’s)
|
|
Options
outstanding at July 26, 2008
|
|
|
5,850,968
|
|
|
$
|
11.05
|
|
|
|
6.2
|
|
|
|
|
Granted
|
|
|
1,799,605
|
|
|
|
14.98
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(36,750
|
)
|
|
|
16.20
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(175,800
|
)
|
|
|
7.12
|
|
|
|
|
|
|
|
|
Options
outstanding at January 24, 2009
|
|
|
7,438,023
|
|
|
$
|
12.07
|
|
|
|
6.7
|
|
|
$
|
5,940.0
|
|
Vested
and exercisable at January 24, 2009
|
|
|
3,833,376
|
|
|
$
|
9.49
|
|
|
|
4.9
|
|
|
$
|
5,868.3
|
|
Vested
and expected to vest at January 24, 2009
|
|
|
7,038,433
|
|
|
$
|
12.76
|
|
|
|
6.5
|
|
|
$
|
5,932.5
|
|
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
The 2001
Stock Incentive Plan also allows for the issuance of restricted
shares. Prior to January 2005, restricted shares did not count
against the 2001 Stock Incentive Plan. Effective January 2005, any
shares of restricted stock are counted against the shares available for future
grant limit as three shares for every one restricted share
granted. In general, if options are cancelled for any reason or
expire, the shares covered by such options again become available for grant. If
a share of restricted stock is forfeited for any reason, three options
become available for grant.
In
accordance with SFAS No. 123R, the fair value of restricted stock awards is
estimated on the date of grant based on the market price of our stock and is
amortized to compensation expense on a straight-line basis over the related
vesting periods, which are generally five years. As of January 24,
2009, there was $0.7 million of total unrecognized compensation cost related to
nonvested restricted stock awards, which is expected to be recognized over a
remaining weighted-average vesting period of 3.6 years. The
unrecognized compensation cost related to nonvested restricted stock awards is
recorded as a reduction in additional paid-in capital. Compensation expense
recognized for restricted stock awards during the thirteen weeks ended January
24, 2009 was $0.1 million and $0.2 million during the twenty-six weeks ended
January 24, 2009.
During
fiscal 2007, we established a Long-Term Incentive Plan (the “LTIP”) which
authorizes the grant of performance-based restricted stock to senior executives
based on the achievement of certain performance metrics versus planned amounts
over specified valuation periods. As of January 24, 2009, there was
$0.2 million of total unrecognized compensation cost for the restricted shares
issued for the fiscal 2007 valuation period. During the thirteen
weeks ended January 24, 2009 and the thirteen weeks ended January 26, 2008, we
recognized a total of $1.0 million and $0.1 million of compensation expense
relating to certain existing LTIP valuation periods. During the
twenty-six weeks ended January 24, 2009 and the twenty-six weeks ended January
26, 2008, we recognized a total of ($0.4) million and $0.3 million of
compensation expense relating to certain existing LTIP valuation
periods.
Following
is a summary of the changes in the shares of restricted stock, including the
LTIP, outstanding during the thirteen weeks ended January 24, 2009:
|
|
Number
of
Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
Per Share
|
|
Restricted
stock awards at July 26, 2008
|
|
|
140,524
|
|
|
$
|
16.12
|
|
Granted
|
|
|
19,500
|
|
|
|
15.01
|
|
Vested
|
|
|
(49,043
|
)
|
|
|
14.29
|
|
Forfeited
|
|
|
(3,000
|
)
|
|
|
14.39
|
|
Restricted
stock awards at January 24, 2009
|
|
|
107,981
|
|
|
$
|
16.80
|
|
For the
thirteen weeks ended January 24, 2009 and January 26, 2008, excess tax benefits
realized from the exercise of stock options were approximately $0.0 million and
$0.4 million, respectively. For the twenty-six weeks ended January
24, 2009 and January 26, 2008, excess tax benefits realized from the exercise of
stock options were approximately $0.4 million and $0.2 million,
respectively.
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
The fair
values of the options granted under our fixed stock option plans were estimated
on the date of grant using the Black-Scholes option pricing model with the
following assumptions:
|
|
Twenty-Six
Weeks Ended
|
|
|
|
January
24,
2009
|
|
|
January
26,
2008
|
|
|
|
|
|
|
|
|
Weighted
average risk-free interest rate
|
|
|
2.6
|
%
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
Weighted
average expected life (years)
|
|
|
4.9
|
|
|
|
4.8
|
|
Weighted
average expected volatility of the market price of the Company’s common
stock by grantee group
|
|
|
40.5
|
%
|
|
|
39.5
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
The
Black-Scholes option pricing model was developed for use in estimating the fair
value of traded options, which have no vesting restrictions and are fully
transferable. The expected life of options represents the period of
time the options are expected to be outstanding and is based on historical
trends. The risk-free rate is based on the yield of a US Treasury
strip rate with a maturity date corresponding to the expected term of the option
granted. The expected volatility assumption is based on the
historical volatility of our stock over a term equal to the expected term of the
option granted. Option valuation models require input of highly
subjective assumptions including the expected stock price
volatility. Because our employee stock options have characteristics
significantly different from those of traded options, and because changes in
subjective input assumptions can materially affect the fair value estimate, the
actual value realized at the time the options are exercised may differ from the
estimated values computed above.
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
10
.
Comprehensive (Loss)
Income
Comprehensive (loss) income is
calculated in accordance with SFAS No. 130, Reporting Comprehensive Income
(“SFAS No. 130”)
,
and
includes our net earnings and unrealized gains and losses on available-for-sale
investment securities. Cumulative unrealized gains and losses on
available-for-sale investment securities are reflected as accumulated other
comprehensive (loss) income in shareholders’ equity. See Note 3 for
additional information. Comprehensive (loss) income for
all periods presented is comprised of the following:
|
|
Thirteen
Weeks Ended
|
|
|
Twenty-Six
Weeks Ended
|
|
(Amounts
in thousands)
|
|
January
24,
2009
|
|
|
January
26,
2008
|
|
|
January
24,
2009
|
|
|
January
26,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) earnings
|
|
$
|
(1,068
|
)
|
|
$
|
7,414
|
|
|
$
|
19,416
|
|
|
$
|
27,037
|
|
Unrealized
(loss) gain on investment securities, net of taxes
|
|
|
(1,877
|
)
|
|
|
434
|
|
|
|
(5,638
|
)
|
|
|
556
|
|
Other
Comprehensive (loss) income
|
|
$
|
(2,945
|
)
|
|
$
|
7,848
|
|
|
$
|
13,778
|
|
|
$
|
27,593
|
|
11. Share
Repurchase Programs
On
September 20, 2007, our Board of Directors authorized a $100 million share
repurchase program (the “2007 Program”). Under the 2007 Program
purchases of shares of our common stock may be made at our discretion from time
to time, subject to market conditions and at prevailing market prices, through
open market purchases or in privately negotiated transactions and will be
subject to applicable SEC rules. The 2007 Program has no expiration
date.
During
the thirteen weeks ended January 24, 2009, we purchased 125,000 shares at an
aggregate purchase price of approximately $1.0 million under the 2007 Stock
Repurchase Program. The total purchases for the twenty-six weeks
ended January 24, 2009 were 546,000 shares at an aggregate purchase price of
approximately $4.7 million, resulting in a remaining authorized balance of $95.3
million. Treasury (reacquired) shares are retired and treated as
authorized but unissued shares.
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
12. Earnings
Per Share
Basic
earnings per share are computed based upon the weighted average number of common
shares outstanding. The computation of diluted earnings per share
includes the foregoing and exercise of all stock options using the treasury
stock method and conversion obligation of the Convertible Senior Notes to the
extent dilutive. See Note 7 “Debt” for additional
information. Common equivalent shares outstanding consist of shares
covered by stock options and the Convertible Senior Notes, to the extent
dilutive.
|
|
Thirteen Weeks
|
|
|
Twenty-Six Weeks
|
|
(Amounts in thousands)
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding – basic
|
|
|
59,880
|
|
|
|
60,009
|
|
|
|
60,117
|
|
|
|
60,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
effect of dilutive common share equivalents that include stock options and
convertible securities based on the treasury stock method using the
average market price
|
|
|
—
|
|
|
|
3,243
|
|
|
|
2,313
|
|
|
|
4,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding –
diluted
|
|
|
59,880
|
|
|
|
63,252
|
|
|
|
62,430
|
|
|
|
64,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive
common stock equivalents
|
|
|
9,505
|
|
|
|
3,410
|
|
|
|
4,986
|
|
|
|
1,186
|
|
The
Convertible Senior Notes were dilutive to earnings per share for the twenty-six
weeks ending January 24, 2009 and were dilutive for both the thirteen and
twenty-six week periods ending January 26, 2008, as a result of our average
stock price being greater than the conversion price of the Convertible Senior
Notes. In accordance with Emerging Issues Task Force (“EITF”) Issue
No. 04-8, The Effect of Contingently Convertible Debt on Diluted Earnings Per
Share (“EITF 04-8”), the number of additional shares related to the dilutive
effect of the Convertible Senior Notes was approximately 1.2 million shares for
the twenty-six weeks ended January 24, 2009 and approximately 3.3 million shares
for the twenty-six weeks ended January 26, 2008. For the thirteen
weeks ended January 24, 2009 there were 2.1 million shares which were
anti-dilutive to the earnings per share and for the thirteen weeks ended January
26, 2008 there were approximately 2.1 million shares which were dilutive to
earnings per share.
The Dress
Barn, Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
13. Segments
Effective
with the acquisition of
maurices
in January 2005, we
operate and report in two segments, the
dressbarn
brands and the
maurices
brand. Selected financial information by reportable segment and a
reconciliation of the information by segment to the consolidated totals is as
follows:
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
(Amounts in millions)
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
dressbarn and dressbarn woman
brands
|
|
$
|
196.5
|
|
|
$
|
204.1
|
|
|
$
|
429.4
|
|
|
$
|
432.2
|
|
maurices
brand
|
|
|
146.7
|
|
|
|
141.5
|
|
|
|
290.2
|
|
|
|
277.1
|
|
Consolidated
net sales
|
|
$
|
343.2
|
|
|
$
|
345.6
|
|
|
$
|
719.6
|
|
|
$
|
709.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dressbarn and dressbarn woman
brands
|
|
$
|
(11.8
|
)
|
|
$
|
(4.4
|
)
|
|
$
|
6.4
|
|
|
$
|
7.8
|
|
maurices
brand
|
|
|
9.4
|
|
|
|
12.9
|
|
|
|
23.5
|
|
|
|
31.9
|
|
Consolidated
operating (loss) income
|
|
|
(2.4
|
)
|
|
|
8.5
|
|
|
|
29.9
|
|
|
|
39.7
|
|
Interest
income
|
|
|
1.4
|
|
|
|
2.2
|
|
|
|
3.4
|
|
|
|
3.7
|
|
Interest
expense
|
|
|
(1.2
|
)
|
|
|
(1.2
|
)
|
|
|
(2.4
|
)
|
|
|
(2.4
|
)
|
Other
income
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
0.9
|
|
|
|
0.8
|
|
(Loss)
earnings before provision for income taxes
|
|
$
|
(1.7
|
)
|
|
$
|
9.9
|
|
|
$
|
31.8
|
|
|
$
|
41.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dressbarn and dressbarn woman
brands
|
|
$
|
6.9
|
|
|
$
|
6.9
|
|
|
$
|
14.0
|
|
|
$
|
13.6
|
|
maurices
brand
|
|
|
5.2
|
|
|
|
4.9
|
|
|
|
10.3
|
|
|
|
9.7
|
|
Consolidated
depreciation and amortization
|
|
$
|
12.1
|
|
|
$
|
11.8
|
|
|
$
|
24.3
|
|
|
$
|
23.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dressbarn and dressbarn woman
brands
|
|
$
|
3.9
|
|
|
$
|
7.4
|
|
|
$
|
12.9
|
|
|
$
|
15.0
|
|
maurices
brand
|
|
|
5.4
|
|
|
|
5.6
|
|
|
|
14.6
|
|
|
|
12.7
|
|
Consolidated
capital expenditures
|
|
$
|
9.3
|
|
|
$
|
13.0
|
|
|
$
|
27.5
|
|
|
$
|
27.7
|
|
(Amounts
in millions)
|
|
January
24, 2009
|
|
|
July
26, 2008
|
|
Total
assets
|
|
|
|
|
|
|
dressbarn and dressbarn woman
brands
|
|
$
|
867.4
|
|
|
$
|
850.0
|
|
maurices
brand
|
|
|
159.3
|
|
|
|
174.5
|
|
Total
assets
|
|
$
|
1,026.7
|
|
|
$
|
1,024.5
|
|
|
|
|
|
|
|
|
|
|
Merchandise
inventories
|
|
|
|
|
|
|
|
|
dressbarn and dressbarn woman
brands
|
|
$
|
105.8
|
|
|
$
|
117.9
|
|
maurices
brand
|
|
|
53.4
|
|
|
|
69.1
|
|
Total
merchandise inventories
|
|
$
|
159.2
|
|
|
$
|
187.0
|
|
Item
2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis of financial condition and results of
operations are based upon our unaudited condensed consolidated financial
statements and should be read in conjunction with those statements, the notes
thereto and our Annual Report on Form 10-K for the fiscal year ended July 26,
2008. This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
reflect our current views with respect to future events and financial
performance. Our actual results of operations and future financial condition may
differ materially from those expressed or implied in any such forward-looking
statements. We disclaim any obligation to update or revise any forward-looking
statements.
Management
Overview
This
Management Overview section of Management’s Discussion and Analysis of Financial
Condition and Results of Operations (“MD&A”) provides a high-level summary
of the more detailed information elsewhere in this quarterly report and an
overview to put this information into context. This section is also an
introduction to the discussion and analysis that follows. Accordingly, it
necessarily omits details that appear elsewhere in this MD&A. It should not
be relied upon separately from the balance of this quarterly
report.
We expect
the macroeconomic environment will remain challenging for the foreseeable future
which has negatively impacted the
dressbarn
and
maurices
customer confidence
and discretionary spending. We have remained focused on managing effectively the
fundamentals that we control, including closely managing inventory levels,
tightening control over expenses and continually evaluating our planned capital
expenditures. We continue to further our strategic initiatives to position our
Company for stronger operating performance when economic conditions become more
favorable.
The
following is a summary of highlights from the second quarter and twenty-six
weeks of our fiscal 2009 and recent developments:
During
the thirteen weeks of fiscal 2009 which ended January 24, 2009 (the “second
quarter”), net sales were $343.2 million, a decrease of 0.7% from $345.6 million
for the thirteen weeks ended January 26, 2008 (the “prior quarter”). Our
comparable same store sales decreased 4.4% during the same period (
dressbarn
decreased 5.7% and
maurices
decreased
2.4%). During the second quarter, we opened two
dressbarn
brand Combo stores
and five
maurices
stores. There were nine closings of
dressbarn
brand locations and
no closings of
maurices
stores during the second quarter.
During
the second quarter, we used aggressive promotions to drive customer traffic and
reduce inventory levels. This negatively impacted our merchandise margins;
however, as of January 24, 2009, our level of clearance inventory is now well
below last year. As a result, we had a net loss for the second quarter of $1.1
million compared to net earnings of $7.4 million for the prior quarter. The
diluted loss per share for the second quarter was $0.02 versus diluted earnings
per share of $0.12 for the prior quarter.
During
the twenty-six weeks of fiscal 2009 which ended January 24, 2009 (the “six
months”), net sales were $719.6 million, an increase of 1.5% from $709.3 million
for the twenty-six weeks ended January 26, 2008 (the “prior period”). Our
comparable same store sales decreased 2.5% during the same period (
dressbarn
and
maurices
both decreased 2.5%).
During the six months, we opened 20
dressbarn
brand Combo stores
and 20
maurices
stores.
There were 12 closings of
dressbarn
brand locations and
no closings of
maurices
stores during the six months. Our total store square footage at the end of the
second quarter increased approximately 5.1% from the end of the prior
quarter and for the six months increased approximately 5.1% from the end of the
prior period.
Net
earnings for the twenty-six weeks decreased to $19.4 million from $27.0 million
for the prior period. Diluted earnings per share for the twenty-six weeks were
$0.31 versus $0.42 per share for the prior period.
During
the thirteen weeks ended January 24, 2009, we purchased 125,000 shares at an
aggregate purchase price of approximately $1.0 million under the 2007 Stock
Repurchase Program. The total purchases for the twenty-six weeks ended January
24, 2009 were 546,000 shares at an aggregate purchase price of approximately
$4.7 million, resulting in a remaining authorized balance of $95.3 million.
Treasury (reacquired) shares are retired and treated as authorized but unissued
shares.
As of January 26, 2009 and continuing
through April 24, 2009, the holders of the Convertible Senior Notes may not
convert their notes because our stock price did not close above $12.61 per share
for 20 trading days within the last 30 trading-day period of the quarter. As
such, the Convertible Senior Notes were classified as a long term liability as
of January 26, 2009 because the market-based conversion provisions were not met
as of that date. The Convertible Senior Notes were classified as a current
liability as of July 26, 2008 because the market-based conversion provisions
were met as of that date.
On November 5, 2008, we entered into a
second amendment to our Credit Agreement. This amends the Credit Agreement by
allowing investments in unconsolidated entities that do not constitute
subsidiaries, in an aggregate amount not to exceed $35 million and repurchases
of shares of our common stock pursuant to our stock buyback program, in an
aggregate amount not to exceed $100 million in any fiscal year. The amendment
also limits standby letter of credit exposure to $15 million.
In
November 2008, we accepted a settlement offer (the “Settlement Agreement”)
whereby UBS agreed to purchase auction rate securities it sold to us (the “UBS
ARS”). Under the terms of the Settlement Agreement, at our option, UBS will
purchase the UBS ARS from us at par value during the period June 30, 2010
through July 2, 2012. UBS has offered to also provide us with access to “no net
cost” loans up to 75% of the par value of UBS ARS until June 30, 2010. We held
approximately $7.2 million, at par value, of UBS ARS as of November, 2008. In
conjunction with the execution of the Settlement Agreement, we reclassified the
related auction rate securities from available-for-sale to trading investment
securities recognizing an other-than-temporary impairment loss of $1.3 million
and at the same time we recorded income for a put option in the amount of $1.1
million. The net $0.2 million loss was recognized in our condensed consolidated
statements of operations for the three and six month periods ended January 24,
2009.
Our
shareholders approved an increase of authorized shares from 75,000,000 to
165,000,000 at our Annual Meeting of Shareholders which occurred during the
second quarter of our fiscal 2009.
Our
management uses a number of key indicators of financial condition and operating
performance to evaluate the performance of our business, including the
following:
|
|
Thirteen We
eks Ended
|
|
Twenty-Six Weeks Ended
|
|
|
|
January 24,
|
|
|
January 26,
|
|
January 24,
|
|
|
January 26,
|
|
|
|
2009
|
|
|
2008
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales growth vs. prior year
|
|
|
(0.7
|
)%
|
|
|
1.6
|
%
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
dressbarn
comparable
store sales
|
|
|
(5.7
|
)%
|
|
|
(6.8
|
)%
|
|
|
(2.5
|
)%
|
|
|
(7.5
|
)%
|
maurices
comparable
store sales
|
|
|
(2.4
|
)%
|
|
|
1.9
|
%
|
|
|
(2.5
|
)%
|
|
|
4.6
|
%
|
Total
comparable store
sales growth
|
|
|
(4.4
|
)%
|
|
|
(3.5
|
)%
|
|
|
(2.5
|
)%
|
|
|
(3.3
|
)%
|
Cost
of sales, including occupancy & buying (excluding depreciation), as a
percentage of sales
|
|
|
67.2
|
%
|
|
|
64.8
|
%
|
|
|
63.9
|
%
|
|
|
63.2
|
%
|
SG&A
as a percentage of sales
|
|
|
30.0
|
%
|
|
|
29.4
|
%
|
|
|
28.6
|
%
|
|
|
27.9
|
%
|
Square
footage growth vs. prior year
|
|
|
5.1
|
%
|
|
|
5.6
|
%
|
|
|
5.1
|
%
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
store count
|
|
|
1,531
|
|
|
|
1,457
|
|
|
|
1,531
|
|
|
|
1,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures (in millions)
|
|
$
|
9.3
|
|
|
$
|
13.0
|
|
|
$
|
27.5
|
|
|
$
|
27.7
|
|
Diluted
(loss) earnings per share
|
|
$
|
(0.02
|
)
|
|
$
|
0.12
|
|
|
$
|
0.31
|
|
|
$
|
0.42
|
|
We
consider comparable store sales to be one of the most important indicators of
our current performance. Comparable store sales results are important in
leveraging our costs, including store payroll, store supplies, occupancy costs,
fixed overhead and selling, general and administrative costs. Positive
comparable store sales contribute to greater leveraging of costs and negative
comparable store sales contribute to the de-leveraging of costs. Comparable
store sales also have a direct impact on our total net sales, cash and working
capital. We calculate comparable store sales based on the sales of stores open
throughout the full period and throughout the full prior period (including
stores relocated within the same shopping center and stores with minor square
footage additions). If a single-format
dressbarn
store is converted
into a Combo store, the additional sales from the incremental format are not
included in the calculation of same store sales. The determination of which
stores are included in the comparable store sales calculation only changes at
the beginning of each fiscal year except for stores that close during the fiscal
year, which are excluded from comparable store sales beginning with the fiscal
month the store actually closes.
We
include in our cost of sales line item all costs of merchandise (net of purchase
discounts and vendor allowances), freight on inbound, outbound and internally
transferred merchandise, merchandise acquisition costs (primarily commissions
and import fees), occupancy costs excluding utilities and depreciation and all
costs associated with the buying and distribution functions. Our cost of sales
may not be comparable to those of other entities, since some entities include
all costs related to their distribution network, including depreciation, and all
buying and occupancy costs in their cost of sales, while other entities,
including us, exclude a portion of these expenses from cost of sales and include
them in selling, general and administrative expenses or depreciation. We include
depreciation related to the distribution network in depreciation and
amortization, and utilities and insurance expenses, among other expenses, in
selling, general and administrative expenses on the consolidated statements of
operations.
We expect
to continue our strategy of opening new stores while closing underperforming
locations. Our store expansion strategy is to focus on both expanding our major
trading markets and developing and expanding into new domestic markets. We plan
to continue our planned store openings using cash flow from operations. We
currently plan to open approximately 10
dressbarn
and 35
maurices
stores and close
approximately 10
dressbarn
and 5
maurices
stores during the
remainder of our fiscal year ending July 25, 2009 (“Fiscal
2009”).
Results
of Operations
Net
sales:
(Amounts
in millions, except for % amounts)
|
|
January 24,
2009
|
|
|
% of
Sales
|
|
|
January 26,
2008
|
|
|
% of
Sales
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dressbarn
and
dressbarn woman
brands
|
|
$
|
196.5
|
|
|
|
57.3
|
%
|
|
$
|
204.1
|
|
|
|
59.1
|
%
|
|
|
(3.7
|
)%
|
maurices
brand
|
|
|
146.7
|
|
|
|
42.7
|
%
|
|
|
141.5
|
|
|
|
40.9
|
%
|
|
|
3.7
|
%
|
Consolidated
thirteen weeks
ended
net sales
|
|
$
|
343.2
|
|
|
|
|
|
|
$
|
345.6
|
|
|
|
|
|
|
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dressbarn
and
dressbarn woman
brands
|
|
$
|
429.4
|
|
|
|
59.7
|
%
|
|
$
|
432.2
|
|
|
|
60.9
|
%
|
|
|
(0.6
|
)%
|
maurices
brand
|
|
|
290.2
|
|
|
|
40.3
|
%
|
|
|
277.1
|
|
|
|
39.1
|
%
|
|
|
4.7
|
%
|
Consolidated
twenty-six weeks
ended
net sales
|
|
$
|
719.6
|
|
|
|
|
|
|
$
|
709.3
|
|
|
|
|
|
|
|
1.5
|
%
|
Net sales for the second quarter
decreased by 0.7% to $343.2 million from $345.6 million for the prior
quarter. The net sales decrease for the second quarter was related to
our consolidated comparable store sales decrease of 4.4% (
dressbarn
decreased 5.7% and
maurices
decreased 2.4%)
partially offset by the 5.1% increase in store square footage due to net new
store openings. The
dressbarn
brands’ total sales
transactions decreased 4.8%, average unit retail increased 2.7%, primarily due
to lower markdowns, and units per transaction decreased 2.1%. This
netted to a 0.6% increase in average dollar sale.
maurices
sales for the second
quarter were $146.7 million as compared with $141.5 million in the prior quarter
primarily driven by new store growth offset by the comparable store sales
decrease of 2.4%.
maurices
brands’ total sales
transactions decreased 0.9% on lower traffic offset by higher conversion,
average unit retail decreased 2.9%, primarily due to higher markdowns, and units
per transaction increased 1.4% for a net decrease of approximately 1.6% in
average dollar sale.
Net sales
for the first six months increased by 1.5% to $719.6 million from $709.3 million
for the prior period. The net sales increase for the six months was
related to the 5.1% increase in store square footage due to net new store
openings partially offset by our consolidated comparable store sales decrease of
2.5% (both
dressbarn
and
maurices
decreased
2.5%). The
dressbarn
brands’ total sales
transactions decreased 2.6%, average unit retail increased 2.4% and units per
transaction decreased 0.8%. This netted to a 1.6% increase in average dollar
sale.
maurices
sales for the first
six months were $290.2 million as compared with $277.1 million in the prior
period primarily driven by new store growth offset by the comparable store sales
decrease of 2.5%.
maurices
brands’ total sales
transactions decreased 2.2% on lower traffic offset by higher conversion,
average unit retail decreased 1.1%, primarily due to higher markdowns, and units
per transaction increased 0.9% for a net decrease of approximately 0.2% in
average dollar sale.
Cost
of sales, including buying and occupancy costs, excluding
depreciation:
(Amounts
in millions, except
for
% amounts)
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks
ended
|
|
$
|
230.5
|
|
|
$
|
223.8
|
|
|
$
|
6.7
|
|
|
|
3.0
|
%
|
As
a percentage of sales
|
|
|
67.2
|
%
|
|
|
64.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
weeks ended
|
|
$
|
459.7
|
|
|
$
|
448.0
|
|
|
$
|
11.7
|
|
|
|
2.6
|
%
|
As
a percentage of sales
|
|
|
63.9
|
%
|
|
|
63.2
|
%
|
|
|
|
|
|
|
|
|
Cost of
sales for the second quarter increased 240 basis points as a percent of sales to
67.2% from 64.8% as compared to the prior quarter.
For the
dressbarn
brands, cost of
sales, including buying and occupancy costs, excluding depreciation (“cost of
sales”) was 69.8% of net sales, an increase of 270 basis points for the second
quarter as compared to the prior quarter, primarily due to lower initial markon
and occupancy cost de-leveraging. For the
maurices
brand, cost of sales
was 63.7% of net sales, an increase of 230 basis points for the second quarter
as compared to the prior quarter, primarily the result of higher markdowns and
occupancy cost de-leveraging due to the decrease in comparable store
sales.
Cost of
sales for the first six months increased 70 basis points as a percent of sales
to 63.9% from 63.2% as compared to the prior period. For the
dressbarn
brands, cost of
sales was 65.4% of net sales, a decrease of 10 basis points for the period as
compared to the prior period, primarily due to lower initial
markon. For the
maurices
brand, cost of sales
was 61.7% of net sales, an increase of 210 basis points for the first six months
as compared to the prior period, primarily the result of higher markdowns and
occupancy cost de-leveraging due to the decrease in comparable store
sales.
SG&A
expenses:
(Amounts
in millions, except
for
% amounts)
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks
ended
|
|
$
|
103.0
|
|
|
$
|
101.5
|
|
|
$
|
1.5
|
|
|
|
1.5
|
%
|
As
a percentage of sales
|
|
|
30.0
|
%
|
|
|
29.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
weeks ended
|
|
$
|
205.7
|
|
|
$
|
198.2
|
|
|
$
|
7.5
|
|
|
|
3.8
|
%
|
As
a percentage of sales
|
|
|
28.6
|
%
|
|
|
27.9
|
%
|
|
|
|
|
|
|
|
|
SG&A
expenses for the second quarter increased 60 basis points to 30.0% from 29.4%
for the prior quarter. For the
dressbarn
brands, SG&A
increased 100 basis points to 32.7% versus 31.7% as compared to the prior
quarter. The increase was due primarily to the de-leveraging of store
operating expenses due to the comparable store sales decrease partially offset
by a decrease in medical costs and a reduction of marketing
expenditures.
maurices
SG&A expenses
were 26.4% of sales for the second quarter versus 26.0% as compared to the prior
quarter. This increase was attributable to the de-leveraging of store
operating costs due to the comparable store sales decrease and increased medical
costs and store utilities partially offset by a decrease in marketing
expenditures.
SG&A
expenses for the first six months increased 70 basis points to 28.6% from 27.9%
as compared to the prior period. For the
dressbarn
brands, SG&A
increased 30 basis points to 29.9% versus 29.6% as compared to the prior
period. The increase was due primarily to the de-leveraging of store
operating expenses in relation to the comparable store sales decrease partially
offset by a decrease in benefit costs.
maurices
SG&A expenses
were 26.7% of sales for the first six months versus 25.4% as compared to the
prior period. This increase was attributable to the de-leveraging of
store operating costs due to the comparable store sales decrease, increased
benefit costs and increased marketing and store utility
expenditures.
Depreciation
and amortization:
(Amounts in millions, except
for % amounts)
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Thirteen weeks ended
|
|
$
|
12.1
|
|
|
$
|
11.8
|
|
|
$
|
0.3
|
|
|
|
2.5
|
%
|
As
a percentage of sales
|
|
|
3.5
|
%
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
weeks ended
|
|
$
|
24.3
|
|
|
$
|
23.3
|
|
|
$
|
1.0
|
|
|
|
4.3
|
%
|
As
a percentage of sales
|
|
|
3.4
|
%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
Depreciation
expense for the thirteen weeks and twenty-six weeks ended January 24, 2009
remained consistent to the prior comparable periods.
Operating
(loss) income:
(Amounts
in millions, except
for
% amounts)
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Thirteen weeks
ended
|
|
$
|
(2.4
|
)
|
|
$
|
8.5
|
|
|
$
|
(10.9
|
)
|
|
|
(128.2
|
)%
|
As
a percentage of sales
|
|
|
(0.7
|
)%
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
weeks ended
|
|
$
|
29.9
|
|
|
$
|
39.7
|
|
|
$
|
(
9.8
|
)
|
|
|
(24.7
|
)%
|
As
a percentage of sales
|
|
|
4.2
|
%
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
As a
result of the above operating results, the operating loss as a percent of net
sales was 0.7% for the current quarter compared to operating income of 2.5% for
the prior quarter. For the
dressbarn
brands, the
operating loss as a percent of sales increased to 6.0% versus a 2.2% operating
loss for the prior quarter. For the
maurices
brand, operating
income as a percent of sales decreased to 6.4% versus operating income of 9.2%
for the prior quarter.
As a
result of the above operating results, operating income as a percent of net
sales was 4.2% for the first six months and 5.6% for the prior period last
year. For the
dressbarn
brands, operating
income as a percent of sales decreased to 1.5% versus 1.8% for the prior
period. For the
maurices
brand, operating
income as a percent of sales decreased to 8.1% versus 11.5% for the prior
period.
Interest
income:
(Amounts
in millions, except
for
% amounts)
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Thirteen
weeks ended
|
|
$
|
1.4
|
|
|
$
|
2.2
|
|
|
$
|
(0.8
|
)
|
|
|
(36.4
|
)%
|
As
a percentage of sales
|
|
|
0.4
|
%
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
weeks ended
|
|
$
|
3.4
|
|
|
$
|
3.7
|
|
|
$
|
(0.3
|
)
|
|
|
(8.1
|
)%
|
As
a percentage of sales
|
|
|
0.5
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
The
decrease in interest income is primarily from our investment securities having
lower interest rate yields as compared to the same periods last year, driven by
our move into lower risk and lower yield securities.
Interest
expense:
(Amounts
in millions, except
for % amounts)
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Thirteen weeks
ended
|
|
$
|
(1.2
|
)
|
|
$
|
(1.2
|
)
|
|
$
|
—
|
|
|
|
0.0
|
%
|
As
a percentage of sales
|
|
|
(0.3
|
)%
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
weeks ended
|
|
$
|
(2.4
|
)
|
|
$
|
(2.4
|
)
|
|
$
|
—
|
|
|
|
0.0
|
%
|
As
a percentage of sales
|
|
|
(0.3
|
)%
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
Interest
expense for the thirteen weeks and twenty-six weeks ended January 24, 2009
remained consistent to the prior comparable periods.
Other
Income:
(Amounts
in millions, except
for
% amounts)
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Thirteen
weeks ended
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
|
0.0
|
%
|
As
a percentage of sales
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
weeks ended
|
|
$
|
0.9
|
|
|
$
|
0.8
|
|
|
$
|
0.1
|
|
|
|
12.5
|
%
|
As
a percentage of sales
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
The
majority of other income represents rental income from two unaffiliated tenants
currently occupying space in our facility in Suffern, New York. The
rental square footage is 100% leased through 2012. The remainder
represents
maurices
’
sublease revenue.
Income
Tax (Benefit) Expense:
(Amounts in millions, except
for % amounts)
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Thirteen weeks
ended
|
|
$
|
(0.7
|
)
|
|
$
|
2.5
|
|
|
$
|
(3.2
|
)
|
|
|
(128.0
|
)%
|
As
a percentage of sales
|
|
|
(0.2
|
)%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
weeks ended
|
|
$
|
12.4
|
|
|
$
|
14.8
|
|
|
$
|
(2.4
|
)
|
|
|
(16.2
|
)%
|
As
a percentage of sales
|
|
|
1.7
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
The
effective tax rate is approximately 38.1% for the second quarter compared to
25.4% for the prior quarter. The effective tax rate is approximately 39.0% for
the twenty-six weeks compared to 35.4% for the prior year. The
year-over-year tax expense increase primarily reflects the impact of a tax
benefit in the prior six month period of $1.9 million resulting
from the reversal of uncertain tax positions following a state
administrative ruling that reduced our potential exposure for taxes and interest
in that state. We currently project an effective tax rate for the
remainder of Fiscal 2009 of approximately 38.4%, which includes interest on our
existing uncertain tax positions.
Net
(loss) earnings:
(Amounts
in millions, except
for % amounts)
|
|
January 24,
2009
|
|
|
January 26,
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Thirteen weeks ended
|
|
$
|
(1.1
|
)
|
|
$
|
7.4
|
|
|
$
|
(8.5
|
)
|
|
|
(114.9
|
)%
|
As
a percentage of sales
|
|
|
(0.3
|
)%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
weeks ended
|
|
$
|
19.4
|
|
|
$
|
27.0
|
|
|
$
|
(7.6
|
)
|
|
|
(28.1
|
)%
|
As
a percentage of sales
|
|
|
2.7
|
%
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
As a
result of the above operating results, the net loss for the second quarter was
$0.02 per diluted share, compared to net earnings of $0.12 per diluted share in
the prior quarter. Net earnings for the twenty-six weeks ended January 24, 2009
decreased to $0.31 per diluted share, compared to $0.42 per diluted share in the
prior period.
Liquidity and Capital
Resources
Cash
generated from operating activities provide the primary resource to support
current operations, growth initiatives, seasonal funding requirements and
capital expenditures. Our uses of cash are generally for working
capital, the construction of new stores and remodeling of existing stores,
information technology upgrades, inventory, occupancy costs, payroll, and the
purchase of short-term investments. We also have available lines of
credit under our revolving credit facility which expires in December 2010 and
are primarily used for letters of credit for the importation of merchandise. Our
cash in banks generally exceeds the current Federal Deposit Insurance
Corporation (FDIC) limits of $250,000. As of January 24, 2009, approximately
$159 million in cash and cash equivalents were in excess of the current FDIC
limits. Management evaluates the ongoing strength and stability of our banks as
changing market conditions warrant review.
Our
growth strategy includes expanding existing major trading markets and developing
and expanding into new markets. In addition, we periodically consider and
evaluate the possibility of acquisitions. In the event we do pursue
an acquisition, we could require additional equity or debt financing which may
not be readily available given the current credit market
turmoil. There can be no assurance that we would be successful in
closing any potential transaction, or that any endeavor we undertake would
increase our profitability.
At
January 24, 2009, we had cash, cash equivalents and current investment
securities of $260.8 million as compared to $219.9 million as of July 26,
2008. The increase in cash, cash equivalents and current investment
securities was primarily due to the cash provided by operating activities of
$63.3 million offset by treasury stock purchases of $4.7 million and capital
expenditures of $27.5 million.
Net cash
provided by operations was $63.3 million for the twenty-six weeks compared with
$50.2 million during the prior period. The increase of $13.1 million
was primarily driven by the higher level of accounts payable relative to
merchandise inventories due to the increased amount of domestic purchases versus
the prior year and reduced use of cash for accrued salaries and related expenses
due to the reduction of employee incentive payments compared to the prior year.
The remainder of the change in cash provided by operating activities was
substantially the result of our net earnings during the first six months of
fiscal 2009, after adjusting for non-cash charges, including depreciation and
amortization expense, asset impairment charges, deferred income taxes,
stock-based compensation expense, and various other changes in our other
operating assets and liabilities.
Net cash
used by investing activities was $22.5 million. The majority of this
amount is related to purchases of $27.5 million related to property and
equipment mainly for new store openings and store remodels during the six
months. The use of cash was partially offset by our net decrease in sales of
investment securities during the twenty-six weeks.
Net cash
used by financing activities primarily related to the purchases of treasury
stock offset by the exercise of stock options and the related excess tax
benefits.
As of
January 24, 2009, $68 million was available under a revolving credit for future
borrowings, which we believe gives ample capacity to fund any short-term working
capital needs that may arise in the operation of our business. The
$68 million available under the credit facility represents the $100 million from
our revolving credit facility less $32 million of outstanding letters of credit
at January 24, 2009. Our letter of credit exposure peaked at
approximately $45 million due to normal business activity during the first six
months of fiscal 2009. We also have an option to increase the
revolving credit facility by $50 million.
On
November 5, 2008, we entered into a second amendment to the Credit
Agreement. This amendment amends the Credit Agreement by allowing
investments in unconsolidated entities that do not constitute subsidiaries, in
an aggregate amount not to exceed $35 million, repurchases of shares of our
common stock pursuant to our stock buyback program, in an aggregate amount not
to exceed $100 million in any fiscal year and limits the standby letter of
credit exposure to $15 million.
The
Credit Agreement contains affirmative, negative and financial covenants, the
most restrictive of which include a fixed charge coverage ratio and a limit on
capital expenditures in any fiscal year. We are in compliance with
the covenants of the Credit Agreement as of January 24, 2009 and, due to our
strong financial condition, anticipate being in compliance for at least the next
12 months. However, if the economy continues to deteriorate it could have a
negative effect on our business and compliance with our debt
covenants.
In
September 2007, our Board of Directors authorized a $100 million share buyback
program. Purchases of shares of our common stock may be made at our discretion
from time to time, subject to market conditions and prevailing market prices and
will be subject to applicable SEC rules. During the twenty-six weeks
ended January 24, 2009, we purchased 546,000 shares under the 2007 Program at an
aggregate purchase price of approximately $4.7 million, resulting in a remaining
authorized balance of $95.3 million. Treasury (reacquired) shares are
retired and treated as authorized but unissued shares.
We
believe that our cash, cash equivalents, short-term investments and the cash
from operations, will be adequate to fund our planned capital expenditures and
all other operating requirements for the next 12 fiscal months. These
expectations are consistent with our historical practices. However, should our
cash from operations decline significantly in the next 12 months we would rely
on our current cash balance for liquidity. If this decline continued for a
lengthy period of time it may be necessary to fund our operations with any
excess availability under our credit facility, increase our revolving credit
facility by a maximum of $50 million or limit our discretionary capital
expenditures primarily for the opening of new stores or the remodeling of
existing stores.
The
recent and current disruptions in the credit markets have adversely affected the
auction market for ARS. Our remaining available-for-sale ARS balance
of $42.0 million at par value is investments in highly-rated (AAA/Aaa) auction
rate securities. We classify the net $36.1 million investment in
available-for-sale ARS as long-term assets on our Condensed Consolidated Balance
Sheets because of our inability to determine when our investments in ARS would
settle. While recent failures in the auction process have affected our ability
to access these funds in the near term, we do not believe that the underlying
securities or collateral have been permanently affected. We determined that the
$9.5 million valuation adjustment for the quarter ended January 24, 2009 was not
other-than-temporary, and therefore was recorded within the other comprehensive
(loss) income component of shareholders’ equity and did not affect our earnings.
If the current market conditions deteriorate further, or a recovery in market
values does not occur, we may be required to record additional unrealized or
realized losses in the future periods. Management believes that the working
capital available, excluding the funds held in ARS, will be sufficient to meet
our operating requirements for at least the next 12 months.
In
November 2008, we accepted a settlement offer whereby UBS agreed to purchase
eligible ARS it sold to us prior to February 13, 2008 (“Settlement Agreement”).
Under the terms of the settlement agreement, at our option, UBS has agreed to
purchase eligible ARS from us at par value during the period June 30, 2010
through July 2, 2012. UBS has offered to also provide us with access to “no net
cost” loans up to 75% of the par value of eligible ARS until June 30, 2010. We
held approximately $7.2 million, at par value, of eligible ARS with UBS as of
November, 2008. By entering into the Settlement Agreement, we (1) received
the right (“Put Option”) to sell these auction rate securities back to the
investment firm at par, at our sole discretion, anytime during the period from
June 30, 2010 through July 2, 2012, and (2) gave the investment
firm the right to purchase these auction rate securities or sell them on our
behalf at par anytime after the execution of the Settlement Agreement through
July 2, 2012. The Company elected to measure the Put Option under the fair
value option of SFAS No. 159, and recorded income of approximately $1.1
million pre-tax, and recorded a corresponding long term other asset.
Simultaneously, we transferred these long term auction rate securities from
available-for-sale to trading investment securities. As a result of this
transfer, we recognized an other-than-temporary impairment loss of approximately
$1.3 million pre-tax, reflecting a reversal of the related temporary valuation
allowance that was previously recorded in other comprehensive loss. The
recording of the Put Option and the recognition of the other-than-temporary
impairment loss resulted in a $0.2 million net realized loss to our condensed
consolidated statements of operations for the three and six month periods ended
January 24, 2009. We anticipate that any future changes in the fair value
of the Put Option will be offset by the changes in the fair value of the related
auction rate securities with no material net impact to our condensed
consolidated statements of operations.
We have
no reason to believe that any of the underlying issuers of our ARS are presently
at risk of default. Although we continue to receive interest payments on
these securities in accordance with their stated terms, we expect the interest
payments to significantly decrease in accordance with the terms of these
securities. In addition, we believe that we will not be able to
access funds from these securities until future auctions for these ARS are
successful, or until we sell the securities in a secondary market. We may have
to hold these securities until final maturity in order to redeem them without
incurring any losses. For these reasons, we believe the
recovery period for these investments is likely to be longer than 12
months. Based on our expected operating cash flows, and our other
sources of cash, we do not anticipate the potential lack of liquidity on these
investments will affect our ability to execute our current business
plan.
Recent economic conditions may
adversely affect our business, including as a result of the potential impact on
the apparel industry, our customer and our financing and other contractual
arrangements. In addition, conditions may remain depressed in the
future or may be subject to further deterioration. Recent or future
developments in the U.S. and global economies may lead to a reduction in
consumer overall spending, which could have an adverse impact on
sales.
Tightening of the credit markets and
recent or future turmoil in the financial markets could also increase the cost
of capital, make it more difficult for us to refinance our existing
indebtedness (if necessary), to enter into agreements for new indebtedness or to
obtain funding through the issuance of the Company’s
securities. Worsening economic conditions could also result in
difficulties for financial institutions (including bank failures) and other
parties that we may do business with, which could potentially impair our ability
to access financing under existing arrangements or to otherwise recover amounts
as they become due under our other contractual arrangements.
We have
significant amounts of cash and cash equivalents (money market funds) at
financial institutions that are in excess of federally insured limits.
With the current financial environment and the instability of financial
institutions, it is possible that we could experience losses on our deposits. At
January 24, 2009 substantially all of our cash was invested in money market
funds. Management evaluates the ongoing strength and stability of our banks as
changing market conditions warrant by closely monitoring news
events.
We do not
have any off-balance sheet arrangements or transactions with unconsolidated,
limited purpose entities. In the normal course of business, we enter
into operating leases for our store locations and utilize letters of credit
principally for the importation of merchandise. We do not have any
undisclosed material transactions or commitments involving related persons or
entities.
Contractual
Obligations and Commercial Commitments
There
have been no material changes during the period covered by this report, outside
of the ordinary course of business, to the contractual obligations specified in
the table of contractual obligations included in the section “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
included in our Fiscal 2008 Annual Report on Form 10-K.
Seasonality
The
dressbarn
and
maurices
brands have
historically experienced substantially lower earnings in our second fiscal
quarter ending in January than during our other three fiscal quarters,
reflecting the intense promotional atmosphere that has characterized the holiday
shopping season in recent years. We expect this trend to
continue. In addition, our 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 our merchandise mix.
Critical
Accounting Policies and Estimates
Management
has determined that our most critical accounting policies are those related to
revenue recognition, merchandise inventories, marketable securities, long-lived
assets, insurance reserves, claims and contingencies, litigation, operating
leases, income taxes, goodwill impairment, sales returns and share-based
compensation. We continue to monitor our accounting policies to ensure
proper application. Other than the adoption of SFAS No. 157, Fair
Value Measurements, and SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities which are described in Note 4 of our Condensed
Consolidated Financial Statements contained in this Quarterly Report on Form
10-Q, we have made no changes to these policies as discussed in our Annual
Report on Form 10-K for the fiscal year ended July 26, 2008.
Recent
Accounting Pronouncements
See Note 2 of our Condensed
Consolidated Financial Statements for information regarding recent accounting
pronouncements.
Item
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There
have been no material changes in our exposure to market risk since July 26,
2008, except as described below. Our market risk profile as of July
26, 2008 is disclosed in Item 7A,
Quantitative and Qualitative
Disclosures About Market Risk
, of our Fiscal 2008 Annual Report on Form
10-K.
The
recent and current disruptions in the credit markets have adversely affected the
auction market for ARS. Our remaining available-for-sale ARS balance
of $42.0 million are investments in highly-rated (AAA/Aaa) auction rate
securities. We classify our net $36.1 million investment in available-for-sale
ARS as long-term assets on our Condensed Consolidated Balance Sheets because of
our inability to determine when our investments in ARS would settle. We
determined that the $9.5 million valuation adjustment for the quarter ended
January 24, 2009 was not other-than-temporary, and therefore was recorded within
the other comprehensive (loss) income component of shareholders’ equity and did
not affect our earnings. If the current market conditions deteriorate further,
or a recovery in market values does not occur, we may be required to record
additional unrealized or realized losses in future quarters. Management believes
that the working capital available, excluding the funds held in ARS, will be
sufficient to meet our cash requirements for at least the next 12
months.
In
November 2008, we accepted a settlement offer whereby UBS would purchase
eligible ARS it sold to us prior to February 13, 2008 (“Settlement Agreement”).
Under the terms of the settlement agreement, at our option, UBS will purchase
eligible ARS from us at par value during the period June 30, 2010 through July
2, 2012. UBS has offered to also provide us with access to “no net cost” loans
up to 75% of the par value of eligible ARS until June 30, 2010. We held
approximately $7.2 million, at par value, of eligible ARS with UBS as of
November, 2008. By entering into the Settlement Agreement, we (1) received
the right (“Put Option”) to sell these auction rate securities back to the
investment firm at par, at our sole discretion, anytime during the period from
June 30, 2010 through July 2, 2012, and (2) gave the investment
firm the right to purchase these auction rate securities or sell them on our
behalf at par anytime after the execution of the Settlement Agreement through
July 2, 2012. The Company elected to measure the Put Option under the fair
value option of SFAS No. 159, and recorded income of approximately $1.1
million pre-tax, and recorded a corresponding long term other asset.
Simultaneously, we transferred these long term auction rate securities from
available-for-sale to trading investment securities. As a result of this
transfer, we recognized an other-than-temporary impairment loss of approximately
$1.3 million pre-tax, reflecting a reversal of the related temporary valuation
allowance that was previously recorded in other comprehensive loss. The
recording of the Put Option and the recognition of the other-than-temporary
impairment loss resulted in a $0.2 million net realized loss to our condensed
consolidated statements of operations for the three and six month periods ended
January 24, 2009. We anticipate that any future changes in the fair value
of the Put Option will be offset by the changes in the fair value of the related
auction rate securities with no material net impact to our condensed
consolidated statements of operations.
We have
no reason to believe that any of the underlying issuers of our ARS are presently
at risk of default. Although we continue to receive interest payments on
these securities in accordance with their stated terms, we expect the interest
payments to significantly decrease in accordance with the terms of these
securities. In addition, we believe that we will not be able to access
funds as needed from these securities until future auctions for these ARS are
successful, or until we sell the securities in a secondary market which is
currently limited. As a result, we currently are unable to liquidate our
investment in these ARS without incurring significant losses. We may have
to hold these securities until final maturity in order to redeem them without
incurring any losses. For these reasons, we believe the recovery period
for these investments is likely to be longer than 12 months. Based on our
expected operating cash flows, and our other sources of cash, we do not
anticipate the potential lack of liquidity on these investments will affect our
ability to execute our current business plan.
The
market risk inherent in our financial instruments and in our financial position
represents the potential loss arising from adverse changes in interest
rates. Our results of operations could be negatively impacted by decreases
in interest rates on our investments, including our investments in ARS.
Please see Note 3 of our Condensed Consolidated Financial Statements for further
information regarding our investments in ARS.
Item
4 - CONTROLS AND PROCEDURES
The
Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer (who is also the Company’s Principal
Financial Officer and Chief Accounting Officer), has evaluated the effectiveness
of the Company’s disclosure controls and procedures as of the end of the period
covered by this report. Based on such evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer have concluded that, the Company’s
disclosure controls and procedures were not effective as of January 24, 2009 due
to material weaknesses in financial reporting as described in the Company’s
Annual Report on Form 10-K/A for the period ended July 26, 2008.
There was
no change in the Company’s internal control over financial reporting as of the
end of the period covered by this quarterly report that has materially affected,
or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
We have
implemented, or plan to implement, certain measures to remediate the material
weakness relating to the Company’s income tax accounting identified in the
Company’s 2008 Annual Report on Form 10-K/A. As of the date of the
filing of this Quarterly Report on Form 10-Q, the Company has implemented
or is in the process of implementing the following measures:
|
·
|
We
filled the remaining open positions in the tax department with
professionals trained and experienced in income
taxes.
|
|
·
|
Improved
documentation and instituted more formalized review of tax positions, with
senior management and external advisors, to ensure proper evaluation and
accounting treatment of complex tax
issues;
|
|
·
|
Continue
to evaluate and, if necessary, supplement the resources provided by our
external advisors;
|
We
believe that these remediation actions represent ongoing improvement
measures. Furthermore, while we have taken steps to remediate the material
weakness, these steps may not be adequate to fully remediate this weakness, and
additional measures may be required. The effectiveness of our
remediation efforts will not be known until we can test those controls in
connection with the management evaluation of internal controls over financial
reporting that we will perform as of July 25, 2009.
Part
II - OTHER INFORMATION
Item
1 – LEGAL PROCEEDINGS
There are
no material pending legal proceedings. We are subject to ordinary
routine litigation incidental to the business.
Item
1A – RISK FACTORS
You
should review and consider the information regarding certain factors which could
materially affect our business, financial condition or future results set forth
under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K
for Fiscal 2008. Except as set forth below, there have been no
material changes for the quarter ended January 24, 2009, to the Risk
Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for
fiscal year ended July 26, 2008.
Recent
and future economic conditions, including turmoil in the financial and credit
markets, may adversely affect our business.
Recent
economic conditions may adversely affect our business, including as a result of
the potential impact on the apparel industry, our customer and our financing and
other contractual arrangements. In addition, conditions may remain
depressed in the future or may be subject to further
deterioration. Recent or future developments in the U.S. and global
economies may lead to a reduction in consumer spending overall, which could have
an adverse impact on sales of our products.
Tightening of the credit markets and
recent or future turmoil in the financial markets could also make it more
difficult for us to refinance our existing indebtedness (if necessary), to enter
into agreements for new indebtedness or to obtain funding through the issuance
of the Company’s securities. Worsening economic conditions could also
result in difficulties for financial institutions (including bank failures) and
other parties that we may do business with, which could potentially, impair our
ability to access financing under existing arrangements or to otherwise recover
amounts as they become due under our other contractual
arrangements.
As
described in Note 6, we have significant goodwill and other intangible assets
related to our acquisition of
maurices
in January 2005.
Current and future economic conditions may adversely impact
maurices’
ability to attract
new customers, retain existing customers, maintain sales volumes, and maintain
margins. These events could materially reduce
maurices’
profitability and
cash flow which could, in turn, lead to an impairment of
maurices’
goodwill. Furthermore, if customer attrition were to accelerate
significantly, the value of
maurices’
customer
relationships, trade names and proprietary technology could be impaired or
subject to accelerated amortization.
As described in Note 5, we continuously
evaluate the recoverability of our long-lived assets. As economic conditions
change we perform tests to evaluate the profitability and cash flow of our
individual stores. Based on these evaluations it may be determined that a
store’s assets are impaired and, therefore, we record an asset impairment
charge.
Item 2 –
UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF
PROCEEDS
Issuer Purchases of Equity
Securities
(1),
(2)
Quarter
Ended January 24, 2009
|
|
Total Number of
Shares of
Common Stock
|
|
|
Average Price
Paid per Share
of Common
|
|
|
Total Number of
Shares of
Common Stock
Purchased as
Part of Publicly
Announced
Plans or
|
|
|
Maximum
Number of Shares
of Common Stock
that May Yet Be
Purchased Under
the Plans or
|
|
Period
|
|
Purchased
|
|
|
Stock
|
|
|
Programs
|
|
|
Programs
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
26, 2008
through
November
22, 2008
|
|
|
125,000
|
|
|
$
|
8.14
|
|
|
|
125,000
|
|
|
|
10,724,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
23, 2008
through
December
27, 2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,724,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
28, 2008
through
January
24, 2009
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,724,715
|
|
(1)
|
We
have a $100 million Stock Repurchase Program (the “2007 Program”) which
was announced on September 20, 2007. Under the 2007 Program, we
may purchase our shares of common stock
from time to time,
either in the open market or through private transactions. The 2007
Program has no expiration date. As of January 24, 2009, the
remaining authorized amount for stock repurchases under the 2007 Program
was $95.3 million.
|
(2)
|
Based
on the closing price of $8.89 at January 23,
2009.
|
Item
4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our
Annual Meeting of Shareholders was held on December 10,
2008. Holders of an aggregate of 60,535,578 shares of our common
stock at the close of business on October 14, 2008 were entitled to vote at the
meeting, of which 56,458,977 were present in person or represented by
proxy. At the Annual Meeting, our shareholders voted as
follows:
P
roposal
One
.
To re-elect
three directors each for a three-year term expiring on the date of our 2011
Annual Meeting of Shareholders, or at such time as their successors have been
duly elected and qualified.
Name of Nominee
|
|
Total Votes
For
|
|
|
Total Votes
Withheld
|
|
|
|
|
|
|
|
|
David
R. Jaffe (3 year term, expiring at the 2011 Annual Meeting of Shareholders
)
|
|
|
55,104,654
|
|
|
|
1,354,323
|
|
|
|
|
|
|
|
|
|
|
Klaus
Eppler (3 year term, expiring at the 2011 Annual Meeting of Shareholders
)
|
|
|
54,448,311
|
|
|
|
2,010,666
|
|
|
|
|
|
|
|
|
|
|
Kate
Buggeln (3 year term, expiring at the 2011 Annual Meeting of Shareholders
)
|
|
|
55,622,523
|
|
|
|
836,454
|
|
David R.
Jaffe, Klaus Eppler, and Kate Buggeln were re-elected to serve as directors as
noted above. Our directors, whose term of office expires at the 2009 Annual
Meeting of Shareholders, are John Usdan and Randy L. Pearce. Our
directors, whose term of office expires at the 2010 Annual Meeting of
Shareholders, are Elliot S. Jaffe and Burt Steinberg. No other
persons were nominated, or received votes, for election as directors of The
Dress Barn, Inc. at our 2008 Annual Meeting of Stockholders. There
were no broker non-votes with respect to this proposal.
Proposal
Two
.
To approve
an amendment to the Company’s Amended and Restated Certificate of Incorporation
to increase the number of authorized shares of common stock from 75,000,000 to
165,000,000.
|
|
Total Votes
For
|
|
|
Total Votes
Against
|
|
|
Total Votes
Abstained
|
|
|
Broker Non-Votes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Shares Voted
|
|
|
45,570,803
|
|
|
|
10,794,010
|
|
|
|
94,150
|
|
|
|
-
|
|
The
proposal to amend the Amended and Restated Company’s Certificate of
Incorporation was approved.
Proposal
Three
.
To
approve an amendment to the Company’s Amended and Restated Certificate of
Incorporation to broaden the indemnification of directors and officers to the
fullest extent permitted by applicable law.
|
|
Total Votes
For
|
|
|
Total Votes
Against
|
|
|
Total Votes
Abstained
|
|
|
Broker Non-Votes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Shares Voted
|
|
|
55,815,869
|
|
|
|
524,816
|
|
|
|
118,284
|
|
|
|
-
|
|
The
proposal to amend the Amended and Restated Company’s Certificate of
Incorporation was approved.
Proposal
Four
.
To approve
an amendment to the Company’s Amended and Restated Certificate of
Incorporation.
|
|
Total Votes
For
|
|
|
Total Votes
Against
|
|
|
Total Votes
Abstained
|
|
|
Broker Non-Votes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Shares Voted
|
|
|
55,983,201
|
|
|
|
352,989
|
|
|
|
122,785
|
|
|
|
-
|
|
The
proposal to amend the Amended and Restated Company’s Certificate of
Incorporation was approved.
Proposal
Five
.
To approve
the engagement of Deloitte & Touche LLP as the Company’s independent
auditors for the fiscal year ending July 25, 2009.
|
|
Total Votes
For
|
|
|
Total Votes
Against
|
|
|
Total Votes
Abstained
|
|
|
Broker Non-Votes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Shares Voted
|
|
|
56,030,137
|
|
|
|
317,141
|
|
|
|
111,697
|
|
|
|
-
|
|
The
proposal to approve the engagement of Deloitte & Touche LLP as the Company’s
independent auditors was ratified.
Item
6 - EXHIBITS
Exhibit
|
|
Description
|
|
|
|
31.1
|
|
Certification
by the Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.
|
|
|
|
31.2
|
|
Certification
by the Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.
|
|
|
|
32.1
|
|
Certification
of David R. Jaffe pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification
of Armand Correia pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
|
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.
|
The
Dress Barn, Inc.
|
|
|
Date: March
4, 2009
|
BY:
/s/ David R. Jaffe
|
|
David
R. Jaffe
|
|
President,
Chief Executive Officer and Director
|
|
(Principal
Executive Officer)
|
|
|
Date: March
4, 2009
|
BY:
/s/ Armand Correia
|
|
Armand
Correia
|
|
Senior
Vice President and Chief Financial Officer
|
|
(Principal
Financial and Accounting
Officer)
|
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