SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Quarter Ended April 29, 1995 Commission File Number 0-15898
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DESIGNS, INC.
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(Exact name of registrant as
specified in its charter)
Delaware 04-2623104
- ------------------------------- ------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1244 Boylston Street, Chestnut Hill, MA 02167
- --------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(617)739-6722
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(Registrant's telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of April 29, 1995
----- --------------------------------
Common 15,759,080 shares
DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
April 29, 1995, April 30, 1994 and January 28, 1995
(In thousands, except share data)
(Unaudited)
April 29, April 30, January 28,
1995 1994 1995
--------- --------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 15,172 $ 9,267 $ 22,424
Accounts receivable 823 426 4,223
Inventories 60,033 48,438 52,649
Deferred income taxes 1,579 5,703 1,579
Prepaid expenses 1,223 1,245 1,213
_______ ______ _______
Total current assets 78,830 65,079 82,088
Property and equipment, net of
accumulated depreciation and
amortization 28,863 22,830 26,503
Other assets:
Long-term investments 16,161 24,939 15,831
Deferred income taxes 1,620 1,725 1,771
Pre-opening costs, net 1,067 207 481
Other assets 693 803 621
-------- -------- --------
Total assets $127,234 $115,583 $127,295
======== ======== ========
LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities:
Accounts payable $ 13,869 $ 10,179 $ 13,210
Accrued expenses and other
current liabilities 7,531 2,515 5,944
Restructuring reserve (Note 3) --- 14,787 ---
Accrued rent 2,853 2,549 7,690
Income taxes payable 643 --- ---
Current portion of long-term debt --- 4,000 ---
-------- -------- --------
Total current liabilities 24,896 34,030 26,844
Commitments and contingencies
Minority Interest (Note 2) 4,799 --- 4,749
Stockholders'equity:
Preferred stock, $0.01 par value,
1,000,000 shares authorized, none issued
Common stock, $0.01 par value,
50,000,000 shares authorized, 15,759,000,
15,998,000 and 15,755,000 shares issued
at April 29,1995, April 30,1994 and
January 28,1995, respectively 157 160 157
Additional paid-in capital 52,629 54,777 52,619
Retained earnings 44,753 26,616 42,926
------ ------ ------
Total stockholders' equity 97,539 81,553 95,702
Total liabilities and
stockholders' equity $127,234 $115,583 $127,295
======== ======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
------------------- ---------------------
April 29, April 30, April 29, April 30,
1995 1994 1995 1994
---------- --------- --------- ---------
Sales $ 57,337 $ 48,960 $ 274,287 $ 245,941
Cost of goods sold including
occupancy 41,140 35,751 187,173 169,624
-------- -------- --------- ---------
Gross profit 16,197 13,209 87,114 76,317
Expenses:
Selling, general and
administrative 14,176 11,290 55,802 46,319
Restructuring charges (2,200) --- (5,400) 15,000
Depreciation and amortization 1,864 1,631 7,112 6,187
-------- -------- --------- --------
Total expenses 13,840 12,921 57,514 67,506
Operating income 2,357 288 29,600 8,811
Interest expense 22 521 110 1,550
Interest income 471 402 1,546 1,482
-------- -------- --------- --------
Income before minority interest
and income taxes 2,806 169 31,036 8,743
Less minority interest 91 --- 91 ---
-------- -------- --------- --------
Income before income taxes 2,715 169 30,945 8,743
Provision for income taxes 1,118 69 12,545 3,526
-------- -------- --------- --------
Net income $ 1,597 $ 100 $ 18,400 $ 5,217
======== ======== ======== ========
Net income per common and
common equivalent share $ 0.10 $ 0.01 $ 1.16 $ 0.33
Weighted average common and
common equivalent shares
outstanding 15,756 15,974 15,867 15,943
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
STATEMENTS OF CASH FLOWS
(In thousands-Unaudited)
Three Months Ended
------------------------
April 29, April 30,
1995 1994
Cash flows from operating activities:
Net income $ 1,597 $ 100
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 1,864 1,631
Deferred income taxes --- (191)
Minority interest 91 ---
Loss from disposal of property and
equipment 74 346
Changes in operating assets and
liabilities:
Accounts receivable 3,400 395
Inventories (7,384) (1,774)
Prepaid expenses (10) (43)
Prepaid income taxes --- 53
Income taxes payable 643 (1,374)
Accounts payable 659 3,471
Restructuring reserve --- (213)
Accrued expenses and other current
liabilities 1,547 (199)
Accrued rent (4,689) (28)
-------- --------
Net cash (used for) provided by operating
activities (2,208) 2,174
-------- --------
Cash flows from investing activities:
Additions to property and equipment (4,423) (1,697)
Incurrence of pre-opening costs (777) (52)
Proceeds from disposal of property and
equipment 170 ---
Sale and maturity ofinvestments 53 1,138
Increase in other assets (77) (167)
--------- -------
Net cash used in investing activities (5,054) (778)
Cash flows from financing activities:
Repayments of long-term debt --- (6,000)
Issuance of common stock under option
program (1) 10 270
-------- --------
Net cash used in financing activities 10 (5,730)
-------- --------
Net decrease in cash and cash equivalents (7,252) (4,334)
Cash and cash equivalents:
Beginning of the year 22,424 13,601
-------- --------
End of quarter $ 15,172 $ 9,267
======== ========
Supplementary Cash Flow Disclosure
Cash paid,net:
Interest $ 16 $ 626
Taxes 564 1,459
(1) Including related tax benefit
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
interim financial statements. These financial statements do not include all
disclosures associated with annual financial statements and, accordingly,
should be read in conjunction with the notes contained in the Company's
audited consolidated financial statements for the year ended January 28, 1995.
The Company's business has historically been seasonal in nature and the
results of the interim periods presented are not necessarily indicative
of the results to be expected for the full year.
2. Minority Interest
On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the
Company, entered into a partnership agreement with LDJV Inc. (the "Partnership
Agreement") establishing a joint venture to sell Levi's(R) brand products and
jeans-related products in Original Levi's(R) Stores and Levi's(R) Outlets.
LDJV Inc. is a wholly-owned subsidiary of Levi's Only Stores, Inc., which is
a wholly-owned subsidiary of Levi Strauss & Co. This partnership is known as
The Designs/OLS Partnership (the "Partnership").
The operating results of the Partnership are consolidated with the
financial statements of the Company for the three and twelve months ended
April 29, 1995. Minority interest at April 29, 1995 represents LDJV Inc.'s
30% interest in the Partnership.
In accordance with the Partnership Agreement, the Partnership made a
capital distribution of $133,000 to its partners at the end of the first
quarter of fiscal 1996. This capital distribution represented funds
sufficient to pay taxes associated with the earnings of the Partnership
for the three month period ended April 29, 1995.
3. Restructuring
During fiscal 1994, the Company recorded a nonrecurring pre-tax charge of
$15 million to cover the expected costs associated with the closing of ten of
its poorest performing Designs stores. In connection with the Company's
ongoing review of Designs store performance, in November 1994, the Company
decided to close up to five more of the poorest performing Designs stores
during fiscal 1995. The $15 million is reflected in the consolidated
statement of income as a restructuring charge for the twelve month
period ended April 30, 1994.
As of the end of fiscal 1995, the costs to close these fifteen stores
totaled an estimated $11.8 million. This amount included an estimate of
$4.1 million for future lease obligations to various landlords. In the
fourth quarter of fiscal 1995, the Company recognized pre-tax income of $3.2
million which represented the Company's estimated excess restructuring
reserve at January 28, 1995.
DESIGNS, INC.
Notes to Consolidated Financial Statements
During the first quarter of fiscal 1996, the Company reached final
agreements with certain landlords for $1.9 million. The remaining accrual
of $2.2 million was recognized as pre-tax income for the three month period
ended April 29, 1995.
4. Adoption of a Shareholders Rights Plan
On May 1, 1995, the Board of Directors of the Company adopted a
Shareholder Rights Plan. Pursuant to such Plan, the Company entered into a
Shareholder Rights Agreement ("Rights Agreement") between the Company and its
transfer agent, The First National Bank of Boston. Pursuant to the Rights
Agreement, the Board of Directors declared a dividend distribution of one
preferred stock purchase right for each outstanding share of the Company's
$0.01 par value Common Stock ("Common Stock"), to stockholders of record as
of the close of business on May 15, 1995. Initially, these rights will not
be exercisable and will trade with the shares of the Common Stock. In the
event that a person becomes an "acquiring person" or is declared an "adverse
person" each such term as defined in the Rights Agreement, each holder of a
right (other than the acquiring person or the adverse person) would be
entitled to acquire such number of shares of preferred stock which are
equivalent to the Common Stock having a value of twice the then-current
exercise price of the right. If the Company is acquired in a merger or other
business combination transaction after any such event, each holder of a right
would then be entitled to purchase, at the then-current exercise price,
shares of the acquiring company's common stock having a value of twice the
exercise price of the right.
5. Subsequent Event
On May 2, 1995, the Company acquired certain assets of Boston Trading
Ltd., Inc. ("Boston Trading") in accordance with the terms of an Asset Purchase
Agreement dated April 21, 1995 among Boston Trading, Designs Acquisition
Corp., the Company and others (the "Purchase Agreement"). The Company paid
approximately $5,000,000 in cash and delivered a promissory note in
the principal amount of $1,000,000. The purchase price is subject to certain
adjustments in accordance with the Purchase Agreement. The assets acquired
include certain trademarks and tradenames of Boston Trading, including the
"Boston Traders(R)" trademark, and all inventory, fixed assets and leasehold
improvements associated with 33 existing Boston Traders(R) Outlet stores.
6. Amendment to Credit Agreement
On May 31, 1995, subsequent to the quarter ended April 29, 1995, the
Company signed an amendment to the $20 million revolving credit agreement
dated as of November 17, 1995 among the Company, BayBank Boston, N.A. and
State Street Bank and Trust Company. This amendment provides that $5 million
of the $20 million line of credit will be used as a letter of credit facility
for purchases of inventory related to the development and growth of the
Company's Boston Traders(R) product line.
Part I. Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Sales for the first quarter of fiscal 1996 increased 17.1% to $57.3
million from $49.0 million in the first quarter of 1995. Comparable store sales
increased 5% for the three month period. Of the 122 stores that Designs, Inc.
(the "Company") operates, 102 are comparable stores. Comparable store sales
increased primarily due to an increase in average unit price of 9%, partially
offset by a 4% decrease in unit sales for the three month period. Comparable
Outlet store sales increased 4% for the three month period as compared to the
prior year, principally due to an increase in the availability and mix of
goods. Comparable Designs store sales decreased by 1% for the three month
period as compared to the same period in the preceding year. Comparable
Original Levi's(R) Stores sales increased 34% for the three month period as
compared to the same period in the prior year. This increase is mainly
attributable to the Original Levi's(R) Store located in New York City. On a
rolling 12 month basis, sales increased 11.5% to $274.3 million for the twelve
month period ended April 29, 1995 compared to $245.9 million for the twelve
month period ended April 30, 1994.
Gross margin rate (including the costs of occupancy) increased to 28.2%
as compared to 27.0% in the first quarter of 1995 principally due to an
increase in the percentage of business generated in the higher margin
Levi's(R) Outlet stores and Original Levi's(R) Stores and a decrease in
markdowns as a percentage of sales. The increased total sales at this gross
margin rate resulted in a 22.6% increase in gross margin dollars to $16.2
million for the first quarter of fiscal 1996 as compared with $13.2 million in
fiscal 1995. For the rolling twelve month period, gross margin rate increased
to 31.8% as compared to 31.0% in the prior year.
For the quarter, selling, general and administrative expenses of $14.2
million increased to 24.7% of sales as compared with 23.1% in the corresponding
period in the prior year due primarily to expenses associated with the
completion of the acquisition of certain assets of Boston Trading Ltd., Inc.,
increased payroll as a percentage of sales for the Levi's(R) Outlet stores, and
increased healthcare and advertising costs. For the rolling 12 month period,
selling, general and administrative expenses increased to 20.3% of sales
compared with 18.8% in the prior period principally due to increased payroll
costs as a percentage of sales in Levi's(R) Outlet stores.
During fiscal 1994, the Company recorded a non-recurring pre-tax charge
of $15.0 million to cover the expected costs associated with the closing of
up to ten of its poorest performing Designs stores. In November 1994, in
connection with the Company's ongoing review of Designs store performance,
the Company decided to close up to five more of the poorest performing Designs
stores during fiscal 1995. The $15.0 million is reflected in the consolidated
statement of income as a restructuring charge for the twelve month period
ended April 30, 1994.
As of the end of fiscal 1995, the costs to close these fifteen stores
totaled an estimated $11.8 million. This amount included an estimate of $4.1
million for future lease obligations. For the fiscal year ended January 28,
1995, the Company recognized pre-tax income of $3.2 million which represented
the Company's estimated excess accrual at January 28, 1995.
During the first quarter of fiscal 1996, the Company reached final
agreements with certain landlords for $1.9 million. The remaining accrual of
$2.2 million was recognized as pre-tax income for the three month period ended
April 29, 1995.
Depreciation and amortization expense of $1.9 million for the three month
period of fiscal 1996 increased 14.3% as compared with the same period in
fiscal 1995 due to the cost of new store openings and remodeled stores. For
the rolling 12 month period, depreciation and amortization increased 15.0%,
primarily due to the timing of store openings.
Interest expense for the first quarter of fiscal year 1996 was $22,000, a
decrease of $499,000 compared to the same period in fiscal year 1995. This
decrease is attributable to the interest cost savings associated with the
prepayment of $6 million in the first quarter of fiscal 1995 and the retirement
of the remaining $4 million of the Company's Senior Notes in the second quarter
of fiscal 1995. On a rolling 12 month basis, interest expense decreased to
$110,000 or 92.9% as compared to $1.6 million in the prior period.
Interest income for the first quarter increased to $471,000 in fiscal year
1996 from $402,000 in fiscal year 1995 due to realized losses incurred in the
first quater of fiscal 1995 of $64,000 and due to a higher yield on
investments as compared to the prior period. For the rolling 12 months,
interest income increased by 4.3% to $1.5 million from the prior period.
These increases are primarily attributable to realized losses which were
incurred in the prior period and an improved yield. See Liquidity and
Capital Resources.
Net income for the first quarter of fiscal year 1996 was $1.6 million or
$0.10 per share, as compared with $100,000 or $.01 per share in the first
quarter of fiscal 1995. Net income for the first quarter of fiscal 1996
includes pre-tax income of $2.2 million or $0.08 per share related to the
Company's previously discussed restructuring program.
Net income, on a rolling 12 month basis, was $18.4 million or $1.16 per
share in the twelve month period, as compared with $5.2 million, or $0.33 per
share in the prior comparable period. Net income includes the impact of a
restructuring income (charge) of $5.4 million or $0.20 per share for the
twelve month period ended April 29, 1995 and ($15.0) million or ($0.56) per
share for the twelve month period ended April 30, 1994.
SEASONALITY
The Company's business is seasonal, reflecting increased consumer buying
in the "Back to School" and "Holiday" seasons. Historically, the second half
of each fiscal year provides a greater portion of the Company's annual sales
and operating income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are for operating expenses, seasonal
inventory purchases, capital expenses for new and remodeled stores, cash
outlays associated with restructuring, the development of the Boston
Traders(R) branded product line and the cost of acquiring and/or developing
new businesses.
Working Capital and Cash Flows
To date, the Company has financed its working capital requirements and
expansion program with cash flow from operations, borrowings and proceeds from
Common Stock offerings. Cash used for operations for the first three months of
fiscal 1996 was $2.2 million as compared to cash provided by operations of
$2.2 million for the same period in the prior period. The decrease in cash
from operations is due to $1.9 million paid to landlords in connection with
lease terminations associated with the Company's restructuring program, and an
increase in the amount of inventory purchased in the first quarter of fiscal
1996 as compared to fiscal 1995.
The Company's working capital at April 29, 1995 was approximately $53.9
million as compared to $31.0 million at April 30, 1994. The increase is
attributable to the completion of the Company's restructuring program and the
retirement of the Company's Senior Notes.
Inventory in dollars and units in comparable stores increased 6.7% and
2.0%, respectively, from April 30, 1994 to April 29, 1995 due principally to
an increase in the availability of inventory in the Levi's(R) Outlets stores.
Total inventory at April 29, 1995 increased $11.6 million or 23.9% from April
30, 1994. This increase primarily reflects the increase in the percentage of
Levi's(R) Outlet stores to total stores at the end of the first quarter of
fiscal 1996 as compared to the end of the first quarter of fiscal 1995. Outlet
stores typically require higher inventory levels than the Company's other
store formats.
The Company stocks its Outlet stores exclusively with manufacturing
overruns, discontinued lines and irregulars purchased by the Company directly
from Levi Strauss & Co. and end-of-season merchandise transferred from Designs
stores and Original Levi's(R) Stores. By its nature, this merchandise is
subject to limited availability.
The Company's trade payables to Levi Strauss & Co., its principal vendor,
generally are due within ten days after the end of the month in which the goods
are received. The Company has been current with its payments to Levi Strauss &
Co. from fiscal 1987 to date. Trade payables with other vendors are generally
payable within 30 days of invoice. Variations in the amount of trade payables
outstanding at the end of different periods relate to the timing of purchases.
Beginning in the second quarter of fiscal 1996, payment methods and terms are
expected to change as the Company develops its Boston Traders(R) product line
and begins its own sourcing of merchandise.
On May 31, 1995, subsequent to the quarter ended April 29, 1995, the
Company signed an amendment to the $20 million revolving credit agreement
dated November 17, 1995 among the Company, BayBank Boston, N.A. and State
Street Bank and Trust Company. This amendment provides that $5 million of the
$20 million line of credit will be used as a letter of credit facility for
purchases of inventory related to the development and growth of the Company's
Boston Traders(R) product line. At April 29, 1995 and for the three month
period ended, the Company had no short-term or long-term borrowings
outstanding.
On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the
Company, and a subsidiary of Levi's Only Stores, Inc., a wholly owned
subsidiary of Levi Strauss & Co., entered into a partnership agreement
establishing a joint venture to sell Levi's(R) brand products and jeans-related
products. The partnership plans to open and operate a total of 35 to 50
Original Levi's(R) Stores and Levi's(R) Outlets throughout 11 Northeast states
and the District of Columbia over the next three to five years. This number of
stores includes the ten Original Levi's(R) Stores which were opened at April
29, 1995. The Levi's(R) Outlet stores in the partnership will sell only
Levi's(R) brand products and service the close-out products of the Original
Levi's(R) Stores.
In connection with the formation of the joint venture, Designs JV Corp.
contributed, in exchange for a 70% interest in the joint venture, eight of the
Company's existing Original Levi's(R) Stores and three leases for unopened
stores in New York City, Nanuet, New York, and White Plains, New York. These
stores are included in the 35 to 50 stores described above. At the same time,
LDJV Inc., the joint venture subsidiary of Levi's Only Stores, Inc.,
contributed approximately $4.7 million in cash to the joint venture in
exchange for a 30% interest.
It is the current intention of the joint venture partners to fund the
joint venture's working capital and funds for its future expansion from the
partnership's operations and borrowings from third parties. However, the
partners may also decide that they or their affiliates should contribute or
loan additional funds to the joint venture or guaranty third-party debt.
Neither partner will be required to make any future contribution to the
capital of the joint venture, any loan to the joint venture or any such
guaranty unless both partners agree. Excess cash (as defined in the
partnership agreement) will be distributed by the joint venture in accordance
with the terms of the partnership agreement. No assurance can be given that
Designs JV Corp. will not be required to make such capital contributions,
loans or guaranties or that cash will be distributed to Designs JV Corp. out
of the partnership.
Originally, the joint venture planned to open three Original Levi's(R)
Stores and three Levi's(R) Outlet stores during fiscal 1996. The estimated
cost associated with opening these six stores is $5.9 million. During the
first quarter of fiscal 1996, the joint venture partners decided to open an
additional Original Levi's(R) Store in New York City and an additional
Levi's(R) Outlet store to by the end of fiscal 1996. These additional stores
will cost and estimated $3.8 million.
In June 1994, Levi Strauss & Co. informed the Company that it wanted to
focus the future relationship between the two companies on the Original
Levi's(R) Stores joint venture and to reduce the Company's dependency on Levi
Strauss & Co. Levi Strauss & Co. informed the Company that it did not see a
growth opportunity for the Company's Designs stores in the exclusively
Levi's(R) format. However, Levi Strauss & Co. informed the Company that it did
see an opportunity for growth of the Company's Designs stores if the format was
changed to a multi-brand format. Levi Strauss & Co. advised the Company that it
believes that this would avoid consumer confusion between the Original
Levi's(R) Stores and Designs stores. According to Levi Strauss & Co., this
would require that not more than 70% of the product mix in the stores be Levi
Strauss & Co. product, that the format and presentation of the stores be
"supportive" of its marketing and brand objectives and that Levi Strauss & Co.
approve that format beforehand. The Company has received favorable Levi Strauss
& Co. comment regarding the look of the multi-brand Designs stores and believes
that the format will be acceptable to Levi Strauss & Co. for Designs store
expansion throughout the United States. Levi Strauss & Co. would apply the new
branch opening policies and practices to Designs stores that are applicable to
other multi-brand retailers of Levi Strauss & Co. products. Levi Strauss & Co.
advised the Company that if the Company does not decide to expand the Designs
store chain, Levi Strauss & Co. would not require change to a multi-brand
format. If the Company does change the format and expand the Designs store
chain, Levi Strauss & Co. has said that it will require that the Company's
existing Designs stores be converted to the new multi-brand format over a
mutually agreeable period of time.
During fiscal year 1995, the Company introduced private label and
Timberland(R) brand products into the merchandise mix in certain of its Designs
stores. This was primarily due to the Company's desire to offset decreased
gross profit margins in Designs stores caused by increased price competition
with other retailers that sell Levi Strauss & Co. merchandise in and around
regional malls, the absence of certain key products in the Levi Strauss & Co.
line and increased opportunities for expansion of the Designs store chain
throughout the United States. Based upon the overall performance of the
Timberland(R) merchandise, the Company will add Timberland(R) products to the
merchandise mix in the Designs stores being remodeled this year and in the
majority of the Boston Traders(R) Outlets.
On May 2, 1995, the Company acquired certain assets of Boston Trading
Ltd., Inc. ("Boston Trading") in accordance with the terms of an Asset
Purchase Agreement dated April 21, 1995 among Boston Trading, Designs
Acquisition Corp., the Company and others (the "Purchase Agreement"). The
Company paid approximately $5,000,000 in cash and delivered a promissory
note in the principal amount of $1,000,000, which is subject to certain
adjustments in accordance with the Purchase Agreement. The assets acquired
included certain trademarks and tradenames of Boston Trading and all inventory,
fixed assets and leasehold improvements associated with 33 existing Boston
Traders(R) Outlet Stores.
This acquisition will expand the Company's current operations to include
the design, off-shore sourcing and retailing of Boston Traders(R) products.
Among other things, the retail distribution of Boston Traders(R) products will
require the Company to expend resources for a design and sourcing staff, and
storage and distribution facilities in order to assure timely delivery and
restocking of merchandise. The Company anticipates that the additional
expenses associated with the acquisition and development of the Boston
Traders(R) product line will total $4 to $5 million over the next 12 to 18
months. The addition of the Boston Traders(R) Outlet stores, which have no
geographic restrictions, provides the Company with the opportunity to expand
the Company's operations throughout the United States.
The Boston Traders(R) product line will replace the "Exclusively for
Designs" product line which was introduced in fiscal 1995. The Company will
begin introducing the Boston Traders(R) products into all Designs stores in
June 1995. The Company does not expect that the percentage of Boston Traders(R)
inventory or sales will be significant relative to the Company's total
inventory or sales until the fall of fiscal 1997. The Company has no plans to
continue the wholesale trade business of the Boston Traders(R) product line.
Barring unforeseen circumstances, the Company plans to open two to three
Boston Traders(R) Outlet stores during fiscal 1996.
The Company continues to have conversations with a number of other
companies with branded products and/or prominent brand names concerning the
possibility of the Company (i) opening/operating single brand retail stores for
these companies, (ii) opening single brand retail stores jointly with these
companies or (iii) featuring these branded products in the Designs stores. No
assurances can be given that the Company will reach agreement with any other
manufacturer concerning such stores or brand offerings or that, if a decision
is made to go forward, such stores or brand offerings will be successful.
Capital Expenditures
During the first quarter of fiscal 1996, the Company remodeled one
Designs stores and the joint venture partnership opened two Original Levi's(R)
Stores. During the first quarter of 1995, the Company opened two Levi's
Outlet(R) stores and remodeled two Designs stores. Total cash outlays of $4.4
million and $1.7 million during the first quarter of fiscal year 1996 and 1995,
respectively, represent the costs of new and remodeled stores as well as
corporate capital spending during the periods.
The Company expects that cash flow from operations, short-term borrowings
and available cash will enable it to finance its current working capital,
remodeling and expansion requirements during the remainder of the fiscal year.
Part II. Other Information
ITEM 1. Legal proceedings
The Company is a party to litigation and claims arising in the normal
course of its business. Barring unforeseen circumstances, management does not
expect the results of these actions to have a material adverse effect on the
Company's business or financial condition.
ITEM 6. Exhibits and Reports on Form 8-K
A. Reports on Form 8-K:
Report on Form 8-K, dated April 24, 1995, was filed by the Company
in order to file certain documents related to the joint venture
between subsidiaries of Levi Strauss & Co. and the Company formed
for the purpose of operating 35 to 50 Original Levi's(R) Stores
and Levi's(R) Outlet stores throughout 11 Northeast states and the
District of Columbia.
Report on Form 8-K, dated May 1, 1995, was filed by the Company to
announce that its Board of Directors had adopted a Shareholder Rights
Plan. Pursuant to the terms of a Shareholder Rights Agreement dated
as of May 1, 1995 between the Company and its transfer agent, First
National Bank of Boston, the Board of Directors declared a dividend
distribution of one Preferred Stock Purchase Right for each
outstanding share of Common Stock to stockholders of record as of
the close of business on May 15, 1995.
B. Exhibits:
10.1 1987 Incentive Stock Option Plan, as amended
(included as Exhibit 10.1 to the Company's Annual
Report on Form 10-K dated April 29, 1993, and
incorporated herein by reference). *
10.2 1987 Non-Qualified Stock Option Plan, as amended
(included as Exhibit 10.2 to the Company's Annual
Report on Form 10-K dated April 29, 1993, and
incorporated herein by reference). *
10.3 1992 Stock Incentive Plan, as amended (included as
Exhibit A to the Company's definitive proxy
statement dated May 10, 1994, and incorporated
herein by reference). *
10.4 License Agreement between the Company and Levi
Strauss & Co. dated as of April 14, 1992
(included as Exhibit 10.8 to the Company's Annual
Report on Form 10-K dated April 29, 1993, and
incorporated herein by reference). *
10.5 Executive Incentive Plan effective through the
fiscal year ended January 28, 1995 (included as
Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the year ended January 28, 1994, and
incorporated herein by reference). *
10.6 Credit Agreement among the Company, BayBank
Boston, N.A., and State Street Bank and Trust
Company dated as of November 17, 1994 (included as
Exhibit 1 to the Company's current report on
Form 8-K dated November 22, 1994, and incorporated
herein by reference). *
10.7 Consulting Agreement between the Company and
Stanley I. Berger dated December 21, 1994 (included
as Exhibit 10.7 to the Company's Annual Report on
Form 10-K dated April 26, 1995, and incorporated
herein by reference). *
10.8 Employee Separation Agreement between the Company
and Geoffrey M. Holczer dated December 27, 1994 (included
as Exhibit 10.8 to the Company's Annual Report on
Form 10-K dated April 26, 1995, and incorporated
herein by reference). *
10.9 Participation Agreement among Designs JV Corp.
(the "Designs Partner"), the Company, LDJV Inc.
(the "LOS Partner"), Levi's Only Stores, Inc. ("LOS"),
Levi Strauss & Co.("LS&CO") and Levi Strauss
Associates Inc. ("LSAI") dated January 28, 1995
(included as Exhibit 10.1 to the Company's Current
Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.10 Partnership Agreement of The Designs/OLS Partnership
(the "Partnership") between the LOS Partner and the
Designs Partner dated January 28, 1995 (included as
Exhibit 10.2 to the Company's Current Report on Form 8-K
dated April 24, 1995, and incorporated herein by reference). *
10.11 Glossary executed by the Designs Partner, the Company,
the LOS Partner, LOS, LS&CO, LSAI and the Partnership
dated January 28,1995 (included as Exhibit 10.3 to the
Company's Current Report on Form 8-K dated April 24, 1995,
and incorporated herein by reference). *
10.12 Sublicense Agreement between LOS and the LOS Partner
(included as Exhibit 10.4 to the Company's Current
Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.13 Sublicense Agreement between the LOS Partner and the
Partnership (included as Exhibit 10.5 to the Company's
Current Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.14 License Agreement between the Company and the
Partnership (included as Exhibit 10.6 to the Company's
Current Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.15 Administrative Services Agreement between the Company
and the Partnership dated January 28, 1995 (included
as Exhibit 10.7 to the Company's Current Report on
Form 8-K dated April 24, 1995, and incorporated herein
by reference). *
11 Schedule re: computation of per share earnings 15
* Previously filed with the Securities and Exchange Commission.
Exhibit 11. Statement Re: Computation of Per Share Earnings
Three Months Ended Twelve Months Ended
4/29/95 4/30/94 4/29/95 4/30/94
------- ------- ------- -------
(In thousands, except per share data)
Net income $1,597 $ 100 $ 18,400 $ 5,217
Weighted average
shares outstanding
during the period 15,756 15,974 15,867 15,943
Common equivalent
shares --- --- --- ---
Number of shares for
purpose of calculating
net income per common
and common equivalent
share 15,756 15,974 15,867 15,943
Incremental shares to
reflect full dilution N/A N/A N/A N/A
Total shares for
purposes
of calculating fully
diluted net income
per share N/A N/A N/A N/A
Net income per common
and common equivalent
share $0.10 $0.01 $1.16 $0.33
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.
DESIGNS, INC.
/s/ WILLIAM D. RICHINS
----------------------
William D. Richins
Chief Financial Officer
Dated: June 9, 1995
5
1000
3-MOS
JAN-27-1996
JAN-29-1995
APR-29-1995
15,172
0
823
0
60,033
78,830
53,119
24,256
127,234
24,896
0
157
0
0
97,382
127,234
57,337
57,337
41,140
41,140
13,840
0
22
2,806
1,118
1,597
0
0
0
1,597
0.10
0
