Annual Reports

  • 10-K (Nov 10, 2010)
  • 10-K (Sep 24, 2010)
  • 10-K (Sep 21, 2009)
  • 10-K (Dec 4, 2008)
  • 10-K (Sep 24, 2008)
  • 10-K (Oct 10, 2007)

 
Quarterly Reports

 
8-K

 
Other

Dress Barn 10-K 2010
Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-K/A
(Amendment No. 1)
 
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 31, 2010
Commission file number 0-11736

THE DRESS BARN, INC.
(Exact name of registrant as specified in its charter)

Connecticut
06-0812960
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
30 Dunnigan Drive, Suffern, New York
10901
(Address of principal executive offices)
(Zip Code)

(845) 369-4500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $0.05 par value
The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x  No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12  months (or for such shorter period that the registrant was required to submit and post such files).   Yes ¨  No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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 definitions 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 ¨
(Do not check if a smaller
reporting company)
Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o  No x

The aggregate market value of the voting stock held by non-affiliates of the registrant as of January 23, 2010 was approximately $1.4 billion, based on the last reported sales price on the NASDAQ Global Select Market on that date.  As of September 17, 2010, 78,557,619 shares of voting common shares were outstanding.  The registrant does not have any authorized, issued or outstanding non-voting common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on December 8, 2010 are incorporated into Part III of this Form 10-K.
 

 
EXPLANATORY NOTE
 
On October 22, 2010, we received a comment letter from the Securities and Exchange Commission relating to our Annual Report on Form 10-K for the fiscal year ended July 31, 2010 (“Fiscal 2010”), which we filed with the Securities and Exchange Commission on September 24, 2010 (the “Original Report”). The purpose of this Amendment No. 1 on Form 10-K/A (the “Amendment”) is to respond to the comment letter.
 
In this Amendment we have revised the following:
 
  °
Item 5. Market for Registrant's Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities. We have included additional disclosure regarding restrictions on our ability to pay dividends.
 
  °
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. We have included additional disclosure regarding the financial covenants contained in our revolving credit agreement, our compliance with such covenants, and restrictions on our ability to pay dividends.
 
  ° Item 15.(a)(1). Financial Statements. We have:
    1. Amended note 2 of our consolidated financial statements to correct immaterial errors in the unaudited pro forma financial information presented for Fiscal 2010, and
    2.
Included additional disclosure in a) note 3 of our consolidated financial statements regarding the cumulative effect of the change in accounting principle on periods prior to those presented that was not material to our consolidated financial statements; and b) note 9 of our consolidated financial statements regarding the fair value of the convertible senior notes tendered and what the note holders were entitled to receive and regarding the financial covenants contained in our revolving credit agreement and our compliance with such covenants.
       
  ° Item 15(b). Exhibits. We have refiled Exhibit 10.18 with this Amendment, including all exhibits, schedules, annexes and appendices thereto.
 
Except as set forth above, the Original Report has not been amended, updated or otherwise modified. This Amendment includes information contained in the Original Report, and we have made no attempt in the Amendment to modify or update the disclosures presented in the Original Report, except as identified above. The disclosures in this Amendment continue to speak as of the date of the Original Report, and do not reflect events occurring after the filing of the Original Report. Accordingly, this Amendment should be read in conjunction with our other filings made with the Securities and Exchange Commission subsequent to the filing of the Original Report, including any amendments to those filings. The filing of this Amendment shall not be deemed to be an admission that the Original Report, when made, included any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading.
 
 
 

 
 


THE DRESS BARN, INC.
FORM 10-K/A
FISCAL YEAR ENDED JULY 31, 2010
TABLE OF CONTENTS

         
PAGE
PART I
       
 
 
Item 1
 
Business
 
3
           
 
Item 1A
 
Risk Factors
 
9
 
Item 1B
 
Unresolved Staff Comments
 
15
 
Item 2
 
Properties
 
15
 
Item 3
 
Legal Proceedings
 
16
PART II
         
 
Item 5
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
17
 
Item 6
 
Selected Financial Data
 
20
 
Item 7
 
Management’s Discussion and Analysis of  Financial Condition and Results of Operations
 
21
           
 
Item 7A
 
Quantitative and Qualitative Disclosures About Market Risk
 
39
 
Item 8
 
Financial Statements and Supplementary Data
 
39
 
Item 9
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
39
 
Item 9A
 
Controls and Procedures
 
40
 
Item 9B
 
Other Information
 
42
PART III
         
 
Item 10
 
Directors, Executive Officers and Corporate Governance
 
42
 
Item 11
 
Executive Compensation
 
42
 
Item 12
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
42
 
Item 13
 
Certain Relationships and Related Transactions, and Director Independence
 
42
 
Item 14
 
Principal Accountant Fees and Services
 
42
PART IV
         
 
Item 15
 
Exhibits, Financial Statement Schedules
 
43

 
2

 

This Annual Report on Form 10-K, including the section labeled Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements and risk factors that we have included elsewhere in this report.  These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry, and involve known and unknown risks, uncertainties and other factors that may cause our results, level of activity, performance or achievements to be materially different from any future results, level of activity, performance or achievements expressed or implied in, or contemplated by, the forward-looking statements.  We generally identify these statements by words or phrases such as “believe”, “anticipate”, “expect”, “intend”, “plan”, “may”, “should”, “estimate”, “predict”, “potential”, “continue” or the negative of such terms or other similar expressions.  Our actual results may differ significantly from the results discussed in the forward-looking statements.  Factors that might cause such a difference include those discussed below under Item 1A. RISK FACTORS, and other factors discussed in this Annual Report on Form 10-K and other reports we file with the Securities and Exchange Commission.  We disclaim any intent or obligation to update or revise any forward-looking statements as a result of developments occurring after the period covered by this report.


References to “we”, “us”, “our” or “our company” or other similar terms in this report are to The Dress Barn, Inc. and its subsidiaries.

PART I
ITEM 1.  BUSINESS

Overview

The Dress Barn, Inc. (the Company, or Dress Barn) operates women’s and girls apparel specialty stores,  principally under the names dressbarn”, “maurices” and, since our November 2009 merger with Tween Brands, Inc. (the “Justice Merger”), “Justice”.  From the time when our retail business began in 1962, we have established, marketed and expanded our business as a source of fashion and value.  We offer a lifestyle-oriented, stylish, value-priced assortment of casual and fashion apparel, and accessories tailored to our customers’ needs.  As of July 31, 2010, we have expanded our store base to 2,477 stores in 48 states, Puerto Rico and the District of Columbia, including 887 Justice stores, 757 maurices stores and 833 dressbarn stores.

Our Stores

Our dressbarn stores cater to 35-55 year-old women, sizes 4 to 24.  Our dressbarn stores offer in-season, moderate to better quality career and casual fashion at value prices, and are located primarily in convenient strip shopping centers in major trading and high-density markets and surrounding suburban areas.  Our centrally managed merchandise selection is changed and augmented frequently to keep our merchandise presentation fresh and exciting.  Carefully edited, coordinated merchandise is featured in a comfortable, easy-to-shop environment, staffed by friendly, service-oriented salespeople.

Our maurices stores cater to the apparel and accessory needs of 17-34 year-old women and are typically located in small markets with populations of approximately 25,000 to 100,000.  Our maurices stores offer moderately priced, up-to-date fashions, sizes 4 to 24, designed to appeal to a younger female customer than our dressbarn brands. maurices merchandise is primarily sold under two brands, maurices and Studio Y.  The maurices brand encompasses women’s casual clothing, career wear and accessories.  Studio Y represents women’s dressy apparel.  Our maurices stores are typically located near large discount and department stores to capitalize on the traffic those retailers generate.  We seek to differentiate maurices from those retailers by offering a wider selection of style, color and current fashion, as well as the shopping experience we offer, which emphasizes a visually stimulating environment with a helpful staff.  While our maurices stores offer a core merchandise assortment, individual maurices stores vary and augment their merchandise assortment to reflect individual store demands and local market preferences.

 
3

 


Justice Overview


The Justice business model is predicated on anticipating what its customer, “Our Girl”- as Justice refers to her- wants and delivering the hottest fashion and shopping experience just for her and all at a great value for mom.

Justice creates, designs and develops its own exclusive Justice branded merchandise in-house.  This allows Justice to maintain creative control and respond as quickly as fashion trends dictate, putting Justice ahead of its competition when it comes to offering the hottest fashion assortment to its customers.

The Justice merchandise mix represents the broad assortment that its girl wants in her store - a mix of apparel, accessories, footwear, intimates and lifestyle products, such as bedroom furnishings and electronics, to meet all her needs.  While apparel represents about 70% of its product mix, significant contributions are made by lifestyle and accessories categories, all serving to diversify the offering in Justice stores.  Justice plans inventories to include about 20% of core offerings, complemented by approximately 70% “predictable fashion” and 10% of trendier, “incoming fashion” pieces.

As of July 31, 2010, Justice operated 887 stores.  Justice stores feature furniture, fixtures, lighting and music to create a shopping experience matching the energetic lifestyle of “our girl”.  In order to keep the store atmosphere fresh, Justice reassesses the layouts of its stores and reinvests in new formats to better highlight its merchandise.

Justice is located where its target customer shops.  Justice’s store footprint includes over 450 mall locations, where the presence of strong anchors and other specialty retailers enhance the shopping experience for its existing customers, as well as generate new-to-Justice traffic for its stores.  Strip centers bring convenient shopping to Justice’s customers and Justice currently has over 200 stores located in these formats.  Justice also has a significant presence in lifestyle centers and outlet centers.  Justice is currently located across 46 states and Puerto Rico.  Justice also has 34 international franchise stores located in the following countries:  Bahrain, Jordan, Kuwait, Qatar, Russia, Saudi Arabia and the United Arab Emirates.

During fiscal 2010, Justice increased its direct sourcing penetration from its previous levels.  Through Justice’s sourcing offices in Seoul, South Korea, and Shanghai and Hong Kong in China, Justice continues to develop and expand relationships with manufacturing partners within sourcing networks, enabling Justice to control the quality of goods, while achieving speed to market and better/favorable pricing.  With Justice’s successful sourcing operations, Justice is able to eliminate the middleman, reduce costs and increase initial markup.  Justice has registered marks in foreign countries to the degree necessary to protect these marks, although there may be restrictions on the use of these marks in a limited number of foreign jurisdictions.


 
4

 

Store Locations

Virtually all of our stores are open seven days a week and most evenings.  As of July 31, 2010, we operated 2,477 stores in 48 states, the District of Columbia and Puerto Rico.  Our dressbarn stores are more concentrated in the northeast while our maurices stores are more concentrated in the midwest.  Our Justice stores are located primarily in shopping malls and off-mall power centers throughout the United States.

During fiscal 2010, no store accounted for as much as 1% of our total sales.  The table below indicates the type of shopping facility in which the stores were located:

Type of Facility
 
dressbarn
Stores
   
maurices
Stores
   
Justice
Stores
   
Total
 
                         
Strip Shopping Centers
    582       431       230       1,243  
                                 
Free Standing, Downtown and Enclosed Malls
    53       290       474       817  
                                 
Outlet Malls and Outlet Strip Centers
    191       29       71       291  
                                 
Lifestyle Centers
    7       7       112       126  
                                 
Total
    833       757       887       2,477  

As of July 31, 2010, our stores had a total of 13.8 million square feet, consisting of dressbarn with 6.4 million square feet, maurices with 3.7 million square feet and Justice with 3.7 million square feet.  All of our store locations are leased.  Our leases often contain renewal options and termination clauses, particularly in the early years of a lease, if specified sales volumes are not achieved.
 
Store Count by Segment
   
Fiscal 2010
   
Fiscal 2009
   
Fiscal 2008
 
   
Total
   
dressbarn
Stores
   
maurices
Stores
   
Justice
Stores
   
Total
   
dressbarn
Stores
   
maurices
Stores
   
Total
   
dressbarn
Stores
   
maurices
Stores
 
Stores (Beginning   of Period) (a)
    2,465       838       721       906       1,503       826       677       1,426       819       607  
Stores Opened (b)
    64       14       39       11       80       31       49       107       35       72  
Stores Closed (c)
    (52 )     (19 )     (3 )     (30 )     (24 )     (19 )     (5 )     (30 )     (28 )     (2 )
Stores (End of Period)
    2,477       833       757       887       1,559       838       721       1,503       826       677  

(a) Includes Justice’s store balance as of the date of the Justice Merger.

(b) Appropriate locations are identified for store expansion.

(c) We evaluate store-level performance in order to close or relocate underperforming stores.


 
5

 

Office and Distribution Centers

We own an approximately 900,000 square foot distribution/office facility and 16 acres of adjacent land in Suffern, New York, which houses, in approximately 510,000 square feet, our dressbarn corporate offices and distribution center, with the remainder of the facility leased to two third parties.  We own maurices’ corporate headquarters in downtown Duluth, Minnesota, which is composed of three office buildings totaling approximately 151,000 square feet.  We also own an approximately 360,000 square-foot distribution center and approximately 9 acres of adjacent land in Des Moines, Iowa, which houses our maurices warehousing and distribution operations.  We own Justice’s corporate office facilities in New Albany, Ohio totaling approximately 280,000 square foot, along with 44 acres of adjacent land, and a 470,000 square foot distribution center in Etna Township, Ohio.  We own office space in Hong Kong, China and lease office space in Shanghai, China and Seoul, South Korea to support our international sourcing operations.

Our distribution centers employ warehouse management systems and material handling equipment that help to minimize overall inventory levels and distribution costs.  We believe the flexibility afforded by our warehouse/distribution systems provide us with operating efficiencies and the ability to maintain a superior in-stock inventory position at our stores.  We continuously seek to improve our supply chain management, optimize our inventory assortment and upgrade our automated replenishment system to improve inventory turnover.

We currently anticipate that our distribution center in Suffern, New York will be consolidated into our distribution center in Etna Township, Ohio during fiscal 2011. The Etna Township, Ohio facility has a state of the art warehouse management system and material handling systems.  Our Ohio facility has both the capacity and storage capability to handle the dressbarn brand and Justice brand volume.

To support sales of products sold through our websites, we have multi-year agreements with contract logistics providers, who provide warehousing and fulfillment services for our e-commerce operations.

Advertising and Marketing

We use a variety of broad-based and targeted marketing and advertising strategies to effectively define, evolve and promote our brands.  These strategies include customer research, advertising and promotional events, window and in-store marketing materials, direct mail marketing, internet marketing, lifestyle magazines, catazines and other measures to communicate our fashion and promotional message.  We utilize a customer relationship management system to track customer transactions and determine strategic decisions for our direct mail initiatives.  We pursue a public relations strategy to garner editorial exposure.

Community Service

We are proud to have a long tradition of supporting numerous charities.  We actively support charities such as The American Cancer Society, Dress for Success, United Way and Toys for Tots.  These programs reinforce that we are actively involved and are important members of our communities.

Trademarks

We have U.S. Certificates of Registration of Trademark and trademark applications pending for the operating names of our stores and our major private label merchandise brands.  We believe our “dressbarn”, “maurices”, “Justice”, “YVOS”and “Studio Y” trademarks are material to the continued success of our business.  We also believe that our rights to these trademarks are adequately protected.

Employees

As of July 31, 2010, we had approximately 30,000 employees, approximately 21,000 of whom worked part-time.  We typically add temporary employees during peak selling periods.  None of our employees are covered by any collective bargaining agreement.  We consider our employee relations to be good.

 
6

 

Seasonality

The retail apparel market has two principal selling seasons, spring (our third and fourth fiscal quarters) and fall (our first and second fiscal quarters).  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.  Justice sales and operating profits are significantly higher during the fall season, as this includes both the back to school and holiday selling periods.  We expect these trends 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.

Competition

The retail apparel industry is highly competitive and fragmented, with numerous competitors, including department stores, off-price retailers, specialty stores, discount stores, mass merchandisers and Internet-based retailers, many of which have substantially greater financial, marketing and other resources than us.  Many of our competitors are able to engage in aggressive promotions, reducing their selling prices.  Some of our competitors include Macy’s, JCPenney, Kohl’s, Old Navy, Aerospostale, Target and Sears.  Other competitors may move into the markets that we serve.  Our business is vulnerable to demand and pricing shifts, and to changes in customer tastes and preferences.  If we fail to compete successfully, we could face lower net sales and may need to offer greater discounts to our customers, which could result in decreased profitability.  We believe that we have established and reinforced our image as a source of fashion and value by focusing on our target customers and by offering superior customer service and convenience.

Merchandise Vendors

We purchase our merchandise from many domestic and foreign suppliers.  We have no long-term purchase commitments or arrangements with any of our suppliers, and believe that we are not dependent on any one supplier.  We have good working relationships with our suppliers.  No third party supplier is more than 10% of our business.

Available Information

We maintain our corporate Internet website at www.dressbarninc.com.  The information on our Internet website is not incorporated by reference into this report.  We make available, free of charge through publication on our Internet website, a copy of our Annual Reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, including any amendments to those reports, as filed with or furnished to the Securities and Exchange Commission, or SEC, as soon as reasonably practicable after they have been so filed or furnished.

 
7

 

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age and position of our Executive Officers:

Name
 
Age
 
Positions
         
Elliot S. Jaffe
 
84
 
Founder and Chairman of the Board
         
David R. Jaffe
 
51
 
President and Chief Executive Officer
         
Michael W. Rayden
 
61
 
Chief Executive Officer,
Tween Brands, Inc.
         
Armand Correia
 
64
 
Executive Vice President
and Chief Financial Officer
         
Gene Wexler
 
55
 
Senior Vice President, General Counsel
and Assistant Secretary

Mr. Elliot S. Jaffe, our co-founder and Chairman of the Board, was Chief Executive Officer of our company from 1966 until 2002.

Mr. David R. Jaffe became President and Chief Executive Officer in 2002.  Previously he had been Vice Chairman, Chief Operating Officer and a member of the Board of Directors since 2001.  He joined us in 1992 as Vice President-Business Development and became Senior Vice President in 1995 and Executive Vice President in 1996.  Mr. Jaffe is the son of Elliot S. and Roslyn S. Jaffe.  Mrs. Jaffe serves as Secretary and Treasurer of our company.

Mr. Michael W. Rayden is the Chief Executive Officer of Tween Brands.  Prior to the Justice Merger on November 25, 2009, Mr. Rayden served as Chief Executive Officer of Tween Brands since March 1996 and was elected Chairman of the Board of Tween Brands in August 1999.  Mr. Rayden also served as the President of Tween Brands from March 1996 until January 2007.  Before joining Tween Brands, he served as President, Chief Executive Officer and Chairman of the Board of Pacific Sunwear of California, Inc. from 1990 to 1996; President and Chief Executive Officer of The Stride Rite Corporation from 1987 to 1989 and President and Chief Executive Officer of Eddie Bauer Inc. from 1984 to 1987.  Upon consummation of the Justice Merger, Mr. Rayden was appointed by the Board to fill the vacancy in the class of directors with a term expiring in 2010.

Mr. Armand Correia has been employed by our company since 1991 and currently holds the position of Executive Vice President and Chief Financial Officer.

Mr. Gene Wexler has been Senior Vice President, General Counsel and Assistant Secretary of our company since 2005.  He previously served as Vice President, General Counsel and Secretary for Del Laboratories from 1999 until 2005.

 
8

 

ITEM 1A.  RISK FACTORS

Our business is dependent upon our ability to predict accurately fashion trends, customer preferences and other fashion-related factors.

Customer tastes and fashion trends are volatile and tend to change rapidly, particularly for women’s apparel.  Our success depends in part upon our ability to anticipate and respond to changing merchandise trends and consumer preferences in a timely manner.  Accordingly, any failure by us to anticipate, identify and respond to changing fashion trends could adversely affect consumer acceptance of the merchandise in our stores, which in turn could adversely affect our business and our image with our customers.  If we miscalculate either the market for our merchandise or our customers’ tastes or purchasing habits, we may be required to sell a significant amount of unsold inventory at below average markups over cost, or below cost, which would have an adverse effect on our margins and results of operations.

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 the potential impact on the apparel industry, our customers and our ability to finance our business.  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 our 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 8 to our Consolidated Financial Statements included elsewhere herein, we have significant goodwill and other intangible assets related to our acquisition of maurices in January 2005 and the Justice Merger consummated in November 2009.  Current and future economic conditions may adversely impact maurices’ or Justice’s ability to attract new customers, retain existing customers, maintain sales volumes and maintain margins.  These events could materially reduce maurices’ or Justice’s profitability and cash flow which could, in turn, lead to an impairment of maurices’ or Justice’s goodwill and intangible assets.  Furthermore, if customer attrition were to accelerate significantly, the value of maurices’ or Justice’s intangible assets could be impaired or subject to accelerated amortization.

We depend on strip shopping center and mall traffic and our ability to identify suitable store locations.

Our sales are dependent in part on a high volume of strip shopping center and mall traffic.  Strip shopping center and mall traffic may be adversely affected by, among other things, economic downturns, the closing of anchor stores or changes in customer shopping preferences.  A decline in the popularity of strip shopping center or mall shopping among our target customers could have a material adverse effect on customer traffic and reduce our sales and net earnings.

To take advantage of customer traffic and the shopping preferences of our customers, we need to maintain or acquire stores in desirable locations where competition for suitable store locations is intense.

Risks associated with the Justice Merger.

The success of the Justice Merger will depend on our ability to manage both our operations and Justice operations, to realize opportunities for revenue growth and, to some degree, to eliminate redundant and excess costs.  Achieving the anticipated benefits of the Justice Merger may present a number of significant risks and considerations, including, but not limited to:

 
·
demands on management related to the increase in our size;
 
·
the diversion of management’s attention from the management of daily operations to the integration of operations;
 
·
expected cost savings not being achieved in full, or taking longer or requiring greater investment to achieve; and
 
·
achieving transition and new store growth potential.

 
9

 

Our ability to successfully adapt to ongoing organizational change could impact our business results.

We have executed a number of significant business and organizational changes including acquisitions and workforce optimization projects to support our growth strategies.  We expect these types of changes to continue for the foreseeable future.  Successfully managing these changes, including retention of key employees, is critical to our business success.  In addition, our success is dependent on identifying, developing and retaining key employees to provide uninterrupted leadership and direction for our business.  This includes developing organization capabilities in key growth markets where the depth of skilled employees is limited and competition for these resources is intense.  Further, business and organizational changes may result in more reliance on third parties for various services, and that reliance may increase compliance risks, including anti-corruption.  Finally, our financial targets assume a consistent level of productivity improvement.  If we are unable to deliver expected productivity improvements, while continuing to invest in business growth, our financial results could be adversely impacted.

The disruption in the Company’s receiving or distribution process during our planned distribution center relocation would have a material adverse effect on the Company’s business and operations.

Our distribution centers are located in Suffern, New York, Des Moines, Iowa and Etna Township, Ohio.  Our company depends on the orderly operation of the receiving and distribution process, which relies on adherence to shipping schedules and effective management of distribution centers.  During fiscal 2011, we plan to move the dressbarn distribution center operations from its Suffern, New York location to our Etna Township, Ohio location.  Although we believe we have appropriate relocation plans, unforeseen disruptions in operations due to fire, severe weather conditions, or other events, labor disagreements or other shipping problems may result in delays in the delivery of merchandise to our stores during the transition.  In addition, we rely on third party service providers to fulfill our e-commerce customer orders.  If these providers would fail to operate it could have a adverse impact on our business.

Our management information systems may fail and cause disruptions in our business.

We rely on our existing management information systems in operating and monitoring all major aspects of our business, including sales, warehousing, distribution, purchasing, inventory control, merchandise planning and replenishment, as well as various financial systems.  Any disruption in the operation of our management information systems, or our failure to continue to upgrade, integrate or expend capital on such systems as our business expands, would have a material adverse effect on our business.

We utilize the Oracle Retail Merchandising System for our dressbarn segment and our maurices segment.  Our Justice segment utilizes an internally developed merchandising system.  The purpose of our merchandising systems is to expand our capability to identify and analyze sales trends and consumer data and achieve planning and inventory management improvements.

 
10

 

We rely on foreign sources of production.

We purchase a significant portion of our apparel directly in foreign markets, including Asia, the Middle East and Africa, and indirectly through domestic vendors with foreign sources.  We face a variety of risks generally associated with doing business in foreign markets and importing merchandise from abroad, including but not limited to:

 
·
political instability;
 
·
increased security requirements applicable to imported goods;
 
·
imposition or increases of duties, taxes and other charges on imports;
 
·
imposition of quotas on imported merchandise;
 
·
currency and exchange risks;
 
·
delays in shipping; and
 
·
increased costs of transportation.

New initiatives may be proposed that may have an impact on the trading status of certain countries and may include retaliatory duties or other trade sanctions that, if enacted, could increase the cost of products purchased from suppliers in such countries or restrict the importation of products from such countries.  The future performance of our business depends on foreign suppliers and may be adversely affected by the factors listed above, all of which are beyond our control.  This may result in our inability to obtain sufficient quantities of merchandise or increase our costs, thereby negatively impacting sales, gross profit and net earnings.

We may suffer negative publicity and our business may be harmed if we need to recall any products we sell.

Justice has in the past and may in the future need to recall products that we determine may present safety issues.  If products we sell have safety problems of which we are not aware, or if we or the Consumer Product Safety Commission recall a product sold in our stores, we may suffer negative publicity and product liability lawsuits, which could have a material adverse impact on our reputation, financial condition and results of operations or cash flows.

Our expansion into new services and technologies subjects us to additional business, legal, financial and competitive risks.

We may have limited or no experience in our newer market segments and our customers may not adopt our new service offerings, which include our new e-commerce service.  This new offering may present new and difficult technology challenges, and we may be subject to claims if customers of these offerings experience service disruptions or failures or other quality issues.  In addition, our gross profits in our newer activities may be lower than in our older activities and we may not be successful enough in these newer activities to recoup our investments in them.  If any of this was to occur, it could damage our reputation, limit our growth and negatively affect our operating results.

Government regulation of the Internet and e-commerce is evolving and unfavorable changes could harm our business.

We are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet and e-commerce.  Existing and future laws and regulations may impede the growth of our Internet or online services.  These regulations and laws may cover taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, electronic contracts and other communications, consumer protection, the provision of online payment services, unencumbered Internet access to our services, the design and operation of websites and the characteristics and quality of products and services.  It is not clear how existing laws governing issues such as property ownership, libel and personal privacy apply to the Internet and e-commerce.  Jurisdictions may regulate consumer-to-consumer online businesses, including certain aspects of our programs.  Unfavorable regulations and laws could diminish the demand for our products and services and increase our cost of doing business.

A slowdown in the United States economy, an uncertain economic outlook and escalating energy costs may continue to affect consumer demand for our apparel and accessories.

Consumer spending habits, including spending for our apparel and accessories, are affected by, among other things, prevailing economic conditions, levels of employment, fuel prices, salaries, wage rates, the availability of consumer credit, consumer confidence and consumer perception of economic conditions.  A general slowdown in the United States economy and an uncertain economic outlook may adversely affect consumer spending habits and customer traffic, which may result in lower net sales.  A prolonged economic downturn could have a material adverse effect on our business, financial condition and results of operations.

 
11

 

We face challenges to grow our business and to manage our growth.

Our growth is dependent, in large part, upon our ability to successfully add new stores.  In addition, on a routine basis, we close underperforming stores, which may result in write-offs.  The success of our growth strategy depends upon a number of factors, including the identification of suitable markets and sites for new stores, negotiation of leases on acceptable terms, construction or renovation of sites in a timely manner at acceptable costs and maintenance of the productivity of our existing store base.  We must be able to hire, train and retain competent managers and personnel and manage the systems and operational components of our growth.  Our failure to open new stores on a timely basis, obtain acceptance in markets in which we currently have limited or no presence, attract qualified management and personnel or appropriately adjust operational systems and procedures would have an adverse effect on our growth prospects.

Our business would suffer a material adverse effect if our distribution centers were to shut down or be disrupted.

Most of the merchandise we purchase is shipped directly to our distribution centers, where it is prepared for shipment to the appropriate stores.  If our distribution centers were to have an unplanned shut down or lose significant capacity for any reason, our operations would likely be seriously disrupted.  As a result, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores during the time it takes for us to reopen or replace any distribution center.

Additionally, freight cost is impacted by changes in fuel prices.  Fuel prices affect freight cost both on inbound freight from vendors to the distribution centers and outbound freight from the distribution centers to our stores.
 
Although we maintain business interruption and property insurance, management cannot be assured that our insurance coverage will be sufficient, or that insurance proceeds will be timely paid to us, if any of the distribution centers are shut down for any unplanned reason.

Our business could suffer as a result of a manufacturer’s inability to produce goods for us on time and to our specifications.

We do not own or operate any manufacturing facilities and therefore depend upon independent third parties for the manufacture of all of the goods that we sell.  Both domestic and international manufacturers produce these goods.  The inability of a manufacturer to ship orders in a timely manner or to meet our standards could have a material adverse impact on our business.

Our business could suffer if we need to replace manufacturers.

We compete with other companies for the production capacity of our manufacturers and import quota capacity.  Many of our competitors have greater financial and other resources than we have and thus may have an advantage in the competition for production capacity.  If we experience a significant increase in demand, or if an existing manufacturer of the goods that we sell must be replaced, we may have to increase purchases from our third-party manufacturers and we cannot guarantee we will be able to do so at all or on terms that are acceptable to us.  This may negatively affect our sales and net earnings.  We enter into a number of purchase order commitments each season specifying a time for delivery, method of payment, design and quality specifications and other standard industry provisions, but we do not have long-term contracts with any manufacturer.  None of the manufacturers we use produces products for us exclusively.

Our business could suffer if one of the manufacturers of the goods that we sell fails to use acceptable labor practices.

We require manufacturers of the goods that we sell to operate in compliance with applicable laws and regulations.  While our internal and vendor operating guidelines promote ethical business practices and our staff and our agents periodically visit and monitor the operations of our independent manufacturers, we do not control these manufacturers or their labor practices.  The violation of labor or other laws by an independent manufacturer used by us, or the divergence of an independent manufacturer’s labor practices from those generally accepted as ethical in the United States, could interrupt or otherwise disrupt the shipment of products to us or damage our reputation, which may result in a decrease in customer traffic to our stores and adversely affect our sales and net earnings.

 
12

 

Existing and increased competition in the women’s and girl’s retail apparel industry may reduce our net revenues, profits and market share.

The women’s and girl’s retail apparel industry is highly competitive.  We compete primarily with department stores, off-price retailers, specialty stores, discount stores, mass merchandisers and Internet-based retailers, many of which have substantially greater financial, marketing and other resources than we have.  Many department stores offer a broader selection of merchandise than we offer.  In addition, many department stores continue to be promotional and reduce their selling prices, and in some cases are expanding into markets in which we have a significant market presence.  As a result of this competition, including close-out sales and going-out-of-business sales by other women’s apparel retailers, we may experience pricing pressures, increased marketing expenditures and loss of market share, which could have a material adverse effect on our business, financial condition and results of operations.

We depend on key personnel in order to support our existing business and future expansion and may not be able to retain or replace these employees or recruit additional qualified personnel.

Our success and our ability to execute our business strategy depends largely on the efforts of our management.  The loss of the services of one or more of our key personnel could have a material adverse effect on our business, as we may not be able to find suitable management personnel to replace departing executives on a timely basis.  We do not have key man life insurance on our key personnel.  We compete for experienced personnel with companies which have greater financial resources than we do.  If we fail to attract, motivate and retain qualified personnel, it could harm our business and limit our ability to expand.

Covenants in our revolving credit facility agreement may impose operating restrictions.

Our revolving credit facility agreement has financial covenants with respect to fixed charge coverage ratio, as well as other financial ratios.  If we fail to meet these covenants or obtain appropriate waivers, our lender may terminate the revolving credit facility.

Our business may be affected by regulatory and litigation developments.

Various aspects of our operations are subject to federal, state or local laws, rules and regulations, any of which may change from time to time.  Additionally, we are regularly involved in various litigation matters that arise in the ordinary course of our business.

Natural disasters, war and acts of terrorism on the United States or international economies may adversely impact our business.

A significant act of terrorism or a natural disaster event in the United States or elsewhere could have an adverse impact on the delivery of imports or domestic products to us, or by disrupting production of our goods or interfering with our distribution or information systems.  Additionally, any of these events could result in higher costs of doing business, lower client traffic and reduced consumer confidence and spending resulting in a material adverse effect on our business, financial condition and results of operations.

The recent downturn in the financial markets could have an adverse effect on our ability to access our cash and investment securities.

We have significant amounts of cash and cash equivalents at financial institutions that are in excess of federally insured limits.  With the current financial environment and instability of financial institutions we cannot be assured that we will not experience losses on our deposits.

Health care reform could adversely affect our business.

In March 2010, the United States government enacted health care reform legislation that will make significant changes to the health care payment and delivery system.  The health reform legislation requires employers to provide employees with insurance coverage that meets minimum eligibility and coverage requirements or face penalties.  The legislation also includes provisions that will impact the number of individuals with insurance coverage, the types of coverage and level of health benefits that will be required and the amount of payment providers performing health care services will receive.  The legislation imposes implementation effective dates beginning in 2010 and extending through 2020.  Many of the changes require additional guidance from government agencies or federal regulations.  Therefore, it is difficult to determine at this time what impact the health care reform legislation will have on our financial results.

 
13

 

We are pursuing a strategy of international expansion.

Justice has licensed stores in certain Middle Eastern countries and Russia and currently intends to expand into other countries in the future.  In addition to the general risks associated with doing business in foreign markets, as disclosed in our prior filings, we run the risk of not being able to sustain our growth in these international markets or to penetrate new international markets in the future.  As we penetrate these markets, there is increased risk of not fully complying with existing and future laws, rules and regulations of countries where we conduct business.  As with any future business strategy, we can provide no assurance that our current and future international endeavors will be successful.

We utilize ports to import our products from Asia.

We currently ship the vast majority of our products by ocean.  If a disruption occurs in the operation of ports through which our products are imported, we and our vendors may have to ship some or all of our products from Asia by air freight or to alternative shipping destinations in the United States.  Shipping by air is significantly more expensive than shipping by ocean and our profitability could be reduced.  Similarly, shipping to alternative destinations in the United States could lead to increased lead times and costs on our products.  A disruption at ports through which our products are imported could have a material adverse effect on our results of operations and cash flows.

Funds associated with the auction rate securities held by us that we have traditionally held as short-term investments may not be liquid or readily available.

Our investment in securities currently consists partially of auction rate securities that are not currently liquid or readily available to convert to cash and, therefore, we have reclassified such auction rate securities as long-term investment securities.  We do not believe that the current liquidity issues related to our auction rate securities will impact our ability to fund our ongoing business operations. However, if the global credit crisis persists or intensifies, it is possible that we will be required to further adjust the fair value of our auction rate securities.  If we determine that the decline in the fair value of our auction rate securities is other-than-temporary, it would result in an impairment charge being recognized on our Consolidated Statement of Operations which could be material and which could adversely affect our financial results.

We may experience fluctuations in our tax obligations and effective tax rate.

We are subject to income taxes in the United States and numerous international jurisdictions.  We record tax expense based on our estimates of future tax payments, which include reserves for estimates of probable settlements of international and domestic tax audits. At any one time, many tax years are subject to audit by various taxing jurisdictions.  The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues.  As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as taxable events occur and exposures are re-evaluated.  Further, our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of earnings by taxing jurisdiction or by changes to existing accounting rules or regulations.

Our stock price may be volatile.

Our stock price may fluctuate substantially as a result of quarter to quarter variations in our actual or anticipated financial results, the results of other companies in the retail industry, or the markets we serve.  In addition, the stock market has experienced price and volume fluctuations that have affected the market price of many retail and other stocks and that have often been unrelated or disproportionate to the operating performance of these companies.

Changes to accounting rules and regulations may adversely affect our results of operations.

Changes to existing accounting rules or regulations may impact our future results of operations or cause the perception that we are more highly leveraged.  Other new accounting rules or regulations and varying interpretations of existing accounting rules and regulations have occurred and may occur in the future.  For instance, accounting regulatory authorities have indicated that they may begin to require lessees to capitalize operating leases in their financial statements in the next few years.  If adopted, such a change would require us to record a significant amount of lease related assets and liabilities on our balance sheet and make other changes to the recording and classification of lease related expenses on our statement of operations and cash flows.  This and other future changes to accounting rules or regulations or the questioning of current accounting practices may adversely affect our results of operations and financial position.  

 
14

 

Failure to comply with Section 404 of the Sarbanes-Oxley Act of 2002 could negatively impact our business, the price of our common stock and market confidence in our reported financial information.

We must continue to document, test, monitor and enhance our internal controls over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.  We cannot be assured that our disclosure controls and procedures and our internal controls over financial reporting required under Section 404 of the Sarbanes-Oxley Act will prove to be adequate in the future.  Any failure to maintain the effectiveness of internal controls over financial reporting or to comply with the requirements of the Sarbanes-Oxley Act could have a material adverse impact on our business, our financial condition and the price of our common stock.

ITEM 1B.  UNRESOLVED STAFF COMMENTS
None.

ITEM 2.  PROPERTIES

We lease all of our stores.  Store leases generally have an initial term ranging from 5 to 10 years with one or more options to extend the lease.  The table below, covering all open store locations leased by us on July 31, 2010, indicates the number of leases expiring during the period indicated and the number of expiring leases with and without renewal options:

Fiscal Year
 
Leases Expiring
 
Number with
Renewal Options
 
Number without
Renewal Options
             
2011
 
456
 
271
 
185
             
2012
 
377
 
295
 
82
             
2013
 
335
 
280
 
55
             
2014
 
265
 
220
 
45
             
2015
 
235
 
194
 
41
             
2016 and thereafter
 
809
 
464
 
345
             
Total
 
2,477
 
1,724
 
753

New store leases generally provide for an average base rent of approximately $10 to $40 per square foot per annum.  Certain leases have formulas requiring the payment of a percentage of sales as additional rent, generally when sales reach specified levels.  Our aggregate minimum rentals under operating leases in effect at July 31, 2010 and excluding locations acquired after July 31, 2010, for fiscal 2011, are approximately $235.3 million.  In addition, we are also typically responsible under our store leases for our pro rata share of maintenance expenses and common charges in strip and outlet centers.

Many of the store leases have termination clauses if certain specified sales volumes are not achieved.  This affords us greater flexibility to close underperforming stores.  Usually these provisions are operative only during the first few years of a lease.

Our investment in new stores consists primarily of inventory, leasehold improvements, fixtures and equipment.  We generally receive tenant improvement allowances from landlords to offset a portion of these initial investments in leasehold improvements.

 
15

 

We own an approximately 900,000 square-foot distribution/office facility and 16 acres of adjacent land in Suffern, New York, which houses, in approximately 510,000 square feet, our dressbarn corporate offices and distribution center.  The remainder of the rentable square footage is 100% leased through 2011.  The purchase of the Suffern facility was financed with a mortgage that is collateralized by a mortgage lien on the Suffern facility.  Payments of principal and interest on the mortgage, which is a 20-year fully amortizing loan with a fixed interest rate of 5.33%, are due monthly through July 2023.  We receive rental income and reimbursement for taxes and common area maintenance charges from two tenants that occupy the Suffern facility that are not affiliated with us.  The rental income from the other tenants is shown as “Other income” on our Consolidated Statements of Operations.  We own maurices’ corporate headquarters in downtown Duluth, Minnesota, which is composed of three office buildings totaling approximately 151,000 square feet.  We also own a distribution center, which has 360,000 square feet of space and approximately 9 acres of adjacent land which is located in Des Moines, Iowa, which houses our maurices warehousing and distribution operations.  We own Justice’s corporate office facilities in New Albany, Ohio totaling approximately 280,000 square foot, along with 44 acres of adjacent land, and a 470,000 square foot distribution center in Etna Township, Ohio. We own office space in Hong Kong, China and lease office space in Shanghai, China and Seoul, South Korea to support our international sourcing operations.

We currently anticipate that our distribution center in Suffern, New York will be consolidated into our distribution center in Etna Township, Ohio during fiscal 2011. The Etna Township, Ohio facility has a state of the art warehouse management system and material handling systems.  Our Ohio facility has both the capacity and storage capability to handle the dressbarn brand and Justice brand volume.
 
To support sales of products sold through our websites, we have multi-year agreements with contract logistics providers, who provide warehousing and fulfillment services for our e-commerce operations.
 
ITEM 3.  LEGAL PROCEEDINGS

On January 21, 2010, Tween Brands was sued in the U.S. District Court for the Eastern District of California.  This purported class action alleges, among other things, that Tween Brands violated the Fair Labor Standards Act by not properly paying its employees for overtime and missed rest breaks.  In September 2010, the parties agreed to a tentative settlement of this wage and hour lawsuit.  The settlement is subject to preliminary court approval, notice to the purported class members, and final court approval.
 
Between November 2008 and October 2009, Tween Brands was sued in three purported class action lawsuits alleging that Tween Brands’ telephone capture practice in California violated the Song-Beverly Credit Card Act, which protects consumers from having to provide personal information as a condition to a credit card transaction.  All three cases were consolidated in California state court.  The parties settled this lawsuit in the spring of 2010.  The court granted preliminary approval of the settlement on July 9, 2010.  The final court approval hearing is scheduled for December 10, 2010.

In addition to the litigation discussed above, we are, and in the future may be, involved in various other lawsuits, claims and proceedings incident to the ordinary course of business.  The results of litigation are inherently unpredictable.  Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources.  The results of these lawsuits, claims and proceedings cannot be predicted with certainty.  However, we believe that the ultimate resolution of these current matters will not have a material adverse effect on our Consolidated Financial Statements taken as a whole.

 
16

 

PART II

ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Prices of Common Stock

The Common Stock of The Dress Barn, Inc. is quoted on the NASDAQ Global Select Market under the symbol DBRN.

The table below sets forth the high and low prices as reported on the NASDAQ Global Select Market for the last eight fiscal quarters.

   
Fiscal 2010
   
Fiscal 2009
 
Fiscal
 
High
   
Low
   
High
   
Low
 
                         
First Quarter
  $ 20.01     $ 14.82     $ 17.93     $ 7.76  
                                 
Second Quarter
  $ 25.74     $ 17.85     $ 11.40     $ 6.16  
                                 
Third Quarter
  $ 30.40     $ 23.07     $ 15.61     $ 8.44  
                                 
Fourth Quarter
  $ 30.58     $ 22.71     $ 16.81     $ 13.09  

Number of Holders of Record

As of September 17, 2010, we had approximately 5,261 holders of record of our common stock.

Dividend Policy

We have never declared or paid cash dividends on our common stock.  We currently intend to retain our future earnings and available cash to fund the growth of our business and do not expect to pay dividends in the foreseeable future.  However, payment of dividends is within the discretion of our Board of Directors.  Payments of dividends are limited by our revolving credit facility as described in the Liquidity and Capital Resources section of Item 7. "Management's Discussion and Analysis of Financial Conditions and Results of Operations."

 
17

 

Performance Graph

The following graph illustrates, for the period from July 30, 2005 through July 31, 2010, the cumulative total shareholder return of $100 invested (assuming that all dividends, if any, were reinvested) in (1) our common stock, (2) the S&P Composite-500 Stock Index and (3) the S&P Specialty Apparel Retailers Index.

The comparisons in this table are required by the rules of the Securities and Exchange Commission and, therefore, are not intended to forecast or be indicative of possible future performance of our common stock.


 
18

 

Securities Authorized for Issuance Under Equity Compensation Plans

The following table summarizes our equity compensation plans as of July 31, 2010.

Plan Category
 
Number of
securities to be
issued upon
exercise of
outstanding
options
   
Weighted
average
exercise price
of outstanding
options
   
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities reflected
in column (a))
 
   
(a)
   
(b)
   
(c)
 
Equity compensation plans approved by security holders
    6,720,010     $ 14.42       2,351,261  
                         
Equity compensation plans not approved by security holders
    -       -       -  
                         
Total
    6,720,010     $ 14.42       2,351,261  

Issuer Purchases of Equity Securities(1), (2)
Quarter Ended July 31, 2010

Period
 
Total Number of
Shares of
Common Stock
Purchased
   
Average Price
Paid per Share of
Common Stock
   
Total Number of
Shares of
Common Stock
Purchased as Part
of Publicly
Announced Plans
or Programs
   
Maximum Number
of Shares of
Common Stock that
May Yet Be
Purchased Under
the Plans or
Programs (2)
 
                                 
April 25, 2010 through
May 22, 2010
                      2,323,831  
                                 
May 23, 2010 through
June 26, 2010
    774,708     $ 25.21             2,323,831  
                                 
June 27, 2010 through
July 31, 2010
    775,292     $ 23.75             2,323,831  

(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.  The Company purchased 1.6 million shares at an average price of $24.48 during fiscal 2010.  As of July 31, 2010, the remaining authorized amount for stock repurchases under the 2007 Program was $57.4 million.

(2)
Based on the closing price of $24.70 on July 30, 2010.

 
19

 

ITEM 6.  SELECTED FINANCIAL DATA
The following selected financial data is derived from our consolidated financial statements and should be read in conjunction with the consolidated financial statements and related notes, Management’s Discussion and Analysis, and Quantitative and Qualitative Disclosures About Market Risk included in this Annual Report on Form 10-K.  Prior year amounts have been revised to reflect the retrospective application of adopting a new accounting pronouncement relating to convertible debt and the prospective application of the new accounting pronouncement relating to non-controlling interest.  (Refer to Note 3 to the Consolidated Financial Statements for more information.)

In thousands, except earnings per share
 
Fiscal Year Ended (1)
 
and store operating data
 
July 31,
2010
   
July 25,
2009
   
July 26,
2008
   
July 28,
2007
   
July 29,
2006
 
     
(2)
                         
Net sales
  $ 2,374,571     $ 1,494,236     $ 1,444,165     $ 1,426,607     $ 1,300,277  
Cost of sales, including occupancy and buying costs (excluding depreciation)
    1,395,267       918,350       885,927       842,192       773,631  
Selling, general and administrative expenses
    690,229       422,372       397,424       383,652       353,031  
Depreciation and amortization
    71,618       48,535       48,200       45,791       41,679  
Operating income
    217,457       104,979       112,614       154,972       131,936  
                                         
Loss on debt extinguishment (3)
    (5,792 )                        
Interest income
    2,258       5,394       7,817       7,051       2,656  
Interest expense
    (6,624 )     (9,951 )     (9,577 )     (9,261 )     (9,397 )
Other income
    2,049       1,062       512       1,382       1,526  
Earnings before income taxes
    209,348       101,484       111,366       154,144       126,721  
                                         
Income taxes
    75,970       34,912       40,151       55,609       50,205  
                                         
Net earnings
  $ 133,378     $ 66,572     $ 71,215     $ 98,535     $ 76,516  
                                         
Earnings per share – basic
  $ 1.85     $ 1.11     $ 1.18     $ 1.59     $ 1.25  
Earnings per share – diluted
  $ 1.73     $ 1.06     $ 1.10     $ 1.41     $ 1.11  
                                         
Balance sheet data (at end of period):
                                       
Working capital
  $ 356,929     $ 214,679     $ 113,800     $ 120,906     $ 5,600  
Total assets
  $ 1,654,119     $ 1,129,172     $ 1,022,743     $ 975,556     $ 839,033  
Total debt
  $ 26,038     $ 128,763     $ 124,959     $ 121,607     $ 118,536  
Shareholders' equity
  $ 1,014,667     $ 632,447     $ 566,277     $ 522,469     $ 424,862  
Percent of net sales:
                                       
Cost of sales, including occupancy and buying costs, excluding depreciation and amortization
    58.8 %     61.5 %     61.3 %     59.0 %     59.5 %
Selling, general and administrative expenses
    29.1 %     28.3 %     27.5 %     26.9 %     27.2 %
Operating income
    9.2 %     7.0 %     7.8 %     10.9 %     10.1 %
Net earnings
    5.6 %     4.5 %     4.9 %     6.9 %     5.9 %

(1)
Fiscal 2010 consists of 53 weeks.  All other fiscal years presented consisted of 52 weeks.
(2)
Justice Merger consummated in November 2009, refer to Note 2 to the Consolidated Financial Statements for more information.
(3)
Tender Offer for our Convertible Senior Notes, refer to Note 9 to the Consolidated Financial Statements for more information.

 
20

 

ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K.  Fiscal 2010 refers to the 53-week period ended July 31, 2010, fiscal 2009 refers to the 52-week period ended July 25, 2009, and fiscal 2008 refers to the 52-week period ended July 26, 2008.  Fiscal 2011 refers to our 52-week period that will end on July 30, 2011.  Our fiscal year always ends on the last Saturday in July.

 
*
Prior year amounts have been revised to reflect the retrospective application of adopting a new accounting pronouncement relating to convertible debt and the prospective application of the new accounting pronouncement relating to non-controlling interest.  Refer to Note 3 to the Consolidated Financial Statements for more information.

Overview

This Management Overview section of Management’s Discussion and Analysis of Financial Condition and Results of Operations provides a high-level summary of the more detailed information elsewhere in this annual 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 omits details that appear elsewhere in this annual report.  It should not be relied upon separately from the balance of this annual report.

We operate women’s and girls’ apparel specialty stores, principally under the names “dressbarn”, “maurices” and, since our November 2009 Merger with Tween Brands (the “Justice Merger”), “Justice”.  Our dressbarn stores cater to 35 to 55 year-old woman, size 4 to 24.  These stores offer in-season, moderate to better quality career and casual fashion at value prices.  Our maurices stores are concentrated in small markets in the United States and their product offerings are designed to appeal to the apparel and accessory needs of the 17- to 34-year-old woman.  Our Justice stores target girls who are ages 7 to 14 and are located primarily in shopping malls and off-mall power centers throughout the United States.

Fiscal 2010 Highlights

Merger with Tween Brands, Inc.
On November 25, 2009, we completed the Merger with Tween Brands, Inc., a Delaware corporation (“Tween Brands”), pursuant to the Agreement and Plan of Merger, dated June 24, 2009 (the “Merger Agreement”).  Pursuant to the Merger Agreement, we are the acquirer, with one of our subsidiaries merging with Tween Brands in a stock-for-stock transaction (the “Merger”).  As a result of the Merger, Tween Brands became a wholly owned subsidiary of Dress Barn.  The Merger was approved by the stockholders of Tween Brands at a special meeting of stockholders held on November 25, 2009.  The Merger became effective on November 25, 2009.  We consummated the Merger with Tween Brands for a variety of reasons, including the opportunity to capitalize on the strength of its brand awareness, to leverage the utilization of combined infrastructure and personnel and to expand into the girls age 7 to 14, or “tween”, market.

Convertible Senior Notes Debt Extinguishment
During the second quarter ended, January 23, 2010, we conducted a tender offer for our 2.5% Convertible Senior Notes due December 2024 (the “Notes”).  All of the outstanding Notes, with an aggregate balance of $112.5 million, were validly tendered for exchange and not withdrawn as of the expiration date of the Offer, January 22, 2010.  Total consideration for the Offer was $273.4 million and was comprised of: cash of $112.5 million for the face amount of the Notes; cash of $4.5 million as inducement to exchange ($40 per $1,000 principal amount of Notes tendered); and the issuance of approximately 6.2 million shares of our common stock valued at $156.4 million. As a result of the Offer, we reduced our deferred tax liabilities by $14.6 million and reduced taxes payable by $0.2 million, with a corresponding increase to additional paid in capital of $14.8 million.  In connection with the Offer, we recognized a loss of $5.8 million consisting of $4.5 million related to the inducement amount and $1.3 million, which is equal to the difference between the net book value and the fair value of the Notes upon redemption in accordance with ASC 470-20.  Previously in December 2009, in a private transaction, we accepted for exchange $2.5 million of the Notes for an aggregate cash amount of approximately $5.4 million.  The loss associated with the December 2009 exchange was de minimus to our consolidated financial statements.  No Notes remain outstanding.

Stock Repurchases
During fiscal 2010, we purchased 1.6 million shares at an average price of $24.48 equaling $37.9 million.  The total stock purchases that have been made under the 2007 Program are 2.1 million shares at an aggregate purchase price of approximately $42.6 million, resulting in a remaining authorized balance of $57.4 million.  Treasury (reacquired) shares are retired and treated as authorized but unissued shares.

 
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Ongoing and Fiscal 2011 Business Initiatives

We continue to focus on a number of ongoing initiatives aimed at increasing our store profitability by reducing expenses and improving our comparative store sales trends.  These initiatives include, but are not limited to:

Corporate Reorganization and Potential Corporate Name Change
We are currently planning a potential corporate reorganization and name change. In our planned reorganization, each of our dressbarn,> maurices and Justice brands would become subsidiaries of a new Delaware corporation named Ascena Retail Group, Inc., or Ascena, and Dress Barn shareholders would become stockholders of this new Delaware holding company on a one-for-one basis, holding the same number of shares and same ownership percentage after the reorganization as they held immediately prior to the reorganization.  The reorganization generally would be tax-free for Dress Barn shareholders.  Shareholders of record on October 8, 2010 will be entitled to attend and vote at the annual meeting to approve the reorganization, which will be more fully described in the proxy statement/prospectus relating to the meeting. Refer to Note 19 to the Consolidated Financial Statements for more information.

Recognizing the numerous potential synergies between our segments
Our distribution center in Suffern, New York will be consolidated into our distribution center in Etna Township, Ohio during fiscal 2011. The Etna Township, Ohio facility has a state of the art warehouse management system and material handling systems.  Our Ohio facility has both the capacity and storage capability to handle the dressbarn brand and Justice brand volume.

In addition to our distribution center, we are currently working to consolidate our information technology departments.  This project will combine multiple IT resources, including our data centers, into a scalable model.  This will enable us to better serve the business needs of each of our brands, allow the realization of synergies and support any future acquisitions.


Store Expansion
We are exploring expansion opportunities both within our current market areas and in other regions.  Our Justice segment is currently exploring opportunities for expansion into Canada in the near future.

E-Commerce
E-Commerce revenue is currently generated by both the maurices segment and Justice segment.  E-commerce sales of products, ordered through our retail internet site are recognized upon estimated delivery and receipt of the shipment by the customers.  E-commerce revenue is also reduced by an estimate of returns and excludes sales taxes. Total e-commerce net sales were $36.2 million for the Company (approximately $27.0 million for Justice and $9.2 million for maurices).  During fiscal 2011, we are planning to launch our dressbarn segment into our e-commerce operations.

Trends and Other Factors Affecting Our Business

As we expect to continue our strategies to increase profitability through the opening of new stores and closing of underperforming locations, store expansion in our major trading markets and developing and expanding into new domestic markets, including Canada in the near future, there are trends and other factors that we face as a women’s and girls’ specialty apparel retailer that could have a material impact on our net sales or net earnings.

General Economic Conditions
Our performance is also subject to macroeconomic conditions and their impact on levels of consumer spending.  Some of the factors impacting discretionary consumer spending include general economic conditions, wages and employment, consumer debt, reductions in net worth based on recent severe market declines, residential real estate and mortgage markets, taxation, fuel and energy prices, interest rates, and consumer confidence.

 
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Competition
The retail apparel industry is highly competitive and fragmented, with numerous competitors, including department stores, off-price retailers, specialty stores, discount stores, mass merchandisers and Internet-based retailers, many of which have substantially greater financial, marketing and other resources than us.  Many of our competitors are able to engage in aggressive promotions, reducing their selling prices.  Some of our competitors include Macys, JCPenney, Kohl’s, Old Navy, Aerospostale, Target and Sears.  Other competitors may move into the markets that we serve.  Our business is vulnerable to demand and pricing shifts, and to changes in customer tastes and preferences.  If we fail to compete successfully, we could face lower net sales and may need to offer greater discounts to our customers, which could result in decreased profitability.  We believe that we have established and reinforced our image as a source of fashion and value by focusing on our target customers, and by offering superior customer service and convenience.

Customer tastes and fashion trends
Customer tastes and fashion trends are volatile and can change rapidly.  Our success depends in part on our ability to effectively predict and respond to changing fashion trends and consumer demands, and to translate market trends into appropriate, saleable product offerings.  If we are unable to successfully predict or respond to changing styles or trends and misjudge the market for our products or any new product lines, our sales will be lower and we may be faced with a substantial amount of unsold inventory.  In response, we may be forced to rely on additional markdowns or promotional sales to dispose of excess or slow-moving inventory, which may have a material adverse effect on our financial condition or results of operations.

Seasonality
The retail apparel market has two principal selling seasons, spring (our third and fourth fiscal quarters) and fall (our first and second fiscal quarters).  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.  Justice sales and operating profits are significantly higher during the fall season, as this includes both the back to school and holiday selling periods.  We expect these trends 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.

Weather Conditions
Weather conditions can affect net sales because inclement weather may discourage travel or require temporary store closures, thereby reducing customer traffic.

Key Performance Measures
Management uses a number of key indicators of financial condition and operating performance to evaluate the performance of our business, including the following:

   
Fiscal Year Ended
 
   
July 31, 2010
   
July 25, 2009
   
July 26, 2008
 
                   
Net sales growth
    58.9 %     3.5 %     1.2 %
dressbarn comparable store sales
    6.0 %     0.1 %     (6.6 ) %
maurices comparable store sales
    6.1 %     (1.3 ) %     4.3 %
Justice comparable store sales
    17.5 %     n/a       n/a  
Total comparable store sales growth
    9.2 %     (0.4 ) %     (2.9 ) %
Cost of sales, including occupancy and buying costs, excluding depreciation
    58.8 %     61.5 %     61.3 %
SG&A as a percentage of sales
    29.1 %     28.3 %     27.5 %
Square footage growth
    39.4 %     3.9 %     5.2 %
                         
Total store count
    2,477       1,559       1,503  
                         
Diluted earnings per share
  $ 1.73     $ 1.06     $ 1.10  
                         
Capital expenditures (in millions)
  $ 65.2     $ 58.4     $ 66.1  
 
*
The Justice Merger was consummated on November 25, 2009 and therefore we do not present data related to our prior reporting periods.  Justice comparable store sales were based on stores that had sales on the same day both in the current year and the previous year which were operated by Tween Brands, Inc. prior to the Merger. 

 
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We consider comparable store sales to be one of the most important indicators of our performance since it impacts the following:

 
·
Our ability to leverage our costs, including store payroll, store supplies and occupancy costs.
 
·
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 our consolidated statements of operations.

Various factors affect comparable store net sales, including the number of stores we open or close, the number of transactions, the average transaction amount, the general retail sales environment, current local and global economic conditions, consumer preferences and buying trends, changes in sales mix among distribution channels, our ability to efficiently source and distribute products, changes in our merchandise mix, competition, the timing of the release of new merchandise and our promotional events, the success of marketing programs and the cannibalization of existing store net sales by new stores. 

Financial Performance Summary

NOTE:  All results for Justice are from November 25, 2009 (the Merger date) to the end of the fiscal year.

During the fifty-three weeks of fiscal 2010 that ended July 31, 2010 (the “current period”), net sales were $2,374.6 million, an increase from $1,494.2 million for the fifty-two weeks ended July 25, 2009 (the “prior period”).  Net sales for Justice were $711.9 million since the effective date of the Merger on November 25, 2009.  Our comparable store sales increased 9.2% during the current period (dressbarn increased 6.0%, maurices increased 6.1% and Justice increased 17.5%).  We opened 14 dressbarn Combo stores, 39 maurices stores and 11 Justice stores during the current period.  The Merger added 906 Justice stores.  There were 19 dressbarn, >3 maurices and 30 Justice store closings during the current period.  Our total store square footage at the end of the current period increased approximately 39.4% from the end of the prior period, primarily due to the Justice Merger.

Net earnings for the fifty-three weeks of fiscal 2010 increased to $133.4 million from $66.6 million for the prior period.  Diluted earnings per share for the current period were $1.73 versus $1.06 per share for the prior period.

Results of Operations

Our segment reporting structure reflects a brand-focused approach, designed to optimize the operational coordination and resource allocation of our businesses across multiple functional areas including specialty retail, e-commerce and licensing.  The three reportable segments described below represent our brand-based activities for which separate financial information is available and which is utilized on a regular basis by our executive team to evaluate performance and allocate resources.  In identifying our reportable segments, we consider economic characteristics, as well as products, customers, sales growth potential and long-term profitability.  As such, we report our operations in three reportable segments as follows:

       dressbarn segment – consists of the specialty retail and outlet operations of our dressbarn brand.

       maurices segment – consists of the specialty retail, outlet and e-commerce operations of our maurices brand.

       Justice segment – consists of the specialty retail, outlet, e-commerce and licensing operations of our Justice brand.

 
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Fiscal 2010 Compared to Fiscal 2009

Net Sales:
   
Fiscal Year Ended
 
(Amounts in millions, except for % change amounts)
 
July 31,
2010
   
% of Total
Net Sales
   
July 25,
2009
   
% of Total
Net Sales
   
% Change
 
                                         
dressbarn
  $ 982.0       41.3 %   $ 906.2       60.6 %     8.4 %
maurices
    680.7       28.7 %     588.0       39.4 %     15.8 %
Justice
    711.9       30.0 %     n/a       n/a       n/a  
Consolidated net sales
  $ 2,374.6             $ 1,494.2               58.9 %

Net sales for the current period increased 58.9% to $2,374.6 million from $1,494.2 million in the prior period. This increase was primarily attributable to a combination of the following:

 
·
an increase in net sales of $711.9 million related to Justice from the merger date of November 25, 2009 to the end of the fiscal year,
 
·
an increase of $84.0 million in comparable store sales in our dressbarn and maurices brands for the fiscal year,
 
·
an increase in net sales of $30.4 million for the fifty-third week at our dressbarn and maurices brands,
 
·
an increase in net sales of $25.9 million due to the 53 new stores opened at our dressbarn and maurices brands during the fiscal year,
 
·
an increase in net sales of $24.6 million for stores previously opened at our dressbarn and maurices brands that were not included in our comparable store sales,
 
·
e-commerce sales of $9.2 million at our maurices brand, partially offset by
 
·
a decrease of $0.6 million in sales reserves and other sales at our dressbarn and maurices brands and
 
·
a decrease in net sales of $5.0 million from stores closed at our dressbarn and maurices brands since the comparable period last year.

We believe the comparative store sales increase was primarily due to our fashion and value message which resonated with our customers and our increased marketing spend which drove additional traffic to our stores.

During fiscal 2010, the dressbarn brand comparable sales increased 6.0%.  The best performing departments were Petite Ready-to-Wear, Leather and Outerwear, Petite Tops and Accessories.  The weakest departmental performers were Suits and YVOS.

For the maurices brand, fiscal 2010 comparable sales increased by 6.1%.  Strong sales trends were noted in the Core Women’s collections as Casual Tops (Woven’s, Knits and Sweaters) continue to drive increases with strong sales of Denim jeans completing the outfit.  Additionally, we have posted increases in “Wear @ Work” Tops, Dresses, and Accessories.  Disappointments include declines in Intimate Apparel and Outerwear businesses.  The Plus size collection continues to perform very well.

For the Justice brand, net sales for fiscal 2010 were $711.9 million and comparable sales increased 17.5% from the merger date of November 25, 2009 to the end of the fiscal year.  The top performing departments contributing to sales growth were Girlcare, Denim, Jewelry and Cut and Sew, partially offset by the Webkinz, Lifestyles and Outerwear departments.

Cost of sales, including occupancy and buying costs, excluding depreciation:

(Amounts in millions, except for % amounts)
 
July 31, 
2010
   
July 25,
 2009
   
$ Change
   
% Change
 
                         
Fiscal year ended
  $ 1,395.3     $ 918.4     $ 476.9       51.9 %
As a percentage of sales
    58.8 %     61.5 %                

Cost of sales decreased by 270 basis points to 58.8% of net sales in the current year period from 61.5% of net sales in the prior period.  For the dressbarn brand, cost of sales was $595.8 million or 60.7% of net sales, a decrease of 210 basis points as compared to $568.7 million or 62.8% from the same period last year.  This decrease was the result of higher merchandise margins mainly due to lower markdowns.  maurices cost of sales for fiscal 2010 was $386.3 million or 56.7% of net sales as compared to $349.7 million or 59.5% of net sales in fiscal 2009.  The decrease in cost of sales as a percentage of sales was primarily the result of fewer markdowns and the leveraging of occupancy costs due to the comparable store sales increase.  Justice cost of sales for fiscal 2010 was $413.2 million or 58.0% of net sales.

 
25

 
SG&A expenses:
(Amounts in millions, except for % amounts)
 
July 31, 
2010
   
July 25,
 2009
   
$ Change
   
% Change
 
                         
Fiscal year ended
  $ 690.2     $ 422.4     $ 267.8       63.4 %
As a percentage of sales
    29.1 %     28.3 %                

As a percentage of sales, selling, general and administrative expenses (“SG&A”) increased 80 basis points to 29.1% of net sales in the current period versus 28.3%  in the prior period.  dressbarn SG&A increased 130 basis points to 30.5% of net sales versus 29.2% prior period primarily due to merger related and corporate reorganization costs incurred of $6.2 million and $1.2 million, respectively, as well as increased marketing and incentive compensation costs related to the better than planned earnings results.  maurices SG&A was $180.6 million or 26.5% of net sales for fiscal 2010 as compared to $157.5 million or 26.8% of net sales for fiscal 2009.  The decrease was primarily attributable to leveraging of payroll and benefits due to the comparable sales increase offset by increased incentive compensation costs related to the better than planned earnings results, increased professional services related to e-commerce and additional store impairments.  Justice SG&A expenses for fiscal 2010 were $210.3 million or 29.5% of sales.

Depreciation and amortization:
(Amounts in millions, except for % amounts)
 
July 31, 
2010
   
July 25,
 2009
   
$ Change
   
% Change
 
                         
Fiscal year ended
  $ 71.6     $ 48.5     $ 23.1       47.6 %
As a percentage of sales
    3.0 %     3.2 %                

Depreciation expense increased 47.6% in fiscal 2010 as compared to prior period primarily due to $23.7 million from the inclusion of Justice from the November 25, 2009 merger date to the end of the fiscal year, plus the net opening of 12 stores, store remodels and relocations, and investments in technology.

Operating income:
(Amounts in millions, except for % amounts)
 
July 31, 
2010
   
July 25,
 2009
   
$ Change
   
% Change
 
                         
Fiscal year ended
  $ 217.5     $ 105.0     $ 112.5       107.1 %
As a percentage of sales
    9.2 %     7.0 %                

As a result of the above factors, operating income as a percent of net sales was 9.2% for fiscal 2010 compared to 7.0% for fiscal 2009. For the dressbarn brand, operating income as a percent of sales increased to 6.1% versus 5.0% fiscal 2009.  For the maurices brand, operating income as a percent of sales increased to 13.7% versus 10.3% prior period.  Justice brand operating income as a percentage of sales was 9.1% for fiscal 2010.

Loss on debt extinguishment:

On January 25, 2010, we announced the completion of our Offer for 100% of the outstanding balance of the Notes, or $112.5 million, effective January 22, 2010.  In conjunction with the Offer, we recognized a loss of $5.8 million comprised of a $4.5 million loss on the inducement and a $1.3 million loss on the derecognition related to the difference between the net book value and the fair value of the Notes.  See Note 9 of the Consolidated Financial Statements.

Interest income:
(Amounts in millions, except for % amounts)
 
July 31, 
2010
   
July 25,
 2009
   
$ Change
   
% Change
 
                         
Fiscal year ended
  $ 2.3     $ 5.4     $ (3.1 )     (57.4 ) %
As a percentage of sales
    0.1 %     0.4 %                

 
Interest income for fiscal 2010 was $2.3 million as compared to interest income of $5.4 million in fiscal 2009 due to lower interest rate yields in the current period.  During fiscal 2010 we adopted a more conservative strategy with investments in higher grade securities with shorter term maturities for greater capital security and liquidity which results in a lower return.

 
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Interest expense:
(Amounts in millions, except for % amounts)
 
July 31, 
2010
   
July 25,
 2009
   
$ Change
   
% Change
 
                         
Fiscal year ended
  $ (6.6 )   $ (10.0 )   $ 3.4       (34.0 )%
As a percentage of sales
    (0.3 )%     (0.7 )%                
 
Interest expense for the current period was primarily on our mortgage for our Suffern, NY facilities.  In the prior period, the interest on the Convertible Senior Notes was included in interest expense.  The Convertible Senior Notes were tendered for exchange on January 22, 2010. See Notes 3 and 9 of the Consolidated Financial Statements.

Other income:
(Amounts in millions, except for % amounts)
 
July 31, 
2010
   
July 25,
 2009
   
$ Change
   
% Change
 
                         
Fiscal year ended
  $ 2.0     $ 1.1     $ 0.9       81.8 %
As a percentage of sales
    0.1 %     0.1 %                

Other income for the current period was $2.0 million as compared to $1.1 million prior period.  The majority of this amount represents rental income from the two tenants currently occupying space in our corporate headquarters property in Suffern, New York.  Fiscal 2009 rental income was offset by approximately $0.8 million of cost basis investment impairment and related to our ARS.

Income taxes:
(Amounts in millions, except for % amounts)
 
July 31, 
2010
   
July 25,
 2009
   
$ Change
   
% Change
 
                         
Fiscal year ended
  $ 76.0     $ 34.9     $ 41.1       117.8 %
As a percentage of sales
    3.2 %     2.3 %                

The effective tax rate for fiscal 2010 was 36.3% as compared to 34.4% reported for fiscal 2009.  In fiscal 2009, the effective tax rate was reduced due to the reversal of certain liabilities for uncertain tax positions.  The reversal of such liabilities did not benefit the effective tax rate to the same extent in fiscal 2010 due to the overall increase in pretax income.  Refer to Note 14 to the Consolidated Financial Statements for additional details.

Net Earnings:
(Amounts in millions, except for % amounts)
 
July 31, 
2010
   
July 25, 
2009
   
$ Change
   
% Change
 
                         
Fiscal year ended
  $ 133.4     $ 66.6     $ 66.8       100.3 %
As a percentage of sales
    5.6 %     4.5 %                

Net earnings for the current period increased to $1.73 per diluted share, compared to $1.06 per diluted share in the prior period due to the above factors including the Justice results since the merger date of November 25, 2009.

 
27

 

Fiscal 2009 Compared to Fiscal 2008

Net Sales:
   
Fifty-Two Weeks Ended
(Amounts in millions, except for % change amounts)
 
July 25,
2009
   
% of Sales
   
July 26,
2008
   
% of Sales
   
% Change
                                         
dressbarn
  $ 906.2       60.6 %   $ 887.6       61.5 %     2.1 %
maurices
    588.0       39.4 %     556.6       38.5 %     5.6 %
Consolidated net sales
  $ 1,494.2             $ 1,444.2               3.5 %
 
Net sales for the fifty-two weeks ended July 25, 2009 increased 3.5% to $1,494.2 million from $1,444.2 million in the prior year.   This increase was mainly driven by a 3.9% square footage increase offset by a comparable store sales decrease of 0.4%.  The same store sales decrease was the result of several factors including decreased customer traffic to our stores and fewer customer transactions.  We believe the decrease in the number of customer transactions was the result of the continuing economic challenges that are affecting a significant number of our customers.

 
During fiscal 2009, the dressbarn brand continued to be impacted by the slowdown in consumer spending, however, the dressbarn brand still managed to have positive comparable sales.  The strongest comparable store sales for the fifty-two week period were in the midwest, mid-atlantic and northeast regions.  The regions with the weakest comparable store sales were the northwest and southeast.  The best performing departments were Suit Separates, Outerwear, Shoes and Accessories.  The weakest departmental performers were Coordinates and Casual Bottoms.

For the maurices brand, fiscal 2009 comparable sales were down slightly in a very challenging retail environment.  The two regions with comparable sales increases were the mid-atlantic and the midwest regions.  The regions with the weakest comparable store sales were the southeast, northeast and northwest regions.  Strong sales trends were noted for Casual Tops within the Core Women’s collections and within the dressier “Wear @ Work” assortment Dressy Tops performed well.  The weakest results came from the Dressier Club Assortment, Shoes and a general softening in sales trends of Bottoms.  For the year, the Plus size collection produced an 18% comparable sales increase.  The growth in the Plus size collection represented approximately two percentage points of the comparable store sales results for fiscal 2009. Knit Tops and Denim continue to be the key drivers within the Plus collection.

Revenue also includes income from the non-redemption of a portion of gift cards and gift certificates sold, and merchandise credits issued (gift card breakage).  We recognize income on unredeemed gift cards when it can be determined that the likelihood of the remaining balances being redeemed are remote and that there are no legal obligations to remit the remaining balances to relevant jurisdictions.  During fiscal 2009, we recognized $1.8 million of breakage income related to unredeemed gift cards which included $1.3 million for dressbarn and $0.5 million for maurices.  During fiscal 2008, we recognized $2.2 million of breakage income related to unredeemed gift cards which included $1.8 million for dressbarn and $0.4 million for maurices.

 
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Cost of sales, including occupancy and buying costs, excluding depreciation:
 
(Amounts in millions, except for % amounts)
 
July 25, 
2009
   
July 26,
 2008
   
$ Change
   
% Change
 
                         
Fiscal year ended
  $ 918.4     $ 885.9     $ 32.5       3.7 %
As a percentage of sales
    61.5 %     61.3 %                

Cost of sales increased by 20 basis points to 61.5% of net sales in the current year period from 61.3% of net sales in the prior year period.  For the dressbarn brand, cost of sales was $568.7 million or 62.7% of net sales, a decrease of 70 basis points as compared to $562.3 million or 63.4% from the same period last year.  This decrease was the result of higher merchandise margins from last year mainly due to lower markdowns.  maurices cost of sales for fiscal 2009 was $349.7 million or 59.5% of net sales as compared to $323.6 million or 58.1% of net sales in fiscal 2008.  The increase in cost of sales as a percentage of sales was primarily the result of higher markdowns and the deleveraging of occupancy costs due to the comparable store sales decline.

SG&A expenses:
(Amounts in millions, except for % amounts)
 
July 25, 
2009
   
July 26,
 2008
   
$ Change
   
% Change
 
                         
Fiscal year ended
  $ 422.4     $ 397.4     $ 25.0       6.3 %
As a percentage of sales
    28.3 %     27.5 %                

As a percentage of sales, selling, general and administrative expenses (“SG&A”) increased 80 basis points to 28.3% of net sales versus 27.5% last year.  dressbarn SG&A increased 50 basis points to 29.2% of net sales versus 28.7% last year due to increased professional fees relating to the pending Tween Brands, Inc. Merger and store impairment charges.  maurices SG&A was $157.5 million or 26.8% of net sales for fiscal 2009 as compared to $142.7 million or 25.6% of net sales for fiscal 2008.  The increase was primarily attributable to a de-leveraging of payroll and benefits due to the comparable sales decrease coupled with a trade name impairment (described in Note 8 to the Consolidated Financial Statements).

Depreciation and amortization:
(Amounts in millions, except for % amounts)
 
July 25, 
2009
   
July 26,
 2008
   
$ Change
   
% Change
 
                         
Fiscal year ended
  $ 48.5     $ 48.2     $ 0.3       0.6 %
As a percentage of sales
    3.2 %     3.3 %                

Depreciation expense increased 0.6% in fiscal 2009 as compared to last year primarily from the net opening of 56 stores, store remodels and relocations, and investment in technology.

Operating income:
(Amounts in millions, except for % amounts)
 
July 25, 
2009
   
July 26,
 2008
   
$ Change
   
% Change
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