dELiA*s, Inc. (NASDAQ: DLIA), a direct marketing and retail company comprised of two lifestyle brands primarily targeting teenage girls and young women, today announced the results for its third quarter of fiscal 2010.

Walter Killough, Chief Executive Officer, commented, “During the third quarter, we experienced a sequential improvement in sales trends in both the retail and direct segments. The improvement in our businesses that we began to see in August continued through the remainder of the quarter. In retail, while traffic has remained inconsistent, we have improved our sales execution which has resulted in increased conversion rates. As a result, we were able to deliver positive comparable store sales performance for the last two months of the quarter.”

Mr. Killough continued, “This positive sales performance has continued into the month of November. At the same time, we realize that in order to become profitable we need to continue to rationalize our expense structure. As a result, we have identified $8 million in annualized expense savings that we have begun to implement in the fourth quarter of 2010, with a total targeted reduction of over $10 million in expenses for fiscal 2011.”

Fiscal Third Quarter Results

Total revenue for the third quarter of fiscal 2010 increased 1.5% to $60.6 million from $59.7 million in the third quarter of fiscal 2009. Revenue from the retail segment increased 5.6% to $37.2 million, or 61.4% of total revenue. Revenue from the direct segment decreased 4.5% to $23.4 million, or 38.6% of total revenue.

Total gross profit was 34.3% in the third quarter of fiscal 2010 as compared to 36.5% in the prior year quarter, predominantly reflecting lower merchandise margins in both segments and the deleveraging of occupancy costs.

Selling, general and administrative (SG&A) expenses were $24.5 million, or 40.3% of sales, for the third quarter of 2010 compared to $23.7 million, or 39.6% of sales, in the third quarter of 2009. The increase in SG&A as a percent of sales reflects the deleveraging of overhead expenses.

In the third quarter of fiscal 2010, the Company recorded a pre-tax non-cash goodwill impairment charge of $7.6 million related to its direct marketing segment. This charge is expected to have no impact on the Company’s business operations or bank credit relationships.

The operating loss for the third quarter of 2010, including the goodwill impairment charge, was $11.2 million, as compared to an operating loss for the third quarter of 2009 of $1.9 million.

Net loss for the third quarter of fiscal 2010 increased to $9.7 million, or $0.31 per diluted share, including the goodwill impairment charge of $0.24 per diluted share, compared to a net loss of $1.3 million, or $0.04 per diluted share, for the third quarter of fiscal 2009.

The benefit for income taxes for the third quarter of fiscal 2010 was $1.7 million as compared to $0.7 million for the third quarter of fiscal 2009.

Results by Segment

Retail Segment Results

Total revenue for the retail segment for the third quarter of fiscal 2010 increased 5.6% to $37.2 million from $35.2 million in the third quarter of fiscal 2009. Retail comparable store sales decreased 0.4% for the third quarter of fiscal 2010 compared to a decrease of 3.6% for the third quarter of fiscal 2009.

Gross profit for the retail segment, which includes distribution, occupancy and merchandising costs, was 29.3% compared to 30.9% in the prior year period. The decrease in gross profit was driven by lower merchandise margins and the deleveraging of occupancy costs.

SG&A expenses for the retail segment were $12.9 million, or 34.6% of sales, in the third quarter of fiscal 2010 compared to $12.1 million, or 34.4% of sales. The increase in SG&A dollars was driven by increased store count and overhead expenses.

The operating loss for the third quarter of fiscal 2010 for the retail segment increased to $1.9 million from a loss of $1.2 million in the prior year period.

The Company had no store openings or closings during the third quarter of fiscal 2010 and ended the period with 115 stores.

Direct Segment Results

Total revenue for the direct segment for the third quarter of fiscal 2010 decreased 4.5% to $23.4 million from $24.5 million in the prior year period.

Gross profit for the direct segment was 42.2% in the third quarter of fiscal 2010 compared to 44.5% in the prior year period, driven by lower merchandise margins.

SG&A expenses for the direct segment were $11.6 million, or 49.5% of sales, in the third quarter of fiscal 2010, compared to $11.6 million, or 47.2% of sales, in the prior year period. The increase in SG&A as a percentage of sales reflects the deleveraging of selling and overhead expenses.

The operating loss for the third quarter of fiscal 2010 for the direct segment was $9.3 million, including the goodwill impairment charge of $7.6 million, compared with a loss of $0.7 million in the prior year period.

First Nine Month Results

For the nine month period ended October 30, 2010, total revenue decreased 2.4% to $153.8 million from revenue of $157.6 million for the prior year period. Total gross profit was 31.7% compared to 34.0% for the prior year period. SG&A expenses were $69.6 million, or 45.2% of sales, for the first nine months of fiscal 2010, compared to $67.7 million, or 43.0% of sales, for the prior year period.

Net loss for the first nine months of fiscal 2010 increased to $22.3 million, or $0.72 per diluted share, compared to a net loss of $9.6 million, or $0.31 per diluted share, for the first nine months of fiscal 2009. The net loss for the first nine months of fiscal 2010 included an after-tax severance charge of $1.1 million, or $0.04 per diluted share, recorded in the first quarter, and the aforementioned goodwill impairment charge of $7.6 million, or $0.24 per diluted share, recorded in the third quarter of fiscal 2010.

The Company continues to expect year-end cash, including restricted amounts, to range from $35 million to $40 million.

Conference Call and Webcast Information

A conference call to discuss third quarter 2010 results is scheduled for Tuesday, November 23, 2010 at 8:30 a.m. eastern time. The conference call will be webcast live at www.deliasinc.com. A replay of the call will be available until December 23, 2010 and can be accessed by dialing 888-286-8010 and providing the passcode 90913403.

During the conference call, the Company may discuss and answer questions concerning business and financial developments and trends. The Company's responses to questions, as well as other matters discussed during the conference call, may contain or constitute information that has not been disclosed previously.

About dELiA*s, Inc.

dELiA*s, Inc. is a direct marketing and retail company comprised of two lifestyle brands primarily targeting teenage girls and young women. Its brands – dELiA*s and Alloy – generate revenue by selling apparel, accessories, footwear and room furnishings to consumers through direct mail catalogs, websites, and dELiA*s mall-based specialty retail stores.

Forward-Looking Statements

This announcement may contain forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations and beliefs regarding our future results or performance. Because these statements apply to future events, they are subject to risks and uncertainties. When used in this announcement, the words “anticipate”, “believe”, “estimate”, “expect”, “expectation”, “should”, “would”, “project”, “plan”, “predict”, “intend” and similar expressions are intended to identify such forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements. Additionally, you should not consider past results to be an indication of our future performance. For a discussion of risk factors that may affect our results, see the “Risk Factors That May Affect Future Results” section of our filings with the Securities and Exchange Commission, including our annual report on Form 10-K and quarterly reports on Form 10-Q. We do not intend to update any of the forward-looking statements after the date of this announcement to conform these statements to actual results, to changes in management's expectations or otherwise, except as may be required by law.
 
dELiA*s, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share data)
 
        October 30,     January 30,     October 31,
2010   2010

 

2009
ASSETS (unaudited) (unaudited)

CURRENT ASSETS:
Cash and cash equivalents $ 14,356 $ 41,646 $ 26,396
Inventories, net 41,838 33,702 36,936
Prepaid catalog costs 3,934 2,354 4,765
Restricted cash 7,285 - -
Deferred income taxes 1,138 1,138 2,000
Other current assets   12,393   12,954   11,187
 
TOTAL CURRENT ASSETS 80,944 91,794 81,284
 
PROPERTY AND EQUIPMENT, NET 52,444 55,342 56,484
GOODWILL 4,462 12,073 12,073
INTANGIBLE ASSETS, NET 2,419 2,419 2,423
RESTRICTED CASH - 7,540 15,753
OTHER ASSETS 139 223 563
           
TOTAL ASSETS $ 140,408 $ 169,391 $ 168,580
 
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable $ 22,559 $ 24,562 $ 22,231
Accrued expenses and other current liabilities 21,257 26,173 27,073
Income taxes payable   825   733   715
TOTAL CURRENT LIABILITIES 44,641 51,468 50,019
 
DEFERRED CREDITS AND OTHER LONG-TERM
LIABILITIES 11,633 12,110 12,163
           
TOTAL LIABILITIES   56,274   63,578   62,182
 
COMMITMENTS AND CONTINGENCIES
 

STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 par value; 25,000,000 shares
authorized, none issued - - -
Common Stock, $.001 par value; 100,000,000 shares
authorized; 31,312,591, 31,309,216 and 31,201,514
shares issued and outstanding, respectively 31 31 31
Additional paid-in capital 99,292 98,636 98,430
(Accumulated deficit) retained earnings   (15,189)   7,146   7,937
 

TOTAL STOCKHOLDERS' EQUITY
  84,134   105,813   106,398
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 140,408 $ 169,391 $ 168,580
 
dELiA*s, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
 
        For the Thirteen Weeks Ended    
October 30,         October 31,
2010 2009
 
NET REVENUES $ 60,610 100.0 % $ 59,736 100.0 %
 
Cost of goods sold   39,838   65.7 %   37,957   63.5 %
 
GROSS PROFIT   20,772   34.3 %   21,779   36.5 %
Selling, general and administrative expenses 24,450 40.3 % 23,678 39.6 %
Impairment of goodwill 7,611 12.6 % - 0.0 %
Other operating income   (63 ) -0.1 %   -   0.0 %
TOTAL OPERATING EXPENSES   31,998   52.8 %   23,678   39.6 %
OPERATING LOSS (11,226 ) -18.5 % (1,899 ) -3.2 %
Interest expense, net   (91 ) -0.1 %   (97 ) -0.2 %
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (11,317 ) -18.7 % (1,996 ) -3.3 %
Benefit for income taxes   (1,655 ) -2.7 %   (650 ) -1.1 %
LOSS FROM CONTINUING OPERATIONS (9,662 ) -15.9 % (1,346 ) -2.3 %
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX - 0.0 % 5 0.0 %
NET LOSS $ (9,662 ) -15.9 % $ (1,341 ) -2.2 %
 
BASIC AND DILUTED (LOSS) INCOME PER SHARE:
LOSS FROM CONTINUING OPERATIONS $ (0.31 ) $ (0.04 )
INCOME FROM DISCONTINUED OPERATIONS $ -   $ -  
NET LOSS $ (0.31 ) $ (0.04 )
 

WEIGHTED AVERAGE BASIC AND DILUTED COMMON SHARESOUTSTANDING
  31,105,983     31,036,236  
 
dELiA*s, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
 
        For the Thirty-Nine Weeks Ended    
October 30,         October 31,
  2010     2009  
 
NET REVENUES $ 153,784 100.0 % $ 157,565 100.0 %
 
Cost of goods sold   104,976   68.3 %   103,968   66.0 %
 
GROSS PROFIT   48,808   31.7 %   53,597   34.0 %
Selling, general and administrative expenses 69,587 45.2 % 67,698 43.0 %
Impairment of goodwill 7,611 4.9 % - 0.0 %
Other operating income   (301 ) -0.2 %   -   0.0 %
TOTAL OPERATING EXPENSES   76,897   50.0 %   67,698   43.0 %
OPERATING LOSS (28,089 ) -18.3 % (14,101 ) -8.9 %
Interest expense, net   (261 ) -0.2 %   (141 ) -0.1 %
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (28,350 ) -18.4 % (14,242 ) -9.0 %
Benefit for income taxes   (6,015 ) -3.9 %   (4,598 ) -2.9 %
LOSS FROM CONTINUING OPERATIONS (22,335 ) -14.5 % (9,644 ) -6.1 %
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX   -   0.0 %   11   0.0 %
NET LOSS $ (22,335 ) -14.5 % $ (9,633 ) -6.1 %
 
BASIC AND DILUTED (LOSS) INCOME PER SHARE:
LOSS FROM CONTINUING OPERATIONS $ (0.72 ) $ (0.31 )
INCOME FROM DISCONTINUED OPERATIONS $ -   $ -  
NET LOSS $ (0.72 ) $ (0.31 )
 

WEIGHTED AVERAGE BASIC AND DILUTED COMMON SHARESOUTSTANDING
  31,103,574     31,033,822  
 
dELiA*s Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
        For the Thirty-Nine Weeks Ended
October 30, 2010     October 31, 2009
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (22,335 ) $ (9,633 )
Income from discontinued operations   -     11  
Loss from continuing operations (22,335 ) (9,644 )

Adjustments to reconcile net loss to net cash used in operating activities
of continuing operations:
Depreciation and amortization 7,835 7,479
Stock-based compensation 651 700
Impairment of goodwill 7,611 -
Changes in operating assets and liabilities:
Inventories (8,136 ) (2,994 )
Prepaid catalog costs and other assets (935 ) (7,845 )
Restricted cash 255 (15,753 )
Income taxes payable 92 (24,528 )
Accounts payable, accrued expenses and other liabilities   (6,674 )   (1,040 )
Total adjustments   699     (43,981 )
Net cash used in operating activities of continuing operations (21,636 ) (53,625 )
Net cash provided by operating activities of discontinued operations   -     11  
NET CASH USED IN OPERATING ACTIVITIES   (21,636 )   (53,614 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures   (5,659 )   (10,299 )
NET CASH USED IN INVESTING ACTIVITIES   (5,659 )   (10,299 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of mortgage note payable - (2,205 )
Proceeds from exercise of employee stock options   5     2  
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   5     (2,203 )
NET DECREASE IN CASH AND CASH EQUIVALENTS (27,290 ) (66,116 )
CASH AND CASH EQUIVALENTS, beginning of period 41,646 92,512
CASH AND CASH EQUIVALENTS, end of period $ 14,356   $ 26,396  
 
dELiA*s, Inc.
SELECTED OPERATING DATA
(in thousands, except number of stores)
(unaudited)
 
                For The Thirteen Weeks Ended     For The Thirty-Nine Weeks Ended  
October 30, 2010     October 31, 2009 October 30, 2010   October 31, 2009
   

Channel net revenues:
 
Retail $ 37,203 $ 35,235 $ 87,538 $ 84,151
Direct     23,407   24,501   66,246   73,414
Total net revenues   $ 60,610 $ 59,736 $ 153,784 $ 157,565
 
 
Comparable store sales     (0.4%)   (3.6%)   (4.8%)   (3.8%)
 
Catalogs mailed     13,560   14,576   31,222   33,148
 
Inventory - retail   $ 23,595 $ 20,348 $ 23,595 $ 20,348
Inventory - direct   $ 18,243 $ 16,588 $ 18,243 $ 16,588
 
 

Number of stores:
Beginning of period 115 104 109 97
Opened - 4 9 * 13 **
Closed     -   -   3 *   2 **
End of period     115   108   115   108
 
Total gross sq. ft @ end
of period   440.4   411.7   440.4   411.7
 
* Totals include one store that was closed, remodeled and reopened in the second quarter of fiscal 2010, and one store that was closed and relocated to an alternative site in the same mall during the second quarter of fiscal 2010.
 
** Totals include one store that was closed, remodeled and reopened in the first quarter of fiscal 2009, and one store that was closed and relocated to an alternative site in the same mall during the second quarter of fiscal 2009.

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