Business Context and Reporting Period
Company: Designs, Inc. (Note: Metadata lists "Destination XL Group, Inc." but the filing text identifies the registrant as "Designs, Inc.")
Filing Type: Form 10-K Annual Report
Fiscal Period: Year ended February 3, 1996 (Fiscal 1995)
Business Overview: A specialty retailer of quality branded apparel and accessories in the United States. The Company primarily markets Levi Strauss & Co. products through mall-based "Designs" stores, "Levi's Outlet by Designs" stores, and a joint venture operating "The Original Levi's Store" and "Levi's Outlets."
Strategic Shift: In May 1995, the Company acquired the Boston Traders brand and 33 outlet stores. Management plans to transition from a single-vendor retailer to a vertically integrated retailer featuring the Boston Traders brand alongside Levi Strauss & Co. brands. The Company expects new Boston Traders product lines to be in all Designs stores by September 1996.
Key Financial Metrics
Note: Specific revenue, profit, cash flow, and margin figures are incorporated by reference to the Annual Report to Shareholders (Pages 16-34) and are not explicitly detailed in the provided text.
- Store Count (as of Feb 3, 1996): 157 total stores (49 Designs, 58 Levi's Outlet by Designs, 35 Boston Traders outlets, 11 Original Levi's Stores, 4 Levi's Outlets).
- Market Capitalization: Aggregate market value of voting stock held by non-affiliates was $100 million as of April 19, 1996.
- Outstanding Shares: 15,861,282 shares of Common Stock as of April 19, 1996.
- Restructuring Costs: In fiscal 1993, a $15.0 million pre-tax charge was recorded for closing 15 stores. Actual costs were $9.6 million ($6.1 million cash, $3.5 million non-cash). The remaining reserve was recognized as non-recurring pre-tax income of $2.2 million in fiscal 1995 and $3.2 million in fiscal 1994.
- Joint Venture Investment: The Company contributed eight Original Levi's Stores valued at $11.1 million and three leases for a 70% interest in a joint venture with Levi's Only Stores, Inc. (LOS). LOS contributed approximately $4.7 million in cash for a 30% interest.
- Employees: Approximately 2,570 persons as of February 3, 1996.
Material Changes Versus Prior Period
- Acquisition: Acquired Boston Traders brand and 33 outlet stores in May 1995, significantly altering the product mix strategy.
- Store Expansion/Contraction: Total store count increased from 120 in fiscal 1994 to 157 in fiscal 1995. This growth was driven by the acquisition of Boston Traders stores and the expansion of the joint venture, offset by the closure of 15 Designs stores in fiscal 1994 and the sale of two Dockers Shops and one Original Levi's Store to LOS in January 1995.
- Product Mix: Introduced Timberland brand in fiscal 1994 and began introducing Boston Traders merchandise in fiscal 1995. The Company expects non-Levi Strauss & Co. products to comprise 50% or more of the Designs store assortment by the third quarter of fiscal 1996.
- Headquarters Relocation: Moved headquarters to Needham, Massachusetts in April 1996 under a new 10-year lease.
Guidance, Outlook, and Risks
Outlook and Strategy:
- Future growth is expected to derive from new stores featuring the Boston Traders brand and expansion of the joint venture (targeting 35-50 new Original Levi's Stores and Outlets through fiscal 1999).
- Management expects the integration of Boston Traders to impact sales and margins, though no assurances are given regarding success.
- Cooperative advertising allowances from Levi Strauss & Co. (historically ~1/3 of ad spend) are expected to decrease proportionately as the percentage of Levi's merchandise in Designs stores declines.
Risks and Contingencies:
- Brand Dependency: Heavy reliance on Levi Strauss & Co. brand recognition; future success depends on the ability to transition to a multi-brand model.
- Competition: Highly competitive market including department stores (J.C. Penney, Sears) and specialty retailers (The GAP, The Limited).
- Seasonality: Revenues and income fluctuate seasonally, with increases in the third and fourth quarters (Back-to-School and Holiday).
- Legal: Subject to litigation and claims, though management does not expect a material adverse effect.
- Forward-Looking Statements: The Company issued cautionary statements on April 30, 1996, regarding risks impacting future earnings.
Investor Verification Checklist
- Verify the specific revenue, net income, and cash flow figures for fiscal 1995, 1994, and 1993 in the "Selected Financial Data" (Page 16 of the Annual Report to Shareholders) as these are not in the text.
- Confirm the financial impact of the Boston Traders acquisition and the timeline for the new product line rollout in September 1996.
- Review the terms of the joint venture with Levi's Only Stores, Inc., specifically the exit rights available beginning January 2000.
- Assess the reduction in cooperative advertising allowances from Levi Strauss & Co. and its impact on future marketing expenses.
- Examine the "Report of the Company dated April 30, 1996" (Exhibit 99) for detailed cautionary statements regarding forward-looking information.