SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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Date of Report: April 28, 2000
Designs, Inc.
(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-15898 04-2623104
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(Commission File Number) (IRS Employer Identification No.)
66 B Street, Needham, MA 02494 781-444-7222
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Address of principal (Zip Code) (Registrant's telephone number,
executive offices) including area code)
DESIGNS, INC.
Item 5.
Cautionary Statements Concerning Forward-Looking Information
April 28, 2000
Designs, Inc. (the "Company") is filing this Report with the Securities
and Exchange Commission in order to set forth in a readily available document
certain significant risks and uncertainties that are important considerations to
be taken into account in conjunction with consideration and review of the
Company's reports, registration statements, information statements, press
releases, and other publicly-disseminated documents (including oral statements
concerning Company business information made on behalf of the Company) that
include forward-looking information.
The nature of forward-looking information is that such information
involves assumptions, risks and uncertainties. Certain public documents of the
Company and oral statements made by authorized officers, directors, employees,
agents and representatives of the Company, acting on its behalf, may include
forward-looking information which will be influenced by the following and other
assumptions, risks and uncertainties. Forward-looking information requires
management of the Company to make assumptions, estimates, forecasts and
projections regarding the Company's future results as well as the future
effectiveness of the Company's strategic plans and future operational decisions.
Forward-looking statements made by or on behalf of the Company are subject to
the risk that the forecasts, projections, and expectations of management, or
assumptions underlying such forecasts, projections and expectations, may become
inaccurate. Accordingly, the Company's future financial positions, its actual
results of operations and the implementation of its plans and operations may
differ materially from forward-looking statements made on behalf of the Company.
The following discussion identifies certain important factors that could affect
the Company's financial position, its actual results of operations, and its
actions and could cause the Company's financial position, its results of
operations, and actions to differ materially from any forward-looking statements
made by or on behalf of the Company. Other factors, which are not identified
herein, could also have such an effect.
DEPENDENCE ON LEVI STRAUSS & CO. MERCHANDISE, ADVERTISING AND MARKET POSITION
Almost all of the Company's revenue is derived from the operation of its
retail stores. Despite the Company's efforts to become less dependent upon the
sale of Levi Strauss & Co. brand
merchandise, substantially all of the merchandise sold to consumers through the
Company's stores continues to be merchandise manufactured by Levi Strauss & Co.
and its licensees. The Company does not now have, and never has had, any
agreement with Levi Strauss & Co. guaranteeing minimum quantities of
merchandise, nor guaranteeing a particular mix of merchandise by style, size,
fit or color, to be supplied to the Company, establishing a price structure for
the Company's purchases of Levi Strauss & Co. brand merchandise, or compelling
the Company to purchase minimum quantities or specific styles, sizes, fits or
colors of merchandise. The Company has no assurance that it will be able to
continue to purchase merchandise from Levi Strauss & Co. or its licensees in
adequate quantities, in suitable proportions with respect to style, size, fit
and color, or on terms that are comparable to those available to other retailers
that compete with the Company. Moreover, the Company stocks its Levi's(R) Outlet
by Designs stores and the Docker's(R) Outlet stores by Designs exclusively with
manufacturing overruns, merchandise manufactured exclusively for outlets,
discontinued lines and irregulars purchased directly from Levi Strauss & Co. By
its nature, this merchandise, including the most popular Levi Strauss & Co.
styles of merchandise and the breadth of the mix of this merchandise, is subject
to limited availability. This merchandise, when purchased from Levi Strauss &
Co. exclusively for sale in outlet stores, is allocated by Levi Strauss & Co.,
in its sole discretion, among outlet stores operated by an affiliate of Levi
Strauss & Co., the Company and the other authorized operators of Levi's(R)
Outlet stores.
The Company would be materially and adversely affected by any material
reductions in the availability of adequate quantities of Levi Strauss & Co. and
manufacture overruns, discontinued lines and irregulars sold through the
Company's outlet stores. The Company also would be materially and adversely
affected by any material deterioration in the suitability of the style, size,
fit and color assortment of merchandise offered to the Company by Levi Strauss &
Co. or any adverse change in Levi Strauss & Co. business, marketing strategy or
share of the casual apparel market in the United States. The Company would be
materially and adversely affected by any significant increase in the prices the
Company must pay for Levi Strauss & Co. merchandise, or any other factor that
has a negative impact on consumer demand for Levi Strauss & Co. brand products.
The Company also may be materially and adversely affected in the event of
negative publicity concerning the reputation of Levi Strauss & Co. or the
reputation of its merchandise.
RISK OF RESTRICTION ON USE OF LEVI STRAUSS & CO. TRADEMARKS, SERVICE MARKS,
TRADE DRESS AND TRADE NAMES
The Company uses certain trademarks, service marks, logos, trade names and
brand names of Levi Strauss & Co. in their store names, displays and advertising
with the permission of Levi Strauss & Co. The Company has an agreement with Levi
Strauss & Co. to use certain Levi Strauss & Co. trademarks on the Company's
store signs. The Company makes no payments to Levi Strauss & Co. or its
affiliates with respect to the use of such trademarks, service marks, logos,
trade names, and trade dress.
On October 31, 1998, the Company and Levi Strauss & Co. amended the
trademark license agreement (as amended, the "Outlet License Agreement") that
authorizes the Company to use certain Levi Strauss & Co. trademarks in
connection with the operation of the Company's Levi's (R) Outlet by Designs and
Dockers (R) Outlet by Designs stores in 25 states in the eastern portion of the
United States. Subject to certain default provisions, the term of the Outlet
License Agreement was extended to September 30, 2004, and the license for any
particular store is the period co-terminous with the lease term for such store
(including extension options). The Outlet License Agreement now provides that
the Company has the opportunity to extend the term of the license associated
with one or more of the Company's older Levi's (R) Outlet by Designs stores by
either renovating the store or replacing the store with a new store with an
updated format an fixturing. In order to extend the license associated with each
of the Company's 59 older outlet stores, the Company must, subject to certain
grace periods, complete these renovations or the construction of replacement
stores by December 31, 2004. As leases expire, the Company may lose the right to
use the Levis (R) trademark in connection with certain Levi's (R) Outlet by
Designs stores. At January 30, 1999, the average remaining lease term (including
extension options) of the Company's Levi's (R) Outlet by Designs and Dockers (R)
Outlet by Designs stores was approximately 9.6 years.
The Company could be materially and adversely affected by significant
limitations imposed on their use of Levi Strauss & Co. trademarks, service
marks, trade names, logos, trade dress or brand names.
COMPETITION
Competition in markets for the Company's products occurs in a variety of
ways, including, among other factors, price, quality, reputation, brand image
and recognition, ability to anticipate fashion trends and customer preferences,
store design and location, merchandise mix, inventory control, quality control
of the Company's products, store visual presentation, advertising and customer
service. Other factors that will affect the Company's competitive position
include uncertainties associated with product procurement from an increasing
number of merchandise vendors, the effectiveness of the advertising and
promotional efforts by those vendors and the Company, and the Company's ability
to select and offer consumers a broad range of merchandise.
The intensity of the competition faced by the Company and the rapid
changes in consumer preferences that can occur in the casual
apparel markets pose significant risks to the Company. The Company faces
competition from a number of national and regional department, specialty and
discount chain stores that offer Levi Strauss & Co. brand and other brand name
products. Many of the Company's principal competitors have greater market share
and financial resources than the Company and there are no assurances that the
Company will be able to compete successfully with these competitors in the
future.
Levi Strauss & Co., through its wholly owned subsidiary, Levi's Only
Stores, Inc., has opened retail stores, including Original Levi's Stores(TM) and
Levi's(R) Outlet stores, in the United States and elsewhere. The Company
understands that stores owned and operated by Levi's Only Stores, Inc.,
including Original Levi's Stores(TM), Levi's(R) Outlet stores, Dockers(R) Shop
stores, and Dockers(R) Outlet stores, may feature one or more Levi Strauss & Co.
brands of merchandise and, thereby, compete with the Company's stores. Levi
Strauss & Co. and its affiliates currently operate stores that compete directly
with the Company's stores. Further, Levi Strauss & Co. and its affiliates are
permitted to open additional stores in the Company's territory that would
compete directly with the Company's stores.
ADVERTISING AND PROMOTION
For almost 21 years the Company has enjoyed the benefit of being closely
identified with Levi Strauss & Co. The Company is directly affected by the
success or failure of the advertising and promotional efforts of Levi Strauss &
Co. Moreover, there are no assurances that the future advertising efforts of the
Company, Levi Strauss & Co., or other licensee's will result in increased sales.
Historically, the Company received co-operative advertising allowances
from Levi Strauss & Co. that funded as much as one third of the Company's annual
advertising expenditures. There are no assurances that the company will continue
to receive co-operative advertising allownaces. Accordingly, the Company's
business may require increased expenditures for marketing and advertising. There
are no assurances that such increased expenditures will be financially possible
or, if undertaken, will result in increased sales.
LIMITATIONS ON STORE EXPANSION
Levi Strauss & Co. can inform the Company at any time that it does not see an
opportunity for the Company to increase the number of its Levi's(R) Outlet by
Designs stores. Accordingly, the Company's ability to increase the number of
stores it operates depends exclusively upon Levi Strauss & Co. The Company's
ability to successfully develop, open (including, in certain cases, the
conversion of existing stores) and operate stores that meet Levi Strauss & Co.
high standard, is an integral part of the Levi Strauss & Co. new store approval
process. The Company anticipates that new store locations and existing store
relocations will continue to be subject to new branch opening approval policies
and practices of Levi Strauss & Co. The Company expects to continue to work
closely with Levi Strauss & Co. in evaluating product availability for existing
and new store locations and must obtain the approval of Levi Strauss & Co.
before opening new stores. Also, there are no assurances that new stores will
achieve profitability or that existing profitable stores will remain so. During
the term of the current Trade Mark License agreement.
RISKS ASSOCIATED WITH THE OPENING OF NEW STORES
To the extent that the Company opens new stores, any such store expansion
efforts will depend upon on a number of general factors including the Company's
ability to identify and secure suitable store locations, the negotiation of
acceptable lease
terms, merchandise availability, and the Company's future financial resources.
There are no assurances that the Company will be successful in either obtaining
suitable store locations for new or relocated stores or in negotiating
acceptable lease terms for such locations. Also, there are no assurances that
new stores will achieve profitability or that existing profitable stores will
remain so.
INCREASED DEPENDENCE ON BORROWINGS AND TRADE CREDIT
In fiscal year 2000, the Company reported a substantial net loss,
experienced negative cash flow from operations, made substantial cash outlays
associated with certain non-recurring charges, and ended the fiscal year in a
net borrowing position. Historically, the Company has financed its working
capital and capital expenditure requirements from cash flow from operations,
Common Stock offerings and short-term borrowings. The Company has become more
dependent upon its revolving credit facility as a source of capital than it has
been in the past. The Company also is more dependent upon the availability of
trade credit from Levi Strauss & Co. and its licensees of merchandise than it
has been in the past. Any material unavailability of revolving credit and/or
vendor trade credit would have a material and adverse effect on the operating
results and financial position of the Company.
SEASONALITY AND INVENTORY RISK
Historically, the Company has experienced seasonal fluctuations in
revenues and income, with a larger portion of each generated in the second half
of the Company's fiscal year as a result of the Fall and Holiday seasons. The
seasonal nature of the Company's business requires the Company to increase its
inventory levels prior to the latter half of its fiscal year in preparation for
such selling seasons. The casual apparel industry has a significant lead time
for ordering, production and delivery of merchandise and, therefore, the Company
must commit to orders well in advance of the time when such merchandise would be
available for sale to consumers. Merchandise orders normally must be placed well
in advance of each selling season when customer preferences and fashion trends
are not yet evident from customer purchases. Since the Company must enter into
commitments and contracts for the purchase of merchandise well in advance of
each selling season, the Company is vulnerable to changes in consumer demand and
pricing shifts and to errors in selection of styles, quantities, product mix and
in the timing of such merchandise purchases. If the Company fails to forecast
consumer demand accurately or if there are changes in consumer preferences or
market demand after the Company has committed to such purchase and production
orders, the Company may encounter difficulty in liquidating its inventory. These
variables may have an adverse effect on the Company and the image of the brands
offered for sale by the Company as well as its sales, gross margins, earnings
results, and financial position.
INFORMATION SYSTEMS AND CONTROL PROCEDURES
The Company periodically reviews, improves and, under certain
circumstances, replaces its technology and management information systems to
provide enhanced support to all operating areas of the Company. While the
Company expects to continue to review and upgrade its technology and management
information systems, there are no assurances that the Company can successfully
implement such enhancements or that such enhancements will support the Company's
operating strategies, or, if such upgrades and enhancements are not successfully
implemented, that the Company's current systems will continue to support
adequately its management information requirements.
Moreover, while the Company believes its current management information
systems are generally adequate to support the Company's business operations, any
deficiencies in these systems which could result in less than optimal systems
performance could adversely affect the business operations of the Company. There
are no assurances that the Company's efforts to improve upon and enhance its
present management information systems will resolve or eliminate any existing or
potential difficulties.
The Company successfully implemented a program designed to cause its
technology and information systems that are critical to the Company's business
to be year 2000 compliant. As of today, system integration is successful.
However, there is no guarantee that problems may arise in the future that could
have a material and adverse affect on the business, financial condition, and
results of operations of the Company. The Company's business also may be
negatively affected by vendors, government agencies and other entities with
which it has dealings whose technology or systems have year 2000 malfunctions.
SOURCES OF SUPPLY
The Company depends upon its unaffiliated vendors to supply high-quality
apparel and accessories in a timely manner. If these vendors were to experience
significant shortages of products purchased by the Company, such shortages could
have a negative effect on the Company's business, including increased costs or
difficulty in procuring merchandise.
CONSUMER PREFERENCES
The casual apparel industry is intensely competitive and subject to rapid
changes in consumer preferences and fashion trends. A significant marketing or
promotional success by one or more of the Company's existing or yet to be
established competitors could adversely affect the Company's competitive
position. In addition, in the United States, where the casual apparel market is
mature, sales levels may depend in part on whether the Company can increase its
market share at the expense of its competitors.
GENERAL ECONOMIC RISK FACTORS
Forward-looking statements of the Company are subject to the risk that
assumptions made by management of the Company concerning future general economic
conditions such as recession, inflation, interest rates, tax rates, consumer
spending and credit and other future conditions having an impact on retail
markets and the Company's business may prove to be incorrect. Adverse changes in
such future economic conditions could have an adverse affect on the Company's
business.
LITIGATION RISKS
The Company is subject to the normal risks of litigation with respect to
its business operations.
FACTORS AFFECTING THE COMPANY'S BUSINESS ARE SUBJECT TO CHANGE
This Report contains cautionary statements concerning certain factors that
may influence the business of the Company and are made as of the date of this
Report. Such factors are subject to change. The cautionary statements set forth
in this Report are not intended to cover all of the factors that may affect the
Company's business in the future. Forward-looking information disseminated
publicly by the Company following the date of this Report may be subject to
additional factors hereafter published by the Company.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DESIGNS, INC.
Dated: April 28, 2000 by: /s/ Jeffery M. Unger
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Jeffery M. Unger
Vice President,
and Assistant Secretary