dELiAs, Inc. - FORM 10-Q

dELiAs, Inc. - FORM 10-Q - June 18, 2013

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EXCEL - IDEA: XBRL DOCUMENT - dELiAs, Inc.	Financial_Report.xls
EX-31.2 - EX-31.2 - dELiAs, Inc.	d555760dex312.htm
EX-32.1 - EX-32.1 - dELiAs, Inc.	d555760dex321.htm
EX-32.2 - EX-32.2 - dELiAs, Inc.	d555760dex322.htm
EX-31.1 - EX-31.1 - dELiAs, Inc.	d555760dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 4, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 000-51648

dELiA*s, Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-3397172

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

50 West 23^rd Street, New York, NY 10010

(Address of Principal Executive Offices) (Zip Code)

(212) 590-6200

(Registrant’s telephone number, including area code)

Former name, former address and former fiscal year, if changed since last report:

None

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 (§232.405 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 x No ¨

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 definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

As of June 13, 2013 the registrant had 32,789,615 shares of common stock, $.001 par value per share, outstanding.

dELiA*s, Inc.

TABLE OF CONTENTS


		Page No.
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets		3

	Condensed Consolidated Statements of Operations		4

	Condensed Consolidated Statements of Cash Flows		5

	Notes to Unaudited Condensed Consolidated Financial Statements		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24

Item 4.	Controls and Procedures		24

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings		25

Item 1A.	Risk Factors		25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25

Item 3.	Defaults upon Senior Securities		25

Item 4.	Mine Safety Disclosures		25

Item 5.	Other Information		25

Item 6.	Exhibits		26

	EXHIBIT INDEX
	SIGNATURES

Item 1.

Financial Statements (unaudited)

dELiA*s, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)


	May 4, 2013			February 2, 2013			April 28, 2012
	(unaudited)						(unaudited)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	3,643		$	16,812		$	16,634
Inventories, net		26,119			24,840			25,293
Prepaid catalog costs		1,565			1,012			1,047
Other current assets		5,596			4,882			3,494
Assets held for sale		6,094			6,809			6,224

TOTAL CURRENT ASSETS		43,017			54,355			52,692
PROPERTY AND EQUIPMENT, NET		34,988			36,107			41,471
GOODWILL		—			—			4,462
INTANGIBLE ASSETS, NET		2,419			2,419			2,419
OTHER ASSETS		968			921			822
ASSETS HELD FOR SALE		657			690			—

TOTAL ASSETS	$	82,049		$	94,492		$	101,866


LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	21,927		$	26,782		$	15,603
Bank loan payable		1,550			—			—
Accrued expenses and other current liabilities		11,703			11,168			12,160
Income taxes payable		666			623			788
Liabilities held for sale		4,552			5,166			3,538

TOTAL CURRENT LIABILITIES		40,398			43,739			32,089

DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES		9,455			9,500			11,155

TOTAL LIABILITIES		49,853			53,239			43,244


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; 32,789,615, 31,939,615 and 31,726,645 shares issued and outstanding, respectively		33			32			32
Additional paid-in capital		100,099			99,942			99,431
Accumulated deficit		(67,936	)		(58,721	)		(40,841	)

TOTAL STOCKHOLDERS’ EQUITY		32,196			41,253			58,622


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	82,049		$	94,492		$	101,866

See accompanying Notes to Condensed Consolidated Financial Statements.

dELiA*s, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)


	For the Thirteen Weeks Ended
	May 4, 2013			April 28, 2012
NET REVENUES	$	35,177		$	41,214
Cost of goods sold		26,811			28,194

GROSS PROFIT		8,366			13,020

Selling, general and administrative expenses		17,492			17,688
Other operating income		(146	)		(208	)

TOTAL OPERATING EXPENSES		17,346			17,480

OPERATING LOSS		(8,980	)		(4,460	)
Interest expense, net		185			153

LOSS BEFORE INCOME TAXES		(9,165	)		(4,613	)
Provision (benefit) for income taxes		28			(294	)

LOSS FROM CONTINUING OPERATIONS		(9,193	)		(4,319	)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX		(22	)		645

NET LOSS	$	(9,215	)	$	(3,674	)

BASIC AND DILUTED LOSS PER SHARE:
LOSS FROM CONTINUING OPERATIONS	$	(0.29	)	$	(0.14	)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS	$	(0.00	)	$	0.02

NET LOSS PER SHARE	$	(0.29	)	$	(0.12	)

WEIGHTED AVERAGE BASIC AND DILUTED COMMON SHARES OUTSTANDING		31,491,074			31,320,254

See accompanying Notes to Condensed Consolidated Financial Statements.

dELiA*s, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	For the Thirteen Weeks Ended
	May 4, 2013			April 28, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss	$	(9,215	)	$	(3,674	)
(Loss) income from discontinued operations		(22	)		645

Loss from continuing operations		(9,193	)		(4,319	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,484			2,336
Deferred financing fees		45			45
Stock-based compensation		151			181
Changes in operating assets and liabilities:
Inventories		(1,279	)		(568	)
Prepaid catalog costs and other assets		(1,359	)		(316	)
Income taxes payable		43			52
Accounts payable, accrued expenses and other liabilities		(5,323	)		(8,194	)

Total adjustments		(5,238	)		(6,464	)

Net cash used in operating activities of continuing operations		(14,431	)		(10,783	)
Net cash provided by operating activities of discontinued operations		118			394

NET CASH USED IN OPERATING ACTIVITIES		(14,313	)		(10,389	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(406	)		(1,403	)

NET CASH USED IN INVESTING ACTIVITIES		(406	)		(1,403	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings		1,550			—

NET CASH PROVIDED BY FINANCING ACTIVITIES		1,550			—


NET DECREASE IN CASH AND CASH EQUIVALENTS		(13,169	)		(11,792	)
CASH AND CASH EQUIVALENTS, beginning of period		16,812			28,426


CASH AND CASH EQUIVALENTS, end of period	$	3,643		$	16,634

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for interest	$	99		$	127

Cash paid during the period for taxes	$	16		$	68

Capital expenditures incurred not yet paid	$	1,338		$	744

See accompanying Notes to Condensed Consolidated Financial Statements.

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In this Form 10-Q , when we refer to “Alloy, LLC” we are referring to Alloy, LLC (formerly Alloy, Inc.), our former parent corporation, and when we refer to “Alloy” we are referring to the Alloy-branded direct marketing and merchandising business that we formerly operated. Similarly, when we refer to “dELiA*s” we are referring to the dELiA*s-branded direct marketing, merchandising and retail store business that we operate, when we refer to “dELiA*s, Inc.”, the “Company”, “we”, “us”, or “our”, we are referring to dELiA*s, Inc. and its subsidiaries. When we refer to the “Spinoff”, we are referring to the December 19, 2005 spinoff of the outstanding common shares of dELiA*s, Inc. to the Alloy, LLC shareholders.

1. Business and Basis of Presentation

We are a multi-channel retail company primarily marketing to teenage girls. We generate revenue by selling to consumers through the integration of our e-commerce website, direct mail catalogs and our mall-based retail stores. Through our e-commerce web pages and catalogs, we sell primarily our own proprietary brand products and some name brand products, directly to consumers, including apparel, accessories and footwear. Our mall-based retail stores derive revenue primarily from the sale of apparel and accessories.

The accompanying unaudited condensed consolidated financial statements (the “financial statements”) of dELiA*s, Inc. at May 4, 2013 and April 28, 2012 and for the thirteen week periods ended May 4, 2013 and April 28, 2012 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Certain notes and other information have been condensed or omitted from the financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the most recent dELiA*s, Inc. Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The condensed consolidated balance sheet at February 2, 2013 and related information presented in the footnotes have been derived from audited consolidated statements at that date. All financial results in these Notes to Condensed Consolidated Financial Statements are for continuing operations only unless otherwise stated.

The Company’s fiscal year ends on the Saturday closest to January 31st. References to “fiscal 2012” represent the 53-week period ended February 2, 2013 and references to “fiscal 2013” represent the 52-week period ending February 1, 2014.

Results for the first quarter of fiscal 2013 have been adjusted to reflect the operating results of the Company’s Alloy business as discontinued operations. Certain reclassifications have been made to prior year amounts to conform with current year presentation.

The financial statements include the accounts of dELiA*s, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Discontinued Operations and Assets Held for Sale

During the first quarter of fiscal 2013, the Company retained Janney Montgomery Scott LLC as strategic advisor to the Board of Directors with an initial focus on the potential disposition of the Company’s Alloy brand. Accordingly, the results of the Company’s former Alloy business have been reported as discontinued operations for the thirteen weeks ended May 4, 2013 and April 28, 2012. In discontinued operations, the Company has reversed its allocation of shared services to the Alloy business and has charged discontinued operations with the administrative and distribution expenses that were attributable to Alloy.

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

On June 4, 2013, Alloy Merchandise, LLC, a wholly-owned subsidiary of the Company (“Alloy Merchandising”) and the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with HRSH Acquisitions LLC d/b/a Alloy Apparel and Accessories (“Buyer”) and also closed the transaction under the Asset Purchase Agreement. Subject to the terms and conditions of the Asset Purchase Agreement, Alloy Merchandising sold certain assets and certain liabilities related to its Alloy business to Buyer, and Buyer purchased such assets and assumed certain related liabilities. Upon closing of the transaction, the Company received $3.7 million in cash proceeds, subject to adjustment as provided in the Asset Purchase Agreement, and the buyer assumed $3.1 million in liabilities. The gain on sale from this transaction is expected to be immaterial. The Company also agreed to provide certain transition services to Buyer at specified rates following the consummation of the transaction.

Loss from discontinued operations, net of taxes, was $22,000 for the thirteen weeks ended May 4, 2013 and income from discontinued operations, net of tax, was $0.6 million for the thirteen weeks April 28, 2012.

Discontinued operations were comprised of (in thousands):


	For the Thirteen Weeks Ended
	May 4, 2013			April 28, 2012
Net revenues	$	9,773		$	11,252
Cost of goods sold		6,424			6,871

Gross profit		3,349			4,381

Selling, general and administrative expenses		3,436			3,823
Other operating income		(65	)		(424	)

Total expenses		3,371			3,399

Operating (loss) income		(22	)		982
Provision for income taxes		0			337

(Loss) income from discontinued operations, net of income taxes	$	(22	)	$	645

Assets and liabilities of discontinued operations held for sale included the following (in thousands):


	May 4, 2013		February 2, 2013		April 28, 2012
Inventories, net	$	4,830	$	5,704	$	5,152
Prepaid catalog costs		922		690		657
Other current assets		342		415		415

Total current assets	$	6,094	$	6,809	$	6,224

Property and equipment, net		657		690		—

Total assets		6,751		7,499		6,224

Accounts payable		3,323		4,236		2,521
Accrued expenses		803		530		510
Customer liabilities	$	426	$	400	$	507

Total liabilities		4,552		5,166		3,538

2. Recent Accounting Pronouncements

Recently Adopted Standard

In July 2012, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) to simplify the manner in which entities test indefinite-lived intangible assets for impairment. The ASU permits an entity to first assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company adopted this guidance in the first quarter of fiscal 2013 with no impact on its condensed consolidated financial statements.

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

3. Fair Value of Financial Instruments

We follow the guidance in Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurement Disclosures” (“ASC 820”) as it relates to financial and nonfinancial assets and liabilities. Our non-financial assets, which include property and equipment, goodwill and indefinite-lived intangibles, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and we are required to evaluate the non-financial asset for impairment, a resulting asset impairment would require that the non-financial asset be recorded at fair value. ASC 820 prioritizes inputs used in measuring fair value into a hierarchy of three levels: Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2—inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and Level 3—unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of our financial instruments, including cash and cash equivalents, receivables and payables approximated fair value due to the short maturity of these financial instruments.

There were no impairment charges in the thirteen week periods ended May 4, 2013 and April 28, 2012.

4. Cash and Cash Equivalents

Cash and cash equivalents consist of cash, credit card receivables and highly liquid investments with original maturities of three months or less. Credit card receivable balances included in cash and cash equivalents as of May 4, 2013, February 2, 2013 and April 28, 2012 were approximately $1.9 million, $1.4 million and $1.5 million, respectively.

5. Inventories

Inventories, which consist of finished goods, including certain capitalized expenses, are stated at the lower of cost (first-in, first-out method) or market value. Inventories may include items that have been written down to our best estimate of their net realizable value. Our decisions to write-down and establish valuation allowances against our merchandise inventories are based on our current rate of sale, the age of the inventory and other factors. Actual final sales prices to customers may be higher or lower than our estimated sales prices and could result in a fluctuation in gross profit in subsequent periods.

6. Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the Company’s net income (loss) by the weighted average number of shares outstanding during the period. When the effects are not anti-dilutive, diluted earnings per share is computed by dividing the Company’s net earnings by the weighted average number of shares outstanding and the impact of all dilutive potential common shares, primarily stock options and restricted stock. The dilutive impact of stock options and restricted stock is determined by applying the “treasury stock” method.

The total weighted average number of potential shares of common stock with an anti-dilutive impact excluded from the calculation of diluted net income (loss) per share is detailed in the following table for the thirteen weeks ended May 4, 2013 and April 28, 2012:


	For Thirteen Weeks Ended
	May 4, 2013		April 28, 2012
	(in thousands)
Stock options		4,167		3,441
Warrants		215		215
Restricted stock		1,299		406

Total		5,681		4,063

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

7. Property and Equipment, net

Property and equipment, net, consisted of the following (in thousands):


	May 4, 2013			February 2, 2013			April 28, 2012
Construction in progress	$	906		$	1,694		$	1,629
Computer equipment		14,144			12,292			11,097
Machinery and equipment		99			99			125
Office furniture		18,347			18,145			20,251
Leasehold improvements		52,353			52,275			56,080
Building		7,559			7,559			7,559
Land		500			500			500

		93,908			92,564			97,241
Less: accumulated depreciation and amortization		(58,920	)		(56,457	)		(55,770	)

	$	34,988		$	36,107		$	41,471

Depreciation and amortization expense related to property and equipment was approximately $2.5 million and $2.3 million for the thirteen weeks ended May 4, 2013 and April 28, 2012, respectively.

8. Credit Facility

On May 26, 2011, the Company and certain of its wholly-owned subsidiaries entered into a credit agreement (the “GE Agreement”) with General Electric Capital Corporation (“GE Capital”), as a lender and as agent for the financial institutions from time to time party to the GE Agreement (together with GE Capital in its capacity as a lender, the “Lenders”). The GE Agreement provides for a total aggregate commitment of the Lenders of $25 million, including a $15 million sublimit for the issuance of letters of credit and a swingline loan facility of $5 million. Under the GE Agreement, the Company has the right to request, subject to the agreement of the Lenders, that the Lenders increase their revolving commitments up to an additional $25 million. The GE Agreement has a term of five years and matures on May 26, 2016. The obligations of the borrowers under the GE Agreement are secured by substantially all property and assets of the Company and certain of its subsidiaries.

As of May 4, 2013, availability under the GE Agreement was $5.7 million, net of outstanding letters of credit of $11.0 million and $1.6 million in borrowings.

The GE Agreement calls for the payment by the Company of a fee of 0.375% per annum on the average unused portion of the GE Agreement, a letter of credit fee calculated using a per annum rate equal to the Applicable Margin with respect to letters of credit (as defined in the GE Agreement) multiplied by the average outstanding face amount of letters of credit issued under the GE Agreement, as well as other customary fees and expenses. Interest accrues on the outstanding principal amount of the revolving credit loans at an annual rate equal to LIBOR (as defined in the GE Agreement) or the Base Rate (as defined in the GE Agreement), plus an applicable margin which is subject to periodic adjustment based on average excess availability under the GE Agreement. Interest on each swingline loan is calculated using the Base Rate. The GE Agreement does not contain any financial covenants with which the Company or any of its subsidiaries or affiliates has to comply during the term of the GE Agreement.

The GE Agreement contains customary representations and warranties, as well as customary covenants that, among other things, restricts the ability of the Company and its subsidiaries to incur liens, consolidate or merge with other entities, incur certain additional indebtedness and guaranty obligations, pay dividends or make certain other restricted payments. The GE Agreement also contains customary events of default, including payment defaults, breaches of representations and warranties and covenants, cross defaults to other material indebtedness, and bankruptcy and insolvency matters.

On June 14, 2013, the Company and certain of its wholly-owned subsidiaries entered into a new credit agreement (the “Credit Agreement”) with Salus Capital Partners, LLC (“Salus”), as a lender and as agent for the financial institutions from time to time party to the Credit Agreement (together with Salus in its capacity as a lender, the “Lenders”). The Credit Agreement provides for a total aggregate commitment of the Lenders of $30 million. The Credit Agreement has a term of four years and matures on June 14, 2017. The obligations of the borrowers under the Credit Agreement are secured by substantially all property and assets of the Company and certain of its subsidiaries.

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Credit Agreement calls for the payment by the Company of a fee of 0.375% per annum on the average unused portion of the Credit Agreement as well as other customary fees and expenses. Interest accrues on the outstanding principal amount of the revolving credit loans at an annual rate equal to the greater of (a) the Base Rate (as defined in the Credit Agreement) plus 3% and (b) 6.25%. The Credit Agreement does not contain any financial covenants with which the Company or any of its subsidiaries or affiliates has to comply during the term of the Credit Agreement.

The Credit Agreement contains customary representations and warranties, as well as customary covenants that, among other things, restricts the ability of the Company and its subsidiaries to incur liens, consolidate or merge with other entities, incur certain additional indebtedness and guaranty obligations, pay dividends or make certain other restricted payments. The Credit Agreement also contains customary events of default, including payment defaults, breaches of representations and warranties and covenants, cross defaults to other material indebtedness, and bankruptcy and insolvency matters.

Concurrently with the execution of the Credit Agreement, the GE Agreement was terminated and replaced with a letter of credit agreement with GE Capital (“Letter of Credit Agreement”). The Letter of Credit Agreement provides for a maximum aggregate face amount of letters of credit that may be issued, to be the lesser of (a) $15 million or (b) an amount equal to a specified percentage of cash collateral held by GE Capital. The cash collateral is required in an amount equal to 105% of the face amount of outstanding letters of credit issued. The Letter of Credit Agreement calls for a payment by the Company of a fee of 0.375% per annum on the average unused portion of the Letter of Credit Agreement, a letter of credit fee of 1.75% per annum on the average outstanding face amount of letters of credit issued under the Letter of Credit Agreement, as well as other customary fees and expenses. None of the other assets or properties of the Company, or any of its subsidiaries or affiliates, were pledged as collateral for these obligations. The Letter of Credit Agreement does not contain any financial covenants with which the Company or any of its subsidiaries or affiliates has to comply during the term of the Letter of Credit Agreement.

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	May 4, 2013		February 2, 2013		April 28, 2012
Credits due to customers	$	4,029	$	4,540	$	6,431
Accrued payroll, bonus, taxes and withholdings		1,548		902		677
Allowance for sales returns		638		836		657
Short-term tenant allowances		992		887		752
Accrued sales tax		395		487		540
Accrued capital expenditures		983		305		315
Other accrued expenses		3,118		3,211		2,788

	$	11,703	$	11,168	$	12,160

10. Deferred Credits and Other Long-Term Liabilities

Deferred credits and other long-term liabilities consist primarily of long-term portions of deferred rent and tenant allowances. We occupy our retail stores, home office and our former customer contact center facility under operating leases generally with terms of seven to ten years. Some of these retail store leases have early cancellation clauses, which permit the lease to be terminated if certain sales levels are not met in specific periods. Most of the store leases require payment of a specified minimum rent, plus a contingent rent based on a percentage of the store’s net sales in excess of a specified threshold. Most of the lease agreements have defined escalating rent provisions, which are reported as a deferred rent liability and expensed on a straight-line basis over the term of the related lease, commencing with date of possession. This includes any lease renewals deemed to be probable. In addition, we receive cash allowances from our landlords on certain properties and have reported these amounts as tenant allowances which are amortized to rent expense over the term of the lease, also commencing with date of possession. Included in deferred credits at May 4, 2013, February 2, 2013 and April 28, 2012 was approximately $4.8 million, $5.0 million, and $6.1 million, respectively, of deferred rent liability, and approximately $3.7 million, $3.5 million, and $4.3 million, respectively, of tenant allowances.

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

11. Share-Based Compensation

Under the dELiA*s, Inc. Amended and Restated 2005 Stock Incentive Plan, we may grant incentive stock options, nonqualified stock options and restricted stock to employees (including officers), non-employee directors and consultants. Grants for stock options generally vest and become exercisable annually in equal installments over a four-year period and expire 10 years after the grant date, while restricted stock generally vests and becomes exercisable annually in equal installments over a three-year period.

The Company accounts for share-based compensation under the provisions of ASC 718 Compensation-Stock Compensation, which requires share-based compensation for equity awards to be measured based on estimated fair values at the date of grant.

The Company recorded stock-based compensation expense (including expense for restricted stock) of $0.2 million for each of the thirteen weeks ended May 4, 2013 and April 28, 2012 related to employee and non-employee directors share-based awards and such expense is included in selling, general and administrative expense in our consolidated statements of operations.

Stock Options

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model, which requires the Company to estimate the expected term of stock option grants and expected future stock price volatility over the expected term.

The per share weighted average fair value of stock options granted during the thirteen weeks ended May 4, 2013 was $0.43. The fair value of each option grant is estimated on the date of grant with the following weighted average assumptions:


	May 4, 2013
Dividend yield		—
Risk-free interest rate		1.3	%
Expected life (in years)		6.25
Historical volatility		62	%

A summary of the Company’s stock option activity and weighted average exercise prices is as follows:


	Options			Weighted- Average Exercise Price per Option
Options outstanding as of February 2, 2013		3,050,086		$	3.84
Options granted		1,177,750			0.74
Options exercised		—			—
Options cancelled or expired		(61,125	)		4.27

Outstanding as of May 4, 2013		4,166,711		$	2.96

Exercisable as of May 4, 2013		2,204,962		$	4.63

As of May 4, 2013, there was approximately $0.7 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 1.6 years.

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Restricted Stock

The fair value of restricted stock awards is calculated based on the stock price on the date of the grant. The weighted average grant date fair values for restricted stock issued during the thirteen weeks ended May 4, 2013 was $0.68.

The following table summarizes restricted stock activity during the first quarter of fiscal 2013:


	Restricted Stock
	Shares		Weighted Average Grant Date Fair Value
Outstanding at February 2, 2013		448,541	$	1.15
Granted		850,000		0.68
Vested		—		—
Forfeited		—		—

Outstanding at May 4, 2013		1,298,541	$	0.84

As of May 4, 2013, there was approximately $0.9 million of total unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of 1.4 years.

12. Stockholders’ equity

Rights Offering

On December 30, 2005, we filed a prospectus under which we distributed to persons who were holders of our common stock on December 28, 2005 transferable rights to purchase up to an aggregate of 2,691,790 shares of our common stock at a cash subscription price of $7.43 per share. The rights offering was made to fund the costs and expenses of our retail store expansion plan and to provide funds for general corporate purposes following the Spinoff. MLF Investments, LLC (“MLF”), which was controlled by Matthew L. Feshbach, our former Chairman of the Board, agreed to backstop the rights offering, meaning MLF agreed to purchase all shares of our common stock that remained unsold upon completion of the rights offering at the same $7.43 subscription price per share. The rights offering was completed in February 2006 with $20 million of gross proceeds. The stockholders exercised subscription rights to purchase 2,040,570 shares of dELiA*s, Inc. common stock, of the 2,691,790 shares offered in the rights offering, raising a total of $15.2 million. On February 24, 2006, MLF purchased the remaining 651,220 shares for a total of $4.8 million. MLF received as compensation for its backstop commitment a nonrefundable fee of $50,000 and ten-year warrants to purchase 215,343 shares of our common stock at an exercise price of $7.43 per share. The warrants had a grant date fair value of approximately $0.9 million and were recorded as a cost of raising capital. The MLF warrants were subsequently split so that MLF Offshore Portfolio Company, LP owned warrants to purchase 206,548 shares of our common stock and MLF Partners 100, LP owned warrants to purchase 8,795 shares of our common stock. Such warrants were distributed on a pro-rata basis to investors as part of the winding up of operations of MLF and its affiliated funds.

Shelf Registration Statement

On June 20, 2012, the Company filed a registration statement on Form S-3 using a “shelf” registration process, which became effective on September 7, 2012. Under this shelf registration, the Company may issue up to $30 million of its common stock, preferred stock, warrants, rights, units or preferred stock purchase rights in one or more offerings, in amounts, at prices, and terms that will be determined at the time of the offering. Because the publicly-traded float of the Company’s shares of common stock is less than $75 million, unless and until the Company’s public float exceeds $75 million, the Company will be restricted to issuing securities registered under the shelf registration equal to no more than one-third of the value of its public float in any consecutive twelve month period. If any securities are sold by the Company under the shelf registration, we expect the net proceeds will be added to general corporate funds and may be used for general corporate purposes. To date, no securities of the Company have been issued under this shelf registration statement.

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

13. Interest Expense, Net

Interest expense and interest income are presented net in the condensed consolidated statements of operations. Interest expense for the thirteen weeks ended May 4, 2013 and April 28, 2012 relates to costs associated with our GE Agreement. Interest expense for the thirteen weeks ended May 4, 2013 and April 28, 2012 was $0.2 million and $0.2 million, respectively. There was no interest income for the thirteen weeks ended May 4, 2013 and April 28, 2012.

14. Spinoff Related Transactions

Services and Revenues

We recognize other revenues that consist primarily of advertising provided for third parties in our catalogs, on our e-commerce web pages, in our outbound packages, and in our retail stores pursuant to specific pricing arrangements with Alloy, LLC. Alloy, LLC originally arranged these advertising services on our behalf, through a Media Services Agreement (the “Original Agreement”) entered into in connection with the Spinoff. Revenue under these arrangements was recognized, net of commissions and agency fees, when the underlying advertisement is published or otherwise delivered pursuant to the terms of each arrangement.

On November 16, 2010, the Company entered into an Amended and Restated Media Services Agreement (the “A/R Media Services Agreement”) with Alloy, LLC. The A/R Media Services Agreement replaces the Original Agreement, which expired by its terms on December 19, 2010, and became effective on December 20, 2010, upon expiration of the Original Agreement. The A/R Media Services Agreement provides, among other things, that Alloy, LLC will serve as our exclusive sales agent for the purpose of providing the following media and marketing related services to the Company and its subsidiaries: license of websites, internet advertising, direct segment upsell arrangements, catalog advertisements and insertions, sampling and in-store promotions, and database collection and marketing. The A/R Media Services Agreement expires on December 20, 2015. Effective May 6, 2011, the Company and Alloy, LLC amended the A/R Media Services Agreement to remove the sampling and in-store promotion services therefrom. In addition, as part of the transaction described under Note 1 “Discontinued Operations and Assets Held for Sale”, we further amended the A/R Media Services Agreement to assign the provisions of such agreement related to our former Alloy business to the purchaser of such business.

We recorded revenues of approximately $39,000 and $0.1 million for the thirteen weeks ended May 4, 2013 and April 28, 2012, respectively, in our consolidated financial statements in accordance with the terms of the A/R Media Services Agreement.

We recorded expenses of approximately $0.1 million for each of the thirteen weeks ended May 4, 2013 and April 28, 2012, in our consolidated financial statements in accordance with the terms of the A/R Media Services Agreement.

Prior to the Spinoff, we and Alloy, LLC entered into the following agreements that were to define our ongoing relationships after the Spinoff: a distribution agreement, tax separation agreement, trademark agreement, information technology and intellectual property agreement, and an On Campus Marketing call center agreement. The On Campus Marketing call center agreement was terminated July 16, 2012. In addition, as part of the transaction involving the sale of our former CCS business, we entered into a Media Placement Services Agreement with Alloy, LLC pursuant to which we agreed to purchase specified media services over a three year period for $3.3 million. The Media Placement Services Agreement expired on February 1, 2012.

15. Income Taxes

The provision (benefit) for income taxes is based on the current estimate of the annual effective tax rate and is adjusted as necessary for quarterly events. The effective income tax rate for the thirteen weeks ended May 4, 2013 and April 28, 2012 was an expense of 0.3% and a benefit of 6.4%, respectively. Although the Company expects to generate a net operating loss (“NOL”) for fiscal 2013, the Company did not generate taxable income during the two-year carry-back period, and therefore cannot recognize a federal tax benefit related to the NOL. As a result, the effective income tax rate is lower than what would be expected if the federal statutory rate were applied to loss before income taxes. The Company recognized tax expense related to certain state taxes.

The Company follows ASC 740-10 Income Taxes, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For this benefit to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes interest accrued for increases in the net liability for unrecognized income tax benefits in interest expense and any related penalties in income tax expense.

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

At May 4, 2013, the Company had a liability for unrecognized tax benefits of approximately $0.5 million all of which would favorably affect the Company’s effective tax rate if recognized. Included within the $0.5 million is an accrual of approximately $0.2 million for the payment of related interest and penalties. There were no material changes to the Company’s unrecognized tax benefits during the thirteen weeks ended May 4, 2013. The Company does not believe there will be any material changes in the unrecognized tax positions over the next twelve months.

The Company’s U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The U.S. federal statute of limitations remains open for the fiscal years 2009, 2010 and 2011. State income tax returns are generally subject to examination for a period of 3 to 5 years after filing of the respective returns. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company is periodically subject to state income tax examinations.

16. Litigation

The Company is involved from time to time in litigation incidental to the business and, from time to time, the Company may make provisions for potential litigation losses. The Company follows ASC 450 Contingencies when assessing pending or potential litigation. The Company believes that there is no claim or litigation pending, the outcome of which could have a material adverse effect on its financial condition or operating results.

17. Segment Reporting

The Company’s executive management, being its chief operating decision makers, works together to allocate resources and assess the performance of the Company’s business. The Company’s executive management has historically managed the Company as two distinct operating segments—direct marketing and retail stores. Although offering customers substantially similar merchandise, the Company’s direct and retail operating segments currently have distinct management, marketing and operating strategies and processes.

The Company’s executive management assesses the performance of each operating segment based on operating income (loss), which is defined as net sales less the cost of goods sold and selling, general and administrative expenses both directly identifiable and allocable. For the direct segment, these operating costs, in addition to the cost of merchandise sold, primarily consist of catalog development, production and circulation costs, order processing costs, direct personnel costs and allocated overhead expenses. For the retail segment, these operating costs, in addition to the cost of merchandise sold, primarily consist of store selling expenses, direct labor costs and allocated overhead expenses. Allocated overhead expenses are costs associated with general corporate expenses and shared departmental services (e.g., executive, facilities, accounting, information technology, legal and human resources). Since the Alloy business is recorded as a discontinued operation, certain allocated overhead expenses have been reallocated to the remaining continuing businesses (see Note 1).

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Operating segment assets are those directly used in or clearly allocable to an operating segment’s operations. For the retail segment, these assets primarily include inventory, fixtures and leasehold improvements. For the direct segment, these assets primarily include inventory and prepaid catalog costs, together with goodwill (excluding the Assets Held for Sale). Corporate and other assets include corporate headquarters, distribution and our former customer contact center facilities, shared technology infrastructure as well as corporate cash and cash equivalents and prepaid expenses. Operating segment depreciation and amortization and capital expenditures are recorded directly to each operating segment. Corporate and other depreciation and amortization and corporate and other capital expenditures are allocated to each operating segment. The accounting policies of the segments are the same as those described in our most recent Form 10-K. Reportable data for our operating segments were as follows:


	Direct Marketing Segment		Retail Store Segment		Total
	(in thousands)
Total Assets
May 4, 2013	$	22,215	$	53,083	$	75,298
February 2, 2013		34,653		52,340		86,993
April 28, 2012		37,616		58,026		95,642
Capital Expenditures (accrual basis)
May 4, 2013—13 weeks ended	$	24	$	1,341	$	1,365
April 28, 2012—13 weeks ended		526		693		1,219
Depreciation and Amortization
May 4, 2013—13 weeks ended	$	188	$	2,296	$	2,484
April 28, 2012—13 weeks ended		173		2,163		2,336
Goodwill
May 4, 2013	$	—	$	—	$	—
February 2, 2013		—		—		—
April 28, 2012		4,462		—		4,462


	Thirteen Weeks Ended
	May 4, 2013			April 28, 2012
	(in thousands)
Net revenues:
Retail store	$	24,713		$	28,862
Direct marketing		10,464			12,352

Total net revenue	$	35,177		$	41,214

Operating loss:
Retail store	$	(6,959	)	$	(3,563	)
Direct marketing		(2,021	)		(897	)

Total operating loss	$	(8,980	)	$	(4,460	)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes included elsewhere in this report on Form 10-Q and in conjunction with our audited financial statements and related notes in our most recent Form 10-K. Descriptions of all documents incorporated by reference herein or included as exhibits hereto are qualified in their entirety by reference to the full text of such documents so incorporated or included. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth below in this Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption “Forward Looking Statements”.

During the first quarter of fiscal 2013, the Company retained Janney Montgomery Scott LLC as strategic advisor to the Board of Directors with an initial focus on the potential disposition of the Company’s Alloy brand. Accordingly, the results of the Company’s former Alloy business have been reported as discontinued operations for the thirteen weeks ended May 4, 2013 and April 28, 2012. The Company completed its sale of the Alloy business on June 4, 2013. Upon closing of the transaction, the Company received $3.7 million in cash proceeds and the buyer assumed $3.1 million in liabilities. The gain on sale from this transaction is expected to be immaterial. All financial results in this discussion are for continuing operations only unless otherwise stated.

Results of Operations and Financial Condition

Executive Summary

dELiA*s, Inc. is a multi-channel retailer of apparel, accessories and footwear, primarily marketing to teenage girls. Our merchandise assortment (which includes our own proprietary brand products and some name brand products), our e-commerce webpages, our catalogs, and our mall-based retail stores are designed to appeal directly to consumers. We reach our customers through our direct marketing segment, which consists of our e-commerce and catalog business, and our dELiA*s retail stores.

Our strategy is to improve upon our position as a direct marketing company; to increase productivity in our dELiA*s retail stores; and to carry out such strategy while controlling costs. In addition, our strategy includes strengthening the dELiA*s brand through alignment across all channels of our business while continuing extended offerings online and in our catalogs.

We expect that improved productivity in each segment of our business will be the key element of our overall growth strategy. Our focus is to improve productivity in our current retail store base, to invest in web-based marketing programs to drive additional traffic to our website and improve the productivity of catalogs distributed. As productivity improves and market conditions allow, we plan to continue to expand the dELiA*s retail store base over the long term. In addition, as store performance and market conditions allow, we may plan on accelerating our growth in gross square footage. Should we accelerate our growth, we may need additional equity or debt financing.

Goals

We believe that focusing on our dELiA*s brand and implementing the following initiatives should lead to profitable growth and improved results from operations:

•

Leveraging our omni-channel platform in order to drive top line growth;

•

implementing web, mobile and social media based initiatives, while optimizing our catalog circulation;

•

developing merchandise assortments that emphasize key categories more effectively and drive improved gross profit margins;

•

employing focused inventory management strategies and creating inventory turn improvement;

•

improving productivity of the existing store base through heightened focus on the selling culture, with emphasis on increased customer conversion;

•

leveraging our current expense infrastructure and taking additional operating costs out of the business, including monitoring and opportunistically closing underperforming stores; and

•

expanding the dELiA*s retail store base over the long term.

Key Performance Indicators

The following measurements are among the key business indicators that management reviews regularly to gauge the Company’s results:

•

store metrics such as comparable store sales, sales per gross square foot, average retail price per unit sold, average transaction values, average units per transaction, traffic conversion rates and store contribution margin (defined as store gross profit less direct costs of running the store);

•

direct marketing metrics such as average order value and demand generated by book, with demand defined as the amount customers seek to purchase without regard to merchandise availability;

•

web metrics such as unique site visits, carts opened and carts converted, and site conversion;

•

fill rate, which is the percentage of any particular order we are able to ship for our direct marketing business, from available on-hand inventory or future inventory orders;

•

gross profit;

•

operating income;

•

inventory turnover and average inventory per store; and

•

cash flow and liquidity determined by the Company’s cash provided by operations.

The discussion below includes references to “comparable stores.” We consider a store comparable after it has been open for fifteen full months without closure for more than seven consecutive days and whose square footage has not been expanded or reduced by more than 25% within that period. If a store is closed during a fiscal period, it is removed from the computation of comparable store sales for that fiscal period.

Our fiscal year is on a 52-53 week basis and ends on the Saturday nearest to January 31st. The fiscal year ended February 2, 2013 was a 53-week fiscal year, and the fiscal year ending February 1, 2014 will be a 52-week fiscal year.

Consolidated Results of Operations

The following table sets forth our statements of operations data for the periods indicated, reflected as a percentage of revenues:


	2013			2012
STATEMENTS OF OPERATIONS DATA:
Total revenues		100.0	%		100.0	%
Cost of goods sold		76.2	%		68.4	%

Gross profit		23.8	%		31.6	%

Operating expenses:
Selling, general and administrative expenses		49.7	%		42.9	%
Other operating income		(0.4	%)		(0.5	%)

Total operating expenses		49.3	%		42.4	%

Operating loss		(25.5	%)		(10.8	%)
Interest expense, net		0.5	%		0.4	%

Loss before income taxes		(26.0	%)		(11.2	%)
Provision (benefit) for income taxes		0.1	%		(0.7	%)

Loss from continuing operations		(26.1	%)		(10.5	%)
Income from discontinued operations		(0.1	%)		1.6	%

Net loss		(26.2	%)		(8.9	%)

Thirteen Weeks Ended May 4, 2013 Compared to Thirteen Weeks Ended April 28, 2012

Revenues

Total Revenues. Total revenues decreased 14.6% to $35.2 million in the quarter ended May 4, 2013 from $41.2 million in the quarter ended April 28, 2012.

Direct Marketing Revenues. Direct marketing revenues decreased 15.3% to $10.5 million in the quarter ended May 4, 2013 from $12.4 million in the quarter ended April 28, 2012. The revenue decrease was primarily due to lower average order values as well as a decrease in the number of orders compared to the prior year.

Retail Store Revenues. Retail store revenues decreased 14.4% to $24.7 million in the quarter ended May 4, 2013 from $28.9 million in the quarter ended April 28, 2012. The revenue decrease was due to an 8% reduction in store count and a comparable store sales decrease of 7.1% over the prior year period. During the quarter ended May 4, 2013, we relocated one store and closed one store, ending the period with 103 stores in operation, as compared to 112 stores in operation as of April 28, 2012.

The following table sets forth select operating data in connection with the revenues of our Company:


	Thirteen Weeks Ended
	May 4, 2013			April 28, 2012
Channel net revenues (in thousands):
Retail	$	24,713		$	28,862
Direct (1)		10,464			12,352

Total net revenues	$	35,177		$	41,214

Catalogs Mailed (in thousands) (1)		4,912			3,864

Number of Stores:
Beginning of period		104			113
Stores opened		1	*		1	**
Stores closed		2	*		2	**

End of Period		103			112

Total Gross Sq. Ft. End of Period (in thousands)		397.7			429.6

(1)	Restated to exclude the Alloy business

*	Totals include one store that was closed and relocated to an alternative site in the same mall during the first quarter of fiscal 2013.

**	Totals include one store that was closed and relocated to an alternative site in the same mall during the first quarter of fiscal 2012.

Gross Profit

Total Gross Profit. Total gross profit for the quarter ended May 4, 2013 was $8.4 million or 23.8% of revenues as compared to $13.0 million or 31.6% of revenues in the quarter ended April 28, 2012.

Direct Marketing Gross Profit. Direct marketing gross profit for the quarter ended May 4, 2013 was $4.3 million or 41.1% of related revenues as compared to $5.4 million or 43.7% of related revenues for the quarter ended April 28, 2012. The decrease in gross profit, as a percentage of related revenues, primarily resulted from increased inventory reserves and shipping and handling costs, partially offset by a 110 basis point increase in merchandise margins.

Retail Store Gross Profit. Retail store gross profit for the quarter ended May 4, 2013 was $4.1 million or 16.5% of related revenues as compared to $7.6 million or 26.4% of related revenues for the quarter ended April 28, 2012. The decrease in gross profit, as a percentage of related revenues, was primarily due to a 740 basis point increase in markdown and other inventory reserves in connection with underperforming inventory, and a 190 basis point decrease related to merchandise margins, with the remaining decrease resulting from the deleveraging of occupancy costs.

Selling, General and Administrative

Total Selling, General and Administrative. As a percentage of revenues, total selling, general and administrative expenses (SG&A) increased to 49.7% for the quarter ended May 4, 2013 from 42.9% for the quarter ended April 28, 2012. In total dollars, SG&A decreased to $17.5 million in the quarter ended May 4, 2013 from $17.7 million in the quarter ended April 28, 2012. Expenses previously allocated to the Alloy business have been reallocated to continuing operations. These costs were approximately $1.5 million and $1.4 million for the quarter ended May 4, 2013 and April 28, 2013, respectively.

Direct Marketing SG&A. Direct marketing SG&A remained flat at $6.4 million in the quarter ended May 4, 2013 as compared to the quarter ended April 28, 2012. As a percentage of related revenues, the direct marketing SG&A increased to 60.8% from 51.9% for the quarter ended April 28, 2012. The increase in SG&A, as a percentage of related revenues, reflects the deleveraging of selling, overhead and depreciation expenses on lower revenues. Included in SG&A expenses for the first quarter of fiscal 2013 were approximately $0.3 million in costs related to our recent management transitions.

Retail Store SG&A. Retail SG&A decreased to $11.1 million in the quarter ended May 4, 2013 from $11.3 million in the quarter ended April 28, 2012. As a percentage of related revenues, retail SG&A increased to 45.1% in the quarter ended May 4, 2013 from 39.1% for the quarter ended April 28, 2012. The increase in SG&A, as a percentage of related revenues, reflects the deleveraging of selling, overhead and depreciation expenses on lower revenues. Included in SG&A expenses for the first quarter of fiscal 2013 were approximately $0.3 million in costs related to our recent management transitions.

Other Operating Income

Other operating income, which represents breakage income, was $0.1 million for the first quarter of fiscal 2013 as compared to $0.2 million in first quarter of fiscal 2012.

Operating Loss

Total Operating Loss. Our total operating loss was $9.0 million for the quarter ended May 4, 2013 as compared to an operating loss of $4.5 million for the quarter ended April 28, 2012.

Direct Marketing Operating Loss. Direct marketing operating loss was $2.0 million for the quarter ended May 4, 2013 as compared to an operating loss of $0.9 million for the quarter ended April 28, 2012.

Retail Store Operating Loss. Operating loss from retail stores was $7.0 million for the quarter ended May 4, 2013 as compared to an operating loss of $3.6 million for the quarter ended April 28, 2012.

Interest expense, net

We recorded interest expense of $0.2 million in the quarter ended May 4, 2013 compared to $0.2 million for the quarter ended April 28, 2012. Interest expense for the quarter ended May 4, 2013 and April 28, 2012 related to costs associated with our GE Agreement.

Provision (benefit) for income taxes

We recorded an income tax provision of $28,000 for the fiscal quarter ended May 4, 2013 and an income tax benefit of $0.3 million for the fiscal quarter ended April 28, 2012. The Company does not expect to recognize any tax benefit for federal taxes for fiscal 2013 since the Company did not generate taxable income during the two-year carry-back period for the fiscal 2013 net operating loss.

Seasonality and Quarterly Fluctuation

Our historical revenues and operating results have varied significantly from quarter to quarter due to seasonal fluctuations in consumer purchasing patterns. Sales of apparel, accessories and footwear through our e-commerce web pages, catalogs and retail stores have generally been higher in our third and fourth fiscal quarters, which contain the key back-to-school and holiday selling seasons, than in our first and second fiscal quarters. Starting in the second quarter and through the beginning of our fourth fiscal quarter, our working capital requirements increase and have typically been funded by our cash balances as well as utilization of our GE Agreement. Quarterly results of operations may also fluctuate significantly as a result of a variety of factors, including the timing of store openings or closings and the relative proportion of our new stores to mature stores, fashion trends and changes in consumer preferences, calendar shifts of holiday or seasonal periods, changes in merchandise mix, timing of promotional events, fuel, postage and paper prices, general economic conditions, competition and weather conditions.

Liquidity and Capital Resources

Our capital requirements include maintenance and remodeling expenditures for existing stores, information technology, distribution and other infrastructure related investments, and construction, fixture and inventory costs related to the opening of any new retail stores. Future capital requirements will depend on many factors, including, but not limited to, additional investments in infrastructure and technology, the pace of new store openings, the availability of suitable locations for new stores, the size of the specific stores we open and the nature of arrangements negotiated with landlords. In that regard, our net investment to open new stores is likely to vary significantly in the future.

We expect our current cash balance, cash flow from operations and availability under our credit facilities will be sufficient to meet our cash requirements for operations and current planned capital expenditures at least through the next twelve months. However, if cash balances, cash flow from operations and availability under our credit facilities are not sufficient to meet our current capital requirements, we may be required to obtain additional equity or debt financing in the future. Such equity or debt financing may not be available to us when we need it or, if available, may not be on terms that will be satisfactory to us or may be dilutive to our stockholders. If financing is not available when required or is not available on acceptable terms, we may be unable to take advantage of business opportunities or respond to competitive pressures. Any of these events could have a material and adverse effect on our business, results of operations and financial condition.

Credit Facility

As of May 4, 2013, availability under the GE Agreement was $5.7 million, net of outstanding letters of credit of $11.0 million and $1.6 million in borrowings.

Other Sources of Capital

Operating Activities

Net cash used in operating activities was $14.5 million in the thirteen weeks ended May 4, 2013, compared with $10.1 million in the thirteen weeks ended April 28, 2012. The cash used in operating activities for the thirteen weeks ended May 4, 2013 and April 28, 2012 was due primarily to funding the net operating losses, inventory purchases, and the timing of vendor payments.

Investing Activities

Cash used in investing activities was $0.4 million in the thirteen weeks ended May 4, 2013, compared with $1.4 million in the thirteen weeks ended April 28, 2012. The cash used in investing activities was primarily due to capital expenditures associated with the construction or remodeling of our retail stores and, for fiscal 2012, costs associated with our new websites and systems to support our e-commerce business.

Contractual Obligations

The following table presents our significant contractual obligations as of May 4, 2013 (in thousands):


	Payments Due By Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Contractual Obligations
Operating Lease Obligations (1)	$	79,763	$	16,285	$	31,965	$	20,505	$	11,008
Purchase Obligations (2)		23,769		23,769		—		—		—
Future Severance-Related Payments (3)		1,255		1,255		—		—		—

Total	$	104,787	$	41,309	$	31,965	$	20,505	$	11,008

(1)	Our operating lease obligations are primarily related to dELiA*s retail stores and our corporate headquarters.

(2)	Our purchase obligations are primarily related to inventory commitments and service agreements.

(3)	Our future severance-related payments consist of severance agreements with existing employees.

We have long-term, non-cancelable operating lease commitments for retail stores and office space.

Critical Accounting Policies

Management has determined that our most critical accounting policies are those related to revenue recognition, catalog costs, inventory valuation, indefinite-lived intangible assets and long-lived asset impairment, and income taxes. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. There have been no significant changes to these policies as discussed in our Annual Report on Form 10-K for the fiscal year ended February 2, 2013.

Recent Accounting Pronouncements

Off-Balance Sheet Arrangements

We enter into letters of credit issued under the GE Agreement to finance the acquisition of inventory from suppliers, to provide standby letters of credit to factors, landlords and other parties for business purposes, and for other general corporate purposes.

dELiA*s Brand, LLC, one of our subsidiaries, entered into a license agreement in 2003 with JLP Daisy, LLC that grants JLP Daisy, LLC exclusive rights (except for our rights) to use the dELiA*s trademarks to advertise, promote and market the licensed products, and to sublicense to permitted sublicensees the right to use the trademarks in connection with the manufacture, sale and distribution of the licensed products to approved wholesale customers.

We do not maintain any other off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Guarantees

We have no significant financial guarantees.

Inflation

In general, our costs, some of which include postage, paper, cotton, freight and energy costs, are affected by inflation and we may experience the effects of inflation in future periods. We believe, however, that such effects have not been material to us during the past.

Forward-Looking Statements

In order to keep stockholders and investors informed of our future plans, this Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains and, from time to time, other reports and oral or written statements issued by us may contain, statements expressing our expectations and beliefs regarding our future results, goals, performance and objectives that are or may be deemed to be “forward-looking statements” within the meaning of applicable securities laws. Our ability to do this has been fostered by the Private Securities Litigation Reform Act of 1995, which provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information so long as those statements are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. When used in this document, the words “anticipate”, “may”, “could”, “plan”, “project”, “should”, “would”, “predict”, “believe”, “estimate”, “expect” and “intend” and similar expressions are intended to identify such forward-looking statements.

Our forward-looking statements are based upon management’s current expectations and beliefs. They are subject to a number of known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from those described or implied in the forward-looking statements as a result of various factors, including, but not limited to, the impact of general economic and business conditions; our inability to realize the full value of merchandise currently in inventory as a result of underperforming sales; unanticipated increases in mailing and printing costs; the cost of additional overhead that may be required to expand our brands; changing customer tastes and buying trends; the inherent difficulty in forecasting consumer buying patterns and trends, and the possibility that any improvements in our product margins, or in customer response to our merchandise, may not be sustained; uncertainties related to our multi-channel model, and, in particular, the effects of shifting patterns of e-commerce or retail purchases versus catalog purchases; any significant variations between actual amounts and the amounts estimated for those matters identified as our critical accounting estimates or our other accounting estimates made in the preparation of our financial statements; as well as the various other risk factors set forth in our periodic and other reports filed with the Securities and Exchange Commission (“SEC”). Accordingly, while we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and we cannot assure you that our future results, levels of activity, performance or achievements will meet these expectations. You are urged to consider all such factors. Except as required by law, we assume no obligation for updating any such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

From time to time, we have significant amounts of cash and cash equivalents invested in deposit accounts at FDIC-insured financial institutions that are in excess of the federally insured limit. Since expanded deposit protection under the Dodd-Frank Wall Street Reform Act expired on December 31, 2012, we cannot be assured that we will not experience losses with respect to cash on deposit in excess of the federally insured limits. As of May 4, 2013, we did not hold any marketable securities and do not own any derivative financial instruments in our portfolio, thus we do not believe there is any material market risk exposure with respect to these items.

As of May 4, 2013, we had $1.6 million outstanding borrowings under our GE Agreement. To the extent that we borrow under our credit facilities, we are exposed to market risk related to changes in interest rates. Loans under our credit facilities bear interest based at variable rates. Accordingly, any increase or decrease in the applicable interest rate on our borrowings under the credit facilities would increase or decrease interest expense and, accordingly, affect our net income or loss.

We are also indirectly exposed to market risk with respect to changes in the global price level of certain commodities used in the production of our products. Changes in the cost of fabrics or other raw materials used to manufacture our merchandise may be passed on to us, in whole or in part, in the form of changes in our cost of goods, and, if so, would affect our cost of goods and our results of operations.

Item 4.

Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, May 4, 2013, that our disclosure controls and procedures were effective to ensure both that (i) information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Exchange Act, and (ii) information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

There were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended May 4, 2013 identified in connection with the evaluation thereof by our Chief Executive Officer and Chief Financial Officer that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

We are involved from time to time in litigation incidental to our business and, from time to time, we may make provisions for potential litigation losses. The Company is not a party to any material pending legal proceedings.

The information set forth in Part I, Note 16 to the Notes to Condensed Consolidated Financial Statements contained on page 13 under the caption “Litigation” is incorporated herein by reference.

Item 1A.

Risk Factors.

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2013.

Risk factors and the other information are set forth in our most recent Annual Report on Form 10-K and our other periodic reports filed with the SEC. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition, and results of operations. Other than response to rules and regulations promulgated by the SEC, we assume no obligation (and specifically disclaim any such obligation) to update our risk factors or any other forward-looking statements to reflect actual results, changes in assumptions or other factors affecting such forward-looking statements.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3.

Defaults upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

Not applicable.

Item 6.

Exhibits


(A)		Exhibits

31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.*

31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.*

32.1		Certification under section 906 by the Chief Executive Officer.*

32.2		Certification under section 906 by the Chief Financial Officer.*

101. INS		XBRL Instance Document**

101.SCH		XBRL Taxonomy Extension Schema Document**

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document**

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document**

101.LAB		XBRL Taxonomy Extension Label Linkbase Document**

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document**

*	Filed herewith.

**	Furnished with this report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	dELiA*s, Inc.

Date: June 18, 2013	By:	/s/ Tracy Gardner

		Tracy Gardner
		Chief Executive Officer

Date: June 18, 2013	By:	/s/ David J. Dick

		David J. Dick
		Chief Financial Officer

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