Delia's Hit With Class Action Suits

Generation Y merchandiser Delia's Inc., New York, is facing three class action lawsuits alleging that the company did not fully disclose its earnings performance during the first quarter of 1998. The cases were filed this month in U.S. District Court for the Southern District of New York.

A class action suit was filed June 4 on behalf of investors by the law firm Stull, Stull & Brody, New York. Another suit was filed by Schatz & Nobel P.C., Hartford, CT, on behalf of all purchasers of the company's common stock from May 21, 1998 to June 17, 1998.

“Our case focuses on the fact that the company didn't disclose how poorly it had done in the first quarter of 1998,” said Jeffrey S. Nobel of Schatz & Nobel P.C. in a published report.

The third suit was filed June 9, by Weiss & Yourman, New York, charging that company officers violated sections the Securities Exchange Act of 1934 by making inaccurate characterizations about the company, which led to an artificially inflated stock price.

Delia's immediately denied all accusations shortly after the suits were filed and said that it will defend itself in court.

A spokesman at Delia's investor-relations agency, Morgen-Walke Associates, New York, said the company can be expected to stand by its statement that “the allegations are unfounded.” Calls to Schatz & Nobel were not returned by press time.

Last week, the Generation Y merchandiser reported a $70 million pre-tax gain on the initial public offering of its iTurf Internet subsidiary with earnings per share of $1.56 for the first quarter ended May 1, 1999. Net sales for Delia's first quarter increased 34 percent to $41.8 million, from the $31.2 million reported for the same period the previous year. The company said first quarter diluted earnings per share grew to $1.56 including a one-time gain and a one-time charge on 16 million shares, compared with 15 cents on 13.6 million shares for the same period last year.

Delia's completed its initial public offering of iTurf on April 14, 1999. In connection with the initial public offering, the company recorded a gain of $70.1 million before taxes, or $41 million after taxes.

Chairman/CEO Stephen Kahn said the first quarter was significant. “We completed a successful initial public offering of our Internet subsidiary iTurf, which positions us to build the dominant Generation Y network online. At the same time, the quarter was a period of transition. We made the strategic decision to convert certain Screeem! stores to Delia's stores over the next year. In addition, we made a substantial investment in our infrastructure to support the future growth of Delia's retail and direct marketing businesses.”

Delia's Inc. is a leading marketer of apparel, accessories, home furnishings and athletic goods to Generation Y, which is defined as consumers ages 10 to 24. The Company offers proprietary and other brands through various catalogs and retail stores and provides online community, content and commerce services to Generation Y.

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