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Delia's Hit With Lawsuits Over Stock Price

Generation Y merchandiser, dELiA*s Inc., New York, is facing class action lawsuits alleging that the company insufficiently divulged the extent to which its earnings performance had slipped during the first quarter of 1998. The cases were filed this week with U.S. District Court for the Southern District of New York, in Manhattan.

The first class action 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.

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

A second suit was filed yesterday by Weiss & Yourman charging that the company officers violated sections 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.

The company also released a published statement stating that “it believes the lawsuits are without merit and the company intends to vigorously defend itself and litigate these claims.”

Calls to Schatz & Nobel were not returned to DM News by press time. However a spokesperson at dELiA*s investor-relations agency, Morgen-Walke Associates, New York, said the company can be expected to stand by its published statement — that “the allegations are unfounded and there is no other information available to be released right now.”

Yesterday, the Generation Y merchandiser reported a $70 million pre-tax gain on the initial public offering of its iTurf Internet subsidiary, with first quarter 1999 earnings per share of $1.56 for the first quarter ended May 1. Net sales for dELiA*s first quarter increased 34 percent to $41.8 million from $31.2 million for the same time 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 15,966,000 shares, compared to 15 cents on 13,569,000 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 $70,091,000 before taxes, or $41,003,000 after-tax.

Chairman/CEO Stephen Kahn said the first quarter was a 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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