Much of the $83 million in the special dividend payment will fatten the wallets of chief executive officer Marvin Rounick and other insiders, who own more than two-thirds of Deb Shop's stock.
Why now? "Over the years, we've made money," Rounick said of his company.
As of Jan. 31, Deb Shops, with stores in 41 states, reported no long-term debt, and cash and marketable securities of $176 million.
In the past, Deb held onto its profits in hopes of adding more stores. But the chain's last big expansion was in the early 1990s. With property prices growing faster than sales, "we've decided, under the current circumstances, that the best use was to pay our shareholders a dividend," chief financial officer Barry Susson said.
In the year ended Jan. 31, Deb Shops had sales of $303.8 million, and net income of $17.9 million, or $1.30 a share. Both numbers were up from the previous year but down from the year before that.
President Bush's investment tax cuts have helped make dividends more popular, compared with share buybacks and other tactics used by companies that have more cash than they can profitably invest.
Last July, software giant Microsoft Corp., which was sitting on its own bundle of cash, announced a special dividend of $3 a share, in addition to a stock buyback. The dividend, amounting to $32 billion, was paid on Dec. 2.
Asked what he would do with his payment, Deb CEO Rounick, who controls 29 percent of the common stock, laughed and declined to comment - other than to note that the dividend "is putting more money into circulation" in the Philadelphia area.
At least one Deb critic applauded the move. Deb Shops' sales, compared to costs, are "not getting better," so a big dividend is the best investors can hope for, said Ivan Feinseth, analyst at Matrix USA, a New York firm that uses the Economic Value Added method to recommend stocks based on measures of cash flow, capital risk and relative value.
"They have excess capital," Feinseth said. "So they'll give it to you. Maybe you can do better on your own."
Contact staff writer Joseph N. DiStefano at 215-854-5957 or jdistefano@phillynews.com.
