Claire's Stores, Inc. Reports Fiscal 2018 Second Quarter Results

Claire's Stores, Inc. Reports Fiscal 2018 Second Quarter Results
Claire's Stores, Inc. Reports Fiscal 2018 Second Quarter Results

CHICAGO, Sept. 11, 2018 /PRNewswire/ -- Claire's Stores, Inc. (the "Company"), one of the world's leading specialty retailers of fashionable jewelry and accessories for young women, teens, tweens, and kids, today reported its financial results for the fiscal 2018 second quarter, which ended August 4, 2018. 

Second Quarter Results

The Company reported net sales of $314.4 million for the fiscal 2018 second quarter, a decrease of $2.2 million or 0.7% compared to the fiscal 2017 second quarter.  Net sales were affected by the effect of company-operated and concession store closures, partially offset by a favorable foreign currency translation effect of our non-U.S. net sales, an increase in new and same store company-operated store sales and increased franchisees sales.  Net sales would have decreased 1.9% excluding the impact of foreign currency exchange rate changes.

Consolidated same store sales increased 0.1%, with North America same store sales increasing 4.4% and Europe same store sales decreasing 6.3%.  The Company computes same store sales on a local currency basis, which eliminates any impact from changes in foreign currency exchange rates.  For the fiscal 2018 third quarter-to-date period, consolidated same store sales have increased approximately 2%, with North America outperforming Europe.

Gross profit percentage increased 180 basis points to 50.8% during the fiscal 2018 second quarter versus 49.0% for the prior year quarter.  The increase in gross profit percentage consisted of a 100 basis point decrease in occupancy costs and by an 80 basis point increase in merchandise margin.  The decrease in occupancy costs, as a percentage of net sales, resulted primarily from the cost reductions associated with store closures.  The increase in merchandise margin percentage resulted primarily from a favorable foreign currency translation effect.                     

Selling, general and administrative expenses decreased $1.3 million, or 1.2%, compared to the fiscal 2017 second quarter.  As a percentage of net sales, selling, general and administrative expenses decreased 20 basis points compared to the three months ended July 29, 2017.  Excluding an unfavorable $1.4 million foreign currency translation effect, selling, general, and administrative expenses would have decreased by $2.7 million.  Excluding the foreign currency translation effect, the decrease was primarily due to decreased compensation-related expense, including concession store commission expense.

Adjusted EBITDA in the fiscal 2018 second quarter was $54.2 million compared to $47.4 million last year.  Adjusted EBITDA would have been $53.8 million excluding the foreign currency translation effect in the second quarter of 2018. The Company defines Adjusted EBITDA as earnings before income taxes, net interest expense, depreciation and amortization, loss (gain) on early debt extinguishments, asset impairments, and reorganization items.  Adjusted EBITDA excludes management fees, severance, the impact of transaction-related costs and certain other items.  A reconciliation of net loss to Adjusted EBITDA is attached. 

As of August 4, 2018, cash and cash equivalents were $69.4 million.  The Company had an additional $65.6 million of borrowing availability under its debtor-in-possession credit facility as of August 4, 2018, net of applicable reserves.  The fiscal 2018 second quarter cash balance increase of $13.3 million consisted of positive impacts of $54.2 million of Adjusted EBITDA, partially offset by $15.5 million for payment of reorganization items, $12.7 million from seasonal working capital uses, $4.8 million of cash interest payments, $4.0 million of capital expenditures, $3.0 million for payment of current portion of long-term debt, $0.5 million for tax payments and $0.4 million in debtor-in-possession financing costs.

 

Store Count as of:

August 4, 2018


February 3, 2018


July 29, 2017







North America

1,466


1,568


1,614

Europe

1,005


1,026


1,046

Subtotal Company-operated

2,471


2,594


2,660

Franchise

687


722


650

Total global stores

3,158


3,316


3,310

Concession stores                                      

 

6,631


970


860

Chapter 11 Proceedings

On March 19, 2018, the Company and certain of its domestic subsidiaries (together with the Company, the "Debtors"), commenced voluntary chapter 11 cases (the "Chapter 11 Cases") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Debtors commenced the Chapter 11 Cases to eliminate a substantial portion of debt from the Company's balance sheet and to position Claire's for long-term success. Holders of approximately 98.3% of the Company's first lien debt, 17.4% of its second lien notes, and 98.8% of its unsecured notes support the Debtors' restructuring.

The Chapter 11 Cases are being jointly administered for procedural purposes only under the caption In re Claire's Stores, Inc., et al., Case No. 18-10584 (MFW). Additional information regarding the Chapter 11 Cases is available in our filings with the Securities and Exchange Commission (the "SEC"), including our Current Reports on Form 8-K filed on March 19, 2018 and April 5, 2018 and our Annual Report on Form 10-K filed on April 20, 2018. Claire's expects to operate its business in the ordinary course during its restructuring process, and its Claire's® and Icing® locations worldwide will continue to provide their customers with the assortment of products and quality of service they have come to expect to find in the Company's stores.

Company Overview

Claire's Stores, Inc. is one of the world's leading specialty retailers of fashionable jewelry and accessories for young women, teens, tweens and girls ages 3 to 35. The Company operates through its stores under two brand names: Claire's® and Icing®.  As of August 4, 2018, Claire's Stores, Inc. operated 2,471 stores in 17 countries throughout North America and Europe, excluding 6,631 concession locations.  The Company franchised 687 stores in 28 countries primarily located in the Middle East, Central and Southeast Asia and Central and South America, Southern Africa, and Russia.  More information regarding Claire's Stores is available on the Company's corporate website at www.clairestores.com.

Forward-looking Statements

This press release contains "forward-looking statements" which represent the Company's expectations or beliefs with respect to future events.  Statements that are not historical are considered forward-looking statements.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated.  Those factors include, without limitation: our level of indebtedness; general economic conditions; changes in consumer preferences and consumer spending; unwillingness of vendors and service providers to supply goods or services pursuant to historical customary credit arrangements; competition; general political and social conditions such as war, political unrest and terrorism; natural disasters or severe weather events; currency fluctuations and exchange rate adjustments; failure to maintain our favorable brand recognition; failure to successfully market our products through other channels, such as e-commerce; uncertainties generally associated with the specialty retailing business, such as decreases in mall traffic; disruptions in our supply of inventory; inability to increase same store sales; inability to renew, replace or enter into new store leases on favorable terms; increase in our cost of merchandise; significant increases in our merchandise markdowns; inability to grow our company-operated store base, expand our international store base through franchise or similar licensing arrangements or expand our store base through store concessions; inability to design and implement new information systems; data security breaches of confidential information or other cyber attacks; delays in anticipated store openings or renovations; results from any future asset impairment analysis; changes in applicable laws, rules and regulations, including laws and regulations governing the sale of our products, particularly regulations relating to heavy metals and chemical content in our products; changes in anti-bribery laws; changes in employment laws, including laws relating to overtime pay, tax laws and import laws; product recalls; increases in the costs of healthcare for our employees; increases in the cost of labor; labor disputes; loss of key members of management; increases in the cost of borrowings; unavailability of additional debt or equity capital; and the impact of our substantial indebtedness on our operating income and our ability to grow. Risks and uncertainties relating to any capital restructuring initiative include: risks and uncertainties relating to the Chapter 11 Cases, including but not limited to, the Company's ability to obtain Bankruptcy Court approval with respect to motions filed in the Chapter 11 Cases, the effects of the Chapter 11 Cases on the Company and on the interests of various constituents, Bankruptcy Court rulings in the Chapter 11 Cases and the outcome of the Chapter 11 Cases in general, the length of time the Company will operate as a debtor in possession in chapter 11, risks associated with motions filed and relief sought by third parties in the Chapter 11 Cases, the potential adverse effects of the Chapter 11 Cases on the Company's liquidity or results of operations or business prospects and increased legal and other professional costs necessary to execute the Company's reorganization; risks and uncertainties associated with the transactions contemplated by the Debtors' debtor-in-possession financing and restructuring support agreement, including satisfaction of the conditions thereto, which conditions may not be satisfied for various reasons, including for reasons outside of the Company's control, including the negotiation of terms, conditions and provisions related thereto; the ability of the Debtors to obtain requisite support for the restructuring and a chapter 11 plan of reorganization from various stakeholders; the ability of the Company to continue as a going concern; the ability of the Debtors to confirm a chapter 11 plan of reorganization; and the effects of disruption from the Chapter 11 Cases and any restructuring transactions pursued or consummated in connection therewith or relating thereto, making it more difficult to maintain business, financing and operational relationships, to obtain and maintain normal terms with customers, suppliers and service providers and to retain key executives and to maintain various licenses and approvals necessary for the Company to conduct its business.  These and other applicable risks, cautionary statements and factors that could cause actual results to differ from the Company's forward-looking statements are included in the Company's most recent Annual Report on Form 10-K and other filings with the SEC. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.  The historical results contained in this press release are not necessarily indicative of the future performance of the Company.

Additional Information

Other Claire's Stores, Inc. press releases, a corporate profile and the most recent Form 10-K and Form 10-Q reports are available on Claire's business website at: www.clairestores.com.

Contact Information

Scott Huckins, Executive Vice President and Chief Financial Officer 
Phone: (847) 765-1100, or E-mail, investor.relations@claires.com  

 

CLAIRE'S STORES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF OPERATIONS

(In thousands)


SECOND FISCAL QUARTER


Three Months


Three Months


Ended


Ended


August 4, 2018


July 29, 2017

Net sales

$     314,448


$     316,637

Cost of sales, occupancy and buying expenses (exclusive of depreciation
  and amortization shown separately below)

154,723


161,583

Gross profit

159,725


155,054

Other expenses (income):




Selling, general and administrative

111,459


112,774

Depreciation and amortization

13,709


10,890

Severance and transaction-related costs

629


389

Other income, net

(3,348)


(2,171)


122,449


121,882

Operating income

37,276


33,172

Reorganization items, net (1)

30,453


Interest expense, net

5,072


43,394

Income (loss) before income tax expense

1,751


(10,222)

Income tax expense

5,040


10,266

Net loss

$      (3,289)


$    (20,488)


(1)  Represents Chapter 11 post-petition items recorded during the three months ended August 4, 2018.

 

 


Six Months


Six Months


Ended


Ended


August 4, 2018


July 29, 2017

Net sales

$     625,454


$     616,258

Cost of sales, occupancy and buying expenses (exclusive of depreciation
  and amortization shown separately below)

310,371


313,371

Gross profit

315,083


302,887

Other expenses (income):




Selling, general and administrative (2)

237,240


223,286

Depreciation and amortization

26,903


22,093

Severance and transaction-related costs

1,005


532

Other income, net

(7,354)


(4,872)


257,794


241,039

Operating income

57,289


61,848

Reorganization items, net (3)

40,462


Interest expense, net

29,961


86,974

Loss before income tax expense

(13,134)


(25,126)

Income tax benefit

1,786


2,120

Net loss

$     (14,920)


$    (27,246)


(2)     Includes $8.6 million of Chapter 11 pre-petition costs incurred during the six months ended August 4, 2018.

(3)     Represents Chapter 11 post-petition items recorded during the six months ended August 4, 2018.

 

 

CLAIRE'S STORES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS



August 4, 2018


February 3, 2018


(In thousands, except share and per share amounts)

ASSETS




Current assets:




Cash

$       69,445


$       42,446

Inventories

148,331


134,690

Prepaid expenses

36,889


32,284

Other current assets

21,737


26,858

Total current assets

276,402


236,278

Property and equipment:




Furniture, fixtures and equipment

208,288


223,644

Leasehold improvements

279,104


301,338


487,392


524,982

Accumulated depreciation and amortization

(387,631)


(405,284)


99,761


119,698

Leased property under capital lease:




Land and building

18,055


18,055

Accumulated depreciation and amortization

(7,667)


(7,216)


10,388


10,839





Goodwill

1,132,575


1,132,575

Intangible assets, net of accumulated amortization of $88,005 and $87,295,
  respectively

450,145


457,078

Other assets

61,107


44,255


1,643,827


1,633,908

Total assets

$   2,030,378


$   2,000,723





LIABILITIES AND STOCKHOLDER'S DEFICIT




Current liabilities:




Current portion of long-term debt, net

$     84,732


$   1,894,039

Debtor-in-possession term loan

60,000


Trade accounts payable

55,272


62,965

Income taxes payable

14,096


4,049

Accrued interest payable

1,083


56,182

Accrued expenses and other current liabilities

101,216


94,934

Total current liabilities

316,399


2,112,169

Long-term debt, net

208,847


250,355

Obligation under capital lease

15,718


15,970

Deferred tax liability

29,179


32,614

Deferred rent expense

31,557


34,851

Unfavorable lease obligations and other long-term liabilities

8,646


10,040


293,947


343,830





Liabilities subject to compromise

1,905,215






Commitments and contingencies








Stockholder's deficit:




Common stock par value $0.001 per share; authorized 1,000 shares;




issued and outstanding 100 shares


Additional paid-in capital

630,794


630,719

Accumulated other comprehensive loss, net of tax

(40,364)


(25,302)

Accumulated deficit

(1,075,613)


(1,060,693)


(485,183)


(455,276)

Total liabilities and stockholder's deficit

$ 2,030,378


$ 2,000,723

 

Net Loss Reconciliation to Adjusted EBITDA

Adjusted EBITDA represents net income (loss), adjusted to exclude income taxes, interest expense and income, depreciation and amortization, loss (gain) on early debt extinguishments, asset impairments, reorganization items, management fees, severance and transaction related costs, and certain non-cash and other items. We use Adjusted EBITDA as an important tool to assess our operating performance. We consider Adjusted EBITDA to be a useful measure in highlighting trends in our business. We reinforce the importance of Adjusted EBITDA with our bonus eligible associates by using this metric in our annual performance bonus program. We believe that Adjusted EBITDA is effective, when used in conjunction with net income (loss), in evaluating asset performance, and differentiating efficient operators in the industry. Furthermore, Adjusted EBITDA is defined in the covenants contained in our debt agreements and it is the metric we use to communicate our financial performance to our debt investors.

Adjusted EBITDA is not a measure of financial performance under GAAP, and is not intended to represent cash flow from operations under GAAP and should not be used as an alternative to net income (loss) as an indicator of operating performance or to represent cash flow from operating, investing or financing activities as a measure of liquidity. We compensate for the limitations of using Adjusted EBITDA by using it only to supplement our GAAP results to provide a more complete understanding of the factors and trends affecting our business. Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

Some of the limitations of Adjusted EBITDA are:

  • Adjusted EBITDA does not reflect our cash used for capital expenditures;
                                                              
  • Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and Adjusted EBITDA does not reflect the cash requirements for such replacements;
                                                              
  • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital requirements; and
                                                              
  • Adjusted EBITDA does not reflect the cash necessary to make payments of interest or principal on our indebtedness.

While Adjusted EBITDA is frequently used as a measure of operations and the ability to meet indebtedness service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation.

 

CLAIRE'S STORES, INC. AND SUBSIDIARIES

ADJUSTED EBITDA

(UNAUDITED)

(In Thousands)



Three Months
Ended

August 4, 2018


Three Months
Ended

July 29, 2017


Six Months
Ended

August 4, 2018


Six Months
Ended

July 29, 2017

Net loss

$   (3,289)


$   (20,488)


$   (14,920)


$  (27,246)

Income tax expense

5,040


10,266


1,786


2,120

Interest expense

5,096


43,400


30,005


86,988

Interest income

(24)


(6)


(44)


(14)

Depreciation and amortization

13,709


10,890


26,903


22,093

Reorganization items, net (a)

30,453



40,462


Amortization of intangible assets

847


794


2,516


1,862

Stock compensation and book to cash rent (b)

(1,294)


(178)


(2,792)


(572)

Consulting expenses and management fees (c)

126


552


8,716


1,347

Other (d)

3,529


2,164


3,487


2,618

Adjusted EBITDA

$    54,193


$    47,394


$    96,119


$   89,196


a)      Represents reorganization items recorded in connection with the Company's post-petition Chapter 11 activities.


b)      Includes: non-cash stock compensation expense, net non-cash rent expense, amortization of rent free periods, the inclusion of
         cash landlord allowances, and the net accretion of favorable (unfavorable) lease obligations.


c)      Includes: non-recurring consulting expenses and the former management fee paid to Apollo Management and Cowen Group,
         Inc.


d)      Includes: non-cash losses on property and equipment primarily associated with remodels, relocations and closures and non-
         cash asset write-offs; other payments associated with store closures; costs, including third party charges, compensation,
         incurred in conjunction with the relocation of new employees and retention of current employees; non-cash foreign exchange
         gains/losses resulting from intercompany transactions and remeasurements of U.S. dollar denominated cash accounts of our
         foreign entities into their functional currency; store pre-opening costs; and severance and transaction- related costs.

 

View original content:http://www.prnewswire.com/news-releases/claires-stores-inc-reports-fiscal-2018-second-quarter-results-300710732.html

SOURCE Claire's Stores, Inc.

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