CHICAGO, Aug. 26, 2013 /PRNewswire/ --Claire's Stores, Inc. (the "Company") is one of the world's leading specialty retailers of fashionable jewelry and accessories for young women, teens, tweens, and kids. The Company today reported its financial results for the fiscal 2013 second quarter, which ended August 3, 2013.
Second Quarter Results
The Company reported net sales of $366.7 million for the fiscal 2013 second quarter, an increase of $7.1 million, or 2.0% compared to the fiscal 2012 second quarter. The increase was attributable to new store sales and a favorable foreign currency translation effect on the Company's non-U.S. net sales. This was partially offset by the effect of store closures and decreased shipments to franchisees. Net sales would have increased 1.3% excluding the impact from foreign currency exchange rate changes.
Consolidated same store sales decreased 0.1%, which included a 1.1% increase in North America and a 2.0% decrease in Europe. The Company computes same store sales on a local currency basis, which eliminates any impact from changes in foreign currency exchange rates.
Gross profit percentage increased 10 basis points to 50.6% during the fiscal 2013 second quarter versus the comparable prior year quarter. The improvement consisted of a 60 basis point increase in merchandise margin and a 10 basis point decrease in buying costs, partially offset by a 60 basis point increase in occupancy costs. The increase in occupancy costs, as a percentage of net sales, was primarily due to normal rent increases, which were not offset by an increase in same store sales.
Selling, general and administrative expenses increased $6.1 million, or 5.1%, compared to the fiscal 2012 second quarter. As a percentage of net sales, selling, general and administrative expenses increased 100 basis points versus the comparable prior year quarter. Of the increase, $0.7 million was caused by changes in the foreign currency exchange rates. The remainder of the increase was primarily the result of compensation-related expenses, such as store payrolland non-cash stock-based compensation.
Adjusted EBITDA in the fiscal 2013 second quarter was $62.3 million compared to $62.2 million in the fiscal 2012 second quarter. The fiscal 2013 second quarter Adjusted EBITDA would have been $1.7 million higher without the one-time investments in newly launched stores in China as well as the Company's recently launched e-commerce platforms for Europe, the Icing Brand in North America, and Claire's in Canada. The effect of foreign currency exchange rate changes was a $0.9 million benefit. The Company defines Adjusted EBITDA as earnings before income taxes, net interest expense, depreciation and amortization, loss (gain) on early debt extinguishments, and asset impairments. Adjusted EBITDA excludes management fees, severance, the impact of transaction-related costs and certain other non-cash and other items. Net loss for the fiscal 2013 second quarter was $20.7 million. A reconciliation of net loss to Adjusted EBITDA is attached.
As of August 3, 2013, cash and cash equivalents were $73.8 million and the Company's Revolving Credit Facility was undrawn. In the fiscal 2013 second quarter, the Company issued $320.0 million aggregate principal amount of 7.75% Senior Notes due 2020. The Company used the net proceeds from these notes, together with cash on hand, of $467.8 million to redeem all of the outstanding Senior Fixed Rate Notes and the Senior Toggle Notes, due in 2015, at par plus accrued interest and to pay transaction fees.
The fiscal 2013 second quarter cash balance decrease of $169.0 million from the fiscal 2013 first quarter consisted of reductions of $147.8 million from financing activities related to the redemptions of the Senior Fixed Rate Notes and Senior Toggle Notes, $37.4 million of cash interest, $21.7 million of capital expenditures, $17.2 million from seasonal working capital uses and other items, $7.2 million of tax payments, partially offset by $62.3 million of Adjusted EBITDA.
Store Count as of: | August 3, 2013 | February 2, 2013 | July 28, 2012 | ||
North America | 1,914 | 1,921 | 1,940 | ||
Europe | 1,169 | 1,161 | 1,134 | ||
China | 11 | 3 | - | ||
Subtotal Company-Owned | 3,094 | 3,085 | 3,074 | ||
Franchise | 414 | 392 | 376 | ||
Total | 3,508 | 3,477 | 3,450 |
Conference Call Information
The Company will host its second quarter conference call on August 27, 2013 at 10:00 am. (EDT). To connect, please dial 888-790-4233 (domestic) or 210-839-8201 (international). The password is "Claires." A replay will be available through September 27, 2013, by dialing 800-945-7474 (domestic) or 203-369-3953 (international). The password is 84965. The conference call will also be webcast and archived until September 27, 2013 on the Company's corporate website at www.clairestores.com, where it can be accessed by clicking on the "Events" link located under "Financial Information" for a replay or to download as an MP3 file.
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 two store concepts: Claire's® and Icing®. As of August 3, 2013, Claire's Stores, Inc. operated 3,094 stores in North America, Europe, and China. The Company also franchised 414 stores in 25 countries primarily located in the Middle East, Central and Southeast Asia and Central and South America. 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: changes in consumer preferences and consumer spending; competition; our level of indebtedness; general economic conditions; 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 new 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 store base in North America, Europe or China or expand our international franchising operations; 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; uncertainty that definitive financial results may differ from preliminary financial results due to, among other things, final U.S. GAAP adjustments; results from any future asset impairment analysis; changes in applicable laws, rules and regulations, including changes in North America, Europe, China or other international laws governing the sale of our merchandise, particularly regulations relating to heavy metals and chemical content in our merchandise; changes in anti-bribery laws; changes in general employment laws, including laws relating to overtime pay and employee benefits, health care laws, 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; unwillingness of vendors and service providers to supply goods or services pursuant to historical customary credit arrangements; 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. 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 filings with the SEC, specifically as described in the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2013 filed with the SEC on April 3, 2013. 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
Leslie Loyet, Manager of Investor Relations and Corporate
Phone: (847) 765-4610, or E-mail, leslie.loyet@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 3, 2013 | July 28, 2012 | ||
Net sales | $ 366,703 | $ 359,617 | |
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below) | 180,973 | 177,866 | |
Gross profit | 185,730 | 181,751 | |
Other expenses: | |||
Selling, general and administrative | 126,448 | 120,329 | |
Depreciation and amortization | 16,153 | 15,475 | |
Severance and transaction-related costs | 889 | 1,144 | |
Other (income) expense, net | (2,082) | 149 | |
141,408 | 137,097 | ||
Operating income | 44,322 | 44,654 | |
Loss on early debt extinguishment | 3,121 | -• | |
Interest expense, net | 57,755 | 48,879 | |
Loss before income tax expense | (16,554) | (4,225) | |
Income tax expense | 4,118 | 3,048 | |
Net loss | $ (20,672) | $ (7,273) | |
YEAR TO DATE | |||
Six Months | Six Months | ||
Ended | Ended | ||
August 3, 2013 | July 28, 2012 | ||
Net sales | $ 720,709 | $ 700,234 | |
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below) | 359,539 | 351,869 | |
Gross profit | 361,170 | 348,365 | |
Other expenses: | |||
Selling, general and administrative | 251,835 | 238,911 | |
Depreciation and amortization | 31,778 | 32,190 | |
Severance and transaction-related costs | 1,804 | 1,197 | |
Other (income) expense, net | (1,158) | 580 | |
284,259 | 272,878 | ||
Operating income | 76,911 | 75,487 | |
Loss on early debt extinguishment | 4,795 | 4,602 | |
Interest expense, net | 115,974 | 95,901 | |
Loss before income tax expense | (43,858) | (25,016) | |
Income tax expense | 3,398 | 2,178 | |
Net loss | $ (47,256) | $ (27,194) | |
CLAIRE'S STORES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | |||
August 3, 2013 | February 2, 2013 | ||
(In thousands, except share and per share amounts) | |||
ASSETS | |||
Current assets: | |||
Cash and cash equivalents | $ 73,798 | $ 166,956 | |
Inventories | 174,247 | 157,549 | |
Prepaid expenses | 21,050 | 19,701 | |
Other current assets | 27,109 | 29,621 | |
Total current assets | 296,204 | 373,827 | |
Property and equipment: | |||
Furniture, fixtures and equipment | 246,766 | 234,209 | |
Leasehold improvements | 328,036 | 312,789 | |
574,802 | 546,998 | ||
Less accumulated depreciation and amortization | (345,351) | (325,618) | |
229,451 | 221,380 | ||
Leased property under capital lease: | |||
Land and building | 18,055 | 18,055 | |
Less accumulated depreciation and amortization | (3,160) | (2,708) | |
14,895 | 15,347 | ||
Goodwill | 1,550,056 | 1,550,056 | |
Intangible assets, net of accumulated amortization of $61,340 and $57,672, respectively | 542,877 | 547,433 | |
Deferred financing costs, net of accumulated amortization of $34,980 | 43,402 | 41,381 | |
and $27,156, respectively | |||
Other assets | 50,475 | 49,848 | |
2,186,810 | 2,188,718 | ||
Total assets | $ 2,727,360 | $ 2,799,272 | |
LIABILITIES AND STOCKHOLDER'S DEFICIT | |||
Current liabilities: | |||
Trade accounts payable | $ 72,972 | $ 73,445 | |
Income taxes payable | 2,134 | 10,508 | |
Accrued interest payable | 70,631 | 68,254 | |
Accrued expenses and other current liabilities | 85,355 | 99,529 | |
Total current liabilities | 231,092 | 251,736 | |
Long-term debt | 2,379,869 | 2,373,366 | |
Obligation under capital lease | 17,181 | 17,232 | |
Deferred tax liability | 119,795 | 120,968 | |
Deferred rent expense | 29,996 | 29,859 | |
Unfavorable lease obligations and other long-term liabilities | 17,644 | 20,551 | |
2,564,485 | 2,561,976 | ||
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 | 618,939 | 618,403 | |
Accumulated other comprehensive (loss) income, net of tax | (3,784) | 3,273 | |
Accumulated deficit | (683,372) | (636,116) | |
(68,217) | (14,440) | ||
Total liabilities and stockholder's deficit | $ 2,727,360 | $ 2,799,272 | |
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, 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 3, 2013 | Three Months Ended July 28, 2012 | Six Months Ended August 3, 2013 | Six Months Ended July 28, 2012 | ||||
Net loss | $ (20,672) | $ (7,273) | $ (47,256) | $ (27,194) | |||
Income tax expense | 4,118 | 3,048 | 3,398 | 2,178 | |||
Interest expense | 57,766 | 48,913 | 116,005 | 95,965 | |||
Interest income | (11) | (34) | (31) | (64) | |||
Depreciation and amortization | 16,153 | 15,475 | 31,778 | 32,190 | |||
Loss on early debt extinguishment | 3,121 | - | 4,795 | 4,602 | |||
Stock compensation, book to cash rent, intangible amortization (a) | 1,060 | (823) | 2,024 | 114 | |||
Management fee, consulting expense (b) | 750 | 920 | 1,500 | 2,135 | |||
Other (c) | 25 | 1,968 | 2,836 | 2,787 | |||
Adjusted EBITDA | $ 62,310 | $ 62,194 | $ 115,049 | $ 112,713 | |||
a) 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 and non-cash amortization of lease rights.
b) Includes: the management fee paid to Apollo Management and Morgan Joseph Tri-Artisan Capital Partners, and consulting expenses.
c) Includes: non-cash losses on property and equipment associated with remodels, relocations and closures; costs, including third party charges and compensation, incurred in conjunction with the relocation of new 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; and severance and transaction related costs.
SOURCE Claire's Stores, Inc.
