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Claire's Stores, Inc. Reports Fiscal 2011 Third Quarter Results


News provided by

Claire's Stores, Inc.

Nov 29, 2011, 06:23 ET

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CHICAGO, Nov. 29, 2011 /PRNewswire/ -- Claire's Stores, Inc., one of the world's leading specialty retailers of fashionable accessories and jewelry at affordable prices for young women, teens, tweens, and girls ages 3 to 27, today reported its financial results for the fiscal 2011 third quarter, which ended October 29, 2011. 

Third Quarter Results
The Company reported net sales of $356.0 million for the fiscal 2011 third quarter, an increase of $7.8 million, or 2.2% compared to the fiscal 2010 third quarter.  This increase was attributable to new store sales and favorable foreign currency translation effect of our foreign locations' sales, partially offset by a decrease in same store sales and the effect of store closures.  Net sales would have increased 0.3% excluding the impact from foreign currency rate changes. 

Consolidated same store sales decreased 2.2% in the 2011 third quarter, consisting of a 0.8% increase in North America and a 7.1% decrease in Europe.  Our fourth quarter consolidated quarter-to-date same store sales performance is currently slightly negative, primarily driven down by the European Division performance.  We compute same store sales on a local currency basis, which eliminates any impact from changes in foreign exchange rates.

Chief Executive Officer Gene Kahn commented, "While we are clearly disappointed with our same store sales performance in both operating divisions during the third quarter, we believe we have identified the contributing factors and developed the actions we need to take to improve near-term and future performance.  Our global team is dedicated to delivering the best possible result and I am confident in their ability to achieve our objectives."

Gross profit percentage decreased 40 basis points to 51.5% during the fiscal 2011 third quarter compared to 51.9% during the comparable prior year quarter.  The decrease in gross profit percentage consisted of a 90 basis point increase in occupancy costs and a 10 basis point increase in buying and buying-related costs, partially offset by a 60 basis point increase in merchandise margin.  The increase in merchandise margin resulted primarily from an increase in markup and a reduction in freight expense, partially offset by an increase in markdowns.

Selling, general and administrative expenses increased $1.1 million, or 0.9%, compared to the fiscal 2010 third quarter and would have decreased $1.3 million excluding an unfavorable foreign currency exchange effect. As a percentage of net sales, selling, general and administrative expenses decreased 0.4% compared to the prior year period.

Adjusted EBITDA in the fiscal 2011 third quarter was $62.6 million compared to $62.5 million in the fiscal 2010 third quarter.  The Company defines Adjusted EBITDA as earnings before provision for income taxes, gain on early debt extinguishment, interest income and expense, impairment, depreciation and amortization, excluding the impact of transaction-related costs incurred in connection with its May 2007 acquisition and other non-recurring or non-cash expenses, and normalizing occupancy costs for certain rent-related adjustments.  Net income for the fiscal 2011 third quarter was $1.9 million.  A reconciliation of net income to Adjusted EBITDA is attached.

At October 29, 2011, cash and cash equivalents were $155.9 million, including restricted cash of $26.2 million. The Company's Revolving Credit Facility continued to be undrawn following the March 2011 paydown from the proceeds of the Senior Secured Second Lien Notes.  In addition, during the fiscal 2011 third quarter, the Company paid $26.2 million to retire $27.8 million of Senior Toggle Notes and $2.7 million of Senior Notes. The fiscal 2011 third quarter cash balance decrease of $55.3 million consisted of the positive impact of $62.6 million of Adjusted EBITDA and reductions for $38.9 million of seasonal working capital and other uses, $30.9 million of cash interest, $26.2 million of note repurchases, $19.7 million of capital expenditures and $2.2 million of tax payments.

Store Count as of:

October 29, 2011

 

January 29, 2011

 

October 30, 2010

 

 

 

 

 

 

North America

1,959

 

1,972

 

1,983

Europe

1,088

 

1,009

 

988

Subtotal Company-Owned

3,047

 

2,981

 

2,971

Franchise and License

381

 

395

 

398

Total

3,428

 

3,376

 

3,369

Conference Call Information
The Company will host its third quarter conference call on November 30, 2011 at 9:30 a.m. (EST).  The call-in number is 210-839-8081 and the password is "Claires."  A replay will be available through December 15, 2011.  The replay number is 402-530-7636 and the password is 6283.  The conference call is also being webcast and archived until December 30, 2011 on the Company's corporate website at http://www.clairestores.com, where it can be accessed by clicking on the "Events" link located under "Financial Information" for a replay or download as an MP3 file.

Company Overview
Claire's Stores, Inc. is one of the world's leading specialty retailers of fashionable accessories and jewelry at affordable prices for young women, teens, tweens and girls ages 3 to 27.  The Company operates through its two store concepts: Claire's® Globally and Icing® in North America.  As of October 29, 2011, Claire's Stores, Inc. operated 3,047 stores in North America and Europe.  The Company also franchised or licensed 381 stores in Japan, the Middle East, Turkey, Russia, Greece, Guatemala, Malta, Ukraine and Mexico.  More information regarding Claire's Stores is available on the Company's corporate website at http://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; uncertainties generally associated with the specialty retailing business, such as decreases in mall traffic due to high gasoline prices or other general economic conditions; 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; increases in the cost of our merchandise; significant increases in our merchandise markdowns; inability to grow our store base in Europe or expand our international franchising operations; inability to design and implement new information systems or disruptions in adapting our information systems to allow for e-commerce sales; 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 federal, state or local regulations governing the sale of our merchandise, particularly regulations relating to the content in our merchandise, general employment laws, including laws relating to overtime pay and employee benefits, health care laws, tax laws and import laws; product recalls; loss of key members of management; increases in the cost of labor; labor disputes; 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 January 29, 2011 filed with the SEC on April 21, 2011.  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:
Note:  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: http://www.clairestores.com.

Contact Information:
J. Per Brodin, Executive Vice President and Chief Financial Officer
Phone: (954) 433-3900, Fax: (954) 442-3999 or E-mail, [email protected]

 

CLAIRE'S STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(In thousands)

 

THIRD FISCAL QUARTER

 

 

 

 

Three Months

 

Three Months

 

Ended

 

Ended

 

October 29, 2011

 

October 30, 2010

Net sales

$       356,000

 

$       348,175

Cost of sales, occupancy and buying expenses

172,505

 

167,573

Gross profit

183,495

 

180,602

Other expenses:

 

 

 

Selling, general and administrative

123,378

 

122,269

Depreciation and amortization

17,129

 

16,106

Severance and transaction-related costs

180

 

121

Other (income) expense, net

(1,840)

 

610

 

138,847

 

139,106

Operating income

44,648

 

41,496

Gain on early debt extinguishment

3,986

 

2,652

Interest expense, net

43,543

 

37,132

Income before income tax expense

5,091

 

7,016

Income tax expense

3,193

 

3,369

Net income

$       1,898

 

$        3,647

 

 

 

 

YEAR TO DATE

 

 

Nine Months

 

Nine Months

 

Ended

 

Ended

 

October 29, 2011

 

October 30, 2010

Net sales

$      1,060,993

 

$      1,004,485

Cost of sales, occupancy and buying expenses

519,246

 

485,544

Gross profit

541,747

 

518,941

Other expenses:

 

 

 

Selling, general and administrative

380,309

 

362,035

Depreciation and amortization

50,535

 

48,328

Severance and transaction-related costs

949

 

435

Other expense, net

2,290

 

5,422

 

434,083

 

416,220

Operating income

107,664

 

102,721

Gain on early debt extinguishment

4,468

 

13,388

Impairment of equity investment

―

 

6,030

Interest expense, net

134,113

 

120,468

Loss before income tax expense

(21,981)

 

(10,389)

Income tax expense

5,861

 

6,609

Net loss

$       (27,842)

 

$        (16,998)

CLAIRE'S STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

October 29, 2011

 

January 29, 2011

 

(In thousands, except share and per share amounts)

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents and restricted cash of $26,153 and $23,864, respectively

$       155,870

 

$       279,766

Inventories

186,835

 

136,148

Prepaid expenses

34,757

 

21,449

Other current assets

27,655

 

24,658

Total current assets

405,117

 

462,021

Property and equipment:

 

 

 

Furniture, fixtures and equipment

207,269

 

186,514

Leasehold improvements

278,585

 

248,030

 

485,854

 

434,544

Less accumulated depreciation and amortization

(276,788)

 

(233,511)

 

209,066

 

201,033

Leased property under capital lease:

 

 

 

Land and building

18,055

 

18,055

Less accumulated depreciation and amortization

(1,580)

 

(903)

 

16,475

 

17,152

 

 

 

 

Goodwill

1,550,056

 

1,550,056

Intangible assets, net of accumulated amortization of $47,462 and $38,747, respectively

554,541

 

557,466

Deferred financing costs, net of accumulated amortization of $53,778

35,067

 

36,434

and $41,659, respectively

Other assets

46,443

 

42,287

 

2,186,107

 

2,186,243

 

 

 

 

Total assets

$      2,816,765

 

$      2,866,449

 

 

 

 

LIABILITIES AND STOCKHOLDER'S DEFICIT

 

 

 

Current liabilities:

 

 

 

Short-term debt and current portion of long-term debt

$        59,997

 

$        76,154

Trade accounts payable

75,959

 

54,355

Income taxes payable

7,428

 

11,744

Accrued interest payable

41,697

 

16,783

Accrued expenses and other current liabilities

88,727

 

107,115

Total current liabilities

273,808

 

266,151

 

 

 

 

Long-term debt

2,395,079

 

2,236,842

Revolving credit facility

―

 

194,000

Obligation under capital lease

17,290

 

17,290

Deferred tax liability

120,706

 

121,776

Deferred rent expense

28,060

 

26,637

Unfavorable lease obligations and other long-term liabilities

26,434

 

30,268

 

2,587,569

 

2,626,813

 

 

 

 

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

623,858

 

621,099

Accumulated other comprehensive income, net of tax

8,402

 

1,416

Accumulated deficit

(676,872)

 

(649,030)

 

(44,612)

 

(26,515)

 

 

 

 

Total liabilities and stockholder's deficit

$     2,816,765

 

$     2,866,449

Net income (loss) reconciliation to EBITDA and Adjusted EBITDA
EBITDA represents net income (loss) before provision for income taxes, gain on early debt extinguishment, interest income and expense, impairment and depreciation and amortization.  Adjusted EBITDA represents EBITDA further adjusted to exclude non-cash and unusual items.  Management uses Adjusted EBITDA as an important tool to assess our operating performance.  Management considers Adjusted EBITDA to be a useful measure in highlighting trends in our business and in analyzing the profitability of similar enterprises.  Management believes 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, management believes that Adjusted EBITDA provides useful information to potential investors and analysts because it provides insight into management's evaluation of our results of operations.  Our calculation of Adjusted EBITDA may not be consistent with "EBITDA" for the purpose of the covenants in the agreements governing our indebtedness.

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

Some of the limitations of EBITDA and Adjusted EBITDA are:

  • EBITDA and Adjusted EBITDA do 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 EBITDA and Adjusted EBITDA do not reflect the cash requirements for such replacements;
  • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements;
  • EBITDA and Adjusted EBITDA do not reflect the cash necessary to make payments of interest or principal on our indebtedness; and
  • EBITDA and Adjusted EBITDA do not reflect non-recurring expenses which qualify as extraordinary items such as one-time write-offs to inventory and reserve accruals.

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

While management believes that these measures provide useful information to investors, the SEC may require that EBITDA and Adjusted EBITDA be presented differently or not at all in future filings we will make with the SEC.

CLAIRE'S STORES, INC. AND SUBSIDIARIES
ADJUSTED EBITDA
(UNAUDITED)
(In Thousands)

 

 

 

 

 

 

 

 

 

Three Months Ended

October 29, 2011

 

Three Months Ended

October 30, 2010

 

Nine Months Ended

October 29, 2011

 

Nine Months Ended

October 30, 2010

Net income (loss) (a)

$    1,898

 

$    3,647

 

$    (27,842)

 

$    (16,998)

Income tax expense

3,193

 

3,369

 

5,861

 

6,609

Gain on early debt extinguishment

(3,986)

 

(2,652)

 

(4,468)

 

(13,388)

Interest expense

43,654

 

37,199

 

134,391

 

120,584

Interest income

(111)

 

(67)

 

(278)

 

(116)

Impairment

―

 

―

 

―

 

6,030

Depreciation and amortization

17,129

 

16,106

 

50,535

 

48,328

Reported EBITDA

61,777

 

57,602

 

158,199

 

151,049

– stock compensation, book to cash rent, intangible amortization (b)

1,580

 

2,036

 

5,117

 

6,716

– management fee, consulting, joint venture investment (c)

750

 

891

 

2,250

 

5,769

– other (d)

(1,491)

 

1,938

 

6,475

 

3,396

Adjusted EBITDA

$    62,616

 

$    62,467

 

$    172,041

 

$    166,930

a) Fiscal 2011 includes a $(0.7) million gain and $1.5 million charge for the three and nine months ended October 29, 2011, respectively, to remeasure the Euro loan at the period end foreign exchange rate.

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 and non-cash amortization of lease rights.

c) Includes: the management fee paid to Apollo Management and Morgan Joseph Tri-Artisan Capital Partners, non-recurring consulting expenses and non-cash equity loss from our former 50:50 joint venture (effective September 2, 2010, the Company had no ownership in this joint venture).

d) Includes: non-cash losses on property and equipment primarily associated with the sale of our North American distribution center/office building, 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 and foreign currency denominated debt of our foreign entities into their functional currency; and severance and transaction related costs.  A majority of the fiscal 2011 adjustment is foreign exchange related.

SOURCE Claire's Stores, Inc.

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