Claire's Stores, Inc. Reports Fiscal 2015 Third Quarter Results
CHICAGO, Nov. 30, 2015 /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 2015 third quarter, which ended October 31, 2015.
Third Quarter Results
The Company reported net sales of $332.7 million for the fiscal 2015 third quarter, a decrease of $18.0 million, or 5.1% compared to the fiscal 2014 third quarter. The decrease was attributable to an unfavorable foreign currency translation effect of our non-U.S. net sales, the effect of store closures, a decrease in same store sales and decreased shipments to franchisees, partially offset by concession and new store sales. Net sales would have decreased 0.2% excluding the impact from foreign currency exchange rate changes.
Consolidated same store sales decreased 0.6%, with North America same store sales increasing 0.1% and Europe same store sales decreasing 1.6%. The Company computes same store sales on a local currency basis, which eliminates any impact from changes in foreign currency exchange rates. Our fourth quarter quarter-to-date sales trend is currently in the negative low single digits and has been negatively impacted by the events in France.
Gross profit percentage decreased 170 basis points to 46.0% during the fiscal 2015 third quarter versus 47.7% for the prior year quarter. This reduction in gross profit percentage consisted of a 220 basis point decrease in merchandise margin, partially offset by a 30 basis point decrease in buying and buying-related costs and a 20 basis point decrease in occupancy costs. The decrease in merchandise margin percentage resulted primarily from the adverse effect of foreign currency exchange rates and an increase in markdowns. The decrease in occupancy costs, as a percentage of net sales, was primarily caused by the leveraging effect of concession store sales, which do not have associated occupancy costs.
Selling, general and administrative expenses decreased $4.2 million, or 3.4%, compared to the fiscal 2014 third quarter. Excluding a favorable $6.1 million foreign currency translation effect, selling, general, and administrative expenses would have increased $1.9 million. Of the remainder, the increase was primarily due to increased concession store commission expense, partially offset by lower compensation and related expenses.
Adjusted EBITDA in the fiscal 2015 third quarter was $39.2 million compared to $50.7 million last year. Adjusted EBITDA would have been $46.1 million excluding both foreign currency translation effect and the unfavorable foreign exchange effect on merchandise margin. 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 2015 third quarter was $35.9 million. A reconciliation of net loss to Adjusted EBITDA is attached.
As of October 31, 2015, cash and cash equivalents were $23.9 million. The Company had $121.6 million drawn on its Credit Facilities and an additional $39.8 million of borrowing availability under its Credit Facilities as of October 31, 2015. The fiscal 2015 third quarter cash balance decrease of $59.1 million consisted of positive impacts of $39.2 million of Adjusted EBITDA and $10.2 million from net borrowings under the Credit Facilities, offset by reductions for $79.3 million of cash interest payments, $16.9 million for seasonal working capital uses, $8.0 million of capital expenditures and $4.3 million for tax payments and other items.
| Store Count as of: |
October 31, 2015 |
January 31, 2015 |
November 1, 2014 |
||
| North America |
1,793 |
1,837 |
1,876 |
||
| Europe |
1,133 |
1,161 |
1,162 |
||
| Subtotal Company-operated |
2,926 |
2,998 |
3,038 |
||
| Franchise |
530 |
442 |
434 |
||
| Total global stores |
3,456 |
3,440 |
3,472 |
||
| Concession stores |
703 |
130 |
125 |
Conference Call Information
The Company will host its third quarter conference call on Tuesday, December 1, 2015 at 10:00 a.m. (Eastern Time). To connect, please dial 888-790-4233 (domestic) or 210-839-8201 (international). The password is "Claires." An audio replay will be available through December 31, 2015, by dialing 800-810-4035 (domestic) or 203-369-3342 (international). The password is 84915. The conference call will also be webcast and archived until December 31, 2015 on the Company's corporate website at www.clairestores.com, where it can be accessed by clicking the "Financial" tab and choosing the "Events" link.
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 October 31, 2015, Claire's Stores, Inc. operated 2,926 stores in 17 countries throughout North America and Europe. The Company also has 703 concession locations and has 530 franchised stores in 30 countries primarily located in the Middle East, Central and Southeast Asia and Central and South America, and Southern Africa. 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. 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 31, 2015 filed with the SEC on April 8, 2015. 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
J. Per Brodin, Executive Vice President and Chief Financial Officer
Phone: (847) 765-1100, 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 31, 2015 |
November 1, 2014 |
||
| Net sales |
$ 332,677 |
$ 350,669 |
|
| Cost of sales, occupancy and buying expenses |
179,724 |
183,442 |
|
| Gross profit |
152,953 |
167,227 |
|
| Other expenses: |
|||
| Selling, general and administrative |
118,442 |
122,657 |
|
| Depreciation and amortization |
15,464 |
16,105 |
|
| Severance and transaction-related costs |
200 |
751 |
|
| Other income, net |
(2,185) |
(1,472) |
|
| 131,921 |
138,041 |
||
| Operating income |
21,032 |
29,186 |
|
| Interest expense, net |
55,296 |
53,593 |
|
| Loss before income tax expense |
(34,264) |
(24,407) |
|
| Income tax expense |
1,675 |
2,415 |
|
| Net loss |
$ (35,939) |
$ (26,822) |
|
| Nine Months |
Nine Months |
||
| Ended |
Ended |
||
| October 31, 2015 |
November 1, 2014 |
||
| Net sales |
$ 1,000,259 |
$ 1,081,841 |
|
| Cost of sales, occupancy and buying expenses |
531,652 |
560,247 |
|
| Gross profit |
468,607 |
521,594 |
|
| Other expenses: |
|||
| Selling, general and administrative |
347,829 |
377,829 |
|
| Depreciation and amortization |
45,652 |
57,369 |
|
| Severance and transaction-related costs |
1,027 |
4,515 |
|
| Other income, net |
(4,651) |
(2,287) |
|
| 389,857 |
437,426 |
||
| Operating income |
78,750 |
84,168 |
|
| Interest expense, net |
164,760 |
162,909 |
|
| Loss before income tax expense |
(86,010) |
(78,741) |
|
| Income tax expense |
4,216 |
6,792 |
|
| Net loss |
$ (90,226) |
$ (85,533) |
|
| CLAIRE'S STORES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS |
|||
| October 31, 2015 |
January 31, 2015 |
||
| (In thousands, except share and per share amounts) |
|||
| ASSETS |
|||
| Current assets: |
|||
| Cash and cash equivalents and restricted cash of $0 and |
$ 23,908 |
$ 29,415 |
|
| Inventories |
192,023 |
145,908 |
|
| Prepaid expenses |
31,183 |
17,349 |
|
| Other current assets |
32,104 |
27,474 |
|
| Total current assets |
279,218 |
220,146 |
|
| Property and equipment: |
|||
| Furniture, fixtures and equipment |
251,328 |
248,162 |
|
| Leasehold improvements |
321,839 |
324,306 |
|
| 573,167 |
572,468 |
||
| Accumulated depreciation and amortization |
(386,919) |
(365,036) |
|
| 186,248 |
207,432 |
||
| Leased property under capital lease: |
|||
| Land and building |
18,055 |
18,055 |
|
| Accumulated depreciation and amortization |
(5,191) |
(4,514) |
|
| 12,864 |
13,541 |
||
| Goodwill |
1,426,899 |
1,426,899 |
|
| Intangible assets, net of accumulated amortization of $73,834 and |
501,420 |
510,362 |
|
| Deferred financing costs, net of accumulated amortization of $31,655 |
26,673 |
32,525 |
|
| Other assets |
44,424 |
45,672 |
|
| 1,999,416 |
2,015,458 |
||
| Total assets |
$ 2,477,746 |
$ 2,456,577 |
|
| LIABILITIES AND STOCKHOLDER'S DEFICIT |
|||
| Current liabilities: |
|||
| Revolving credit facilities |
$ 121,591 |
$ - |
|
| Trade accounts payable |
98,632 |
69,826 |
|
| Income taxes payable |
2,505 |
1,780 |
|
| Accrued interest payable |
42,510 |
67,790 |
|
| Accrued expenses and other current liabilities |
86,953 |
93,505 |
|
| Total current liabilities |
352,191 |
232,901 |
|
| Long-term debt |
2,374,614 |
2,376,478 |
|
| Obligation under capital lease |
16,778 |
16,954 |
|
| Deferred tax liability |
112,718 |
113,215 |
|
| Deferred rent expense |
36,035 |
35,265 |
|
| Unfavorable lease obligations and other long-term liabilities |
12,345 |
13,538 |
|
| 2,552,490 |
2,555,450 |
||
| 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 |
618,823 |
619,325 |
|
| Accumulated other comprehensive loss, net of tax |
(42,131) |
(37,698) |
|
| Accumulated deficit |
(1,003,627) |
(913,401) |
|
| (426,935) |
(331,774) |
||
| Total liabilities and stockholder's deficit |
$ 2,477,746 |
$ 2,456,577 |
|
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 October 31, 2015 |
Three Months November 1, 2014 |
Nine Months October 31, 2015 |
Nine Months November 1, 2014 |
||||
| Net loss |
$ (35,939) |
$ (26,822) |
$ (90,226) |
$ (85,533) |
|||
| Income tax expense |
1,675 |
2,415 |
4,216 |
6,792 |
|||
| Interest expense |
55,312 |
53,603 |
164,788 |
162,937 |
|||
| Interest income |
(16) |
(10) |
(28) |
(28) |
|||
| Depreciation and amortization |
15,464 |
16,105 |
45,652 |
57,369 |
|||
| Amortization of intangible assets |
984 |
928 |
2,534 |
2,949 |
|||
| Stock compensation, book to cash rent (a) |
(64) |
1,814 |
2,025 |
2,697 |
|||
| Management fee (b) |
795 |
795 |
2,385 |
2,385 |
|||
| Other (c) |
987 |
1,838 |
5,388 |
13,744 |
|||
| Adjusted EBITDA |
$ 39,198 |
$ 50,666 |
$ 136,734 |
$ 163,312 |
|||
| 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. |
| b) |
Includes: the management fee paid to Apollo Management and Morgan Joseph Tri-Artisan Capital Partners. |
| c) |
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; 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. |
SOURCE Claire's Stores, Inc.
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