Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): August 30, 2017

 

 

CLAIRE’S STORES, INC.

(Exact name of registrant as specified in its charter)

 

 

Florida

(State or other jurisdiction of incorporation)

 

Commission File Nos. 1-8899, 333-148108 and 333-175171   59-0940416
 

(IRS Employer

Identification Number)

2400 West Central Road, Hoffman Estates, Illinois 60192

(Address of principal executive offices)

Registrant’s telephone number, including area code: (847) 765-1100

Not applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 


Item 2.02. Results of Operations and Financial Condition.

On August 30, 2017, Claire’s Stores, Inc. (the “Company”) issued a press release announcing results for the second quarter of Fiscal 2017 and certain other information. A copy of the press release is being furnished as Exhibit 99.1 to this Form 8-K and is incorporated by reference herein.

The information in this Form 8-K and the Exhibit attached hereto shall be deemed “furnished” and not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any Company filing under the Securities Act of 1933, as amended.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit 99.1    Claire’s Stores, Inc. Press Release dated August 30, 2017

 

2


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    CLAIRE’S STORES, INC.
Date: August 31, 2017     By:  

/s/ Scott Huckins

      Scott Huckins
      Chief Financial Officer

 

3


EXHIBIT INDEX

 

Exhibit No.

  

Description

99.1    Claire’s Stores, Inc. Press Release dated August 30, 2017

 

4

EX-99.1

Exhibit 99.1

NEWS BULLETIN

RE: CLAIRE’S STORES, INC.

2400 WEST CENTRAL ROAD, HOFFMAN ESTATES, ILLINOIS 60192

CLAIRE’S STORES, INC. REPORTS FISCAL 2017

SECOND QUARTER RESULTS

CHICAGO, August 30, 2017. 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 2017 second quarter, which ended July 29, 2017.

Second Quarter Results

The Company reported net sales of $316.6 million for the fiscal 2017 second quarter, a decrease of $0.5 million, or 0.2% compared to the fiscal 2016 second quarter. Sales would have increased 0.5% excluding the unfavorable impact from foreign currency exchange rate changes. Excluding the foreign currency exchange rate effect, the increase was primarily due to an increase in same store sales, an increase in new concession store sales and new store sales, partially offset by the effect of store closures.

Consolidated same store sales increased 2.8%, with North America same store sales increasing 2.6% and Europe same store sales increasing 3.2%. 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 2017 third quarter-to-date period, consolidated same store sales have increased in the low single digit range, with North America performing similarly to Europe.

Gross profit percentage increased 280 basis points to 49.0% during the fiscal 2017 second quarter versus 46.2% for the prior year quarter. This increase in gross profit percentage consisted of a 170 basis point increase in merchandise margin and a 110 basis point decrease in occupancy costs. The increase in merchandise margin percentage resulted primarily from higher initial markup and lower markdowns. The decrease in occupancy costs, as a percentage of net sales, resulted primarily from the leveraging effect of an increase in same store sales.

Selling, general and administrative expenses increased $0.4 million, or 0.4%, compared to the fiscal 2016 second quarter. As a percentage of net sales, selling, general and administrative expenses increased 20 basis points. Selling, general, and administrative expenses would have increased $1.4 million excluding a favorable $1.0 million foreign currency translation effect. Excluding the foreign currency translation effect, the increase was primarily due to increased concession store commission expense and compensation-related expense, including store incentive compensation.

Adjusted EBITDA in the fiscal 2017 second quarter was $47.4 million, an increase of $10.1 million, or 27.1% compared to the fiscal 2016 second quarter. Adjusted EBITDA would have been $47.3 million excluding the foreign currency translation effect in the second quarter of 2017. 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 items. A reconciliation of net loss to Adjusted EBITDA is attached.

As of July 29, 2017, cash and cash equivalents were $31.2 million. The Company had $46.0 million drawn on its ABL Credit Facility and an additional $25.0 million of borrowing availability under its ABL Credit Facility as of July 29, 2017. The fiscal 2017 second quarter cash balance increase of $5.4 million from the first quarter consisted of positive impacts of $47.4 million of Adjusted EBITDA, offset by $13.0 million from net repayments under our ABL Credit Facility, $12.2 million of cash interest payments, $8.2 million from seasonal working capital uses, $4.7 million of capital expenditures and $3.9 million for tax payments and other items.


Store Count as of:    July 29, 2017      January 28, 2017      July 30, 2016  

North America

     1,614        1,641        1,699  

Europe

     1,046        1,069        1,102  
  

 

 

    

 

 

    

 

 

 

Subtotal Company-operated

     2,660        2,710        2,801  
  

 

 

    

 

 

    

 

 

 

Franchise

     650        603        596  
  

 

 

    

 

 

    

 

 

 

Total global stores

     3,310        3,313        3,397  
  

 

 

    

 

 

    

 

 

 

Concession stores

     860        933        806  
  

 

 

    

 

 

    

 

 

 

Conference Call Information

The Company will host its second quarter conference call on Thursday, August 31, at 10:00 a.m. (Eastern Time). To connect, please dial 888-455-9658 (domestic) or 210-839-8631 (international). The password is “Claires”. An audio replay will be available through September 30, 2017, by dialing 866-357-1410 (domestic) or 203-369-0113 (international). The password is 93620. The conference call will also be webcast and archived until September 30, 2017 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 July 29, 2017, Claire’s Stores, Inc. operated 2,660 stores in 17 countries throughout North America and Europe, excluding 860 concession locations. The Company franchised 650 stores in 27 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 28, 2017 filed with the SEC on April 14, 2017. 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.

 

2


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

 

3


CLAIRE’S STORES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF OPERATIONS

(In thousands)

SECOND FISCAL QUARTER

 

     Three Months     Three Months  
     Ended     Ended  
     July 29, 2017     July 30, 2016  

Net sales

   $ 316,637     $ 317,172  

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

     161,583       170,683  
  

 

 

   

 

 

 

Gross profit

     155,054       146,489  
  

 

 

   

 

 

 

Other expenses:

    

Selling, general and administrative

     112,774       112,372  

Depreciation and amortization

     10,890       13,796  

Severance and transaction-related costs

     389       125  

Other income, net

     (2,171     (4,538
  

 

 

   

 

 

 
     121,882       121,755  
  

 

 

   

 

 

 

Operating income

     33,172       24,734  

Interest expense, net

     43,394       55,623  
  

 

 

   

 

 

 

Loss before income tax expense

     (10,222     (30,889

Income tax expense

     10,266       1,188  
  

 

 

   

 

 

 

Net loss

   $ (20,488   $ (32,077
  

 

 

   

 

 

 

 

     Six Months     Six Months  
     Ended     Ended  
     July 29, 2017     July 30, 2016  

Net sales

   $ 616,258     $ 616,819  

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

     313,371       329,036  
  

 

 

   

 

 

 

Gross profit

     302,887       287,783  
  

 

 

   

 

 

 

Other expenses:

    

Selling, general and administrative

     223,286       220,094  

Depreciation and amortization

     22,093       27,856  

Severance and transaction-related costs

     532       1,698  

Other income, net

     (4,872     (1,593
  

 

 

   

 

 

 
     241,039       248,055  
  

 

 

   

 

 

 

Operating income

     61,848       39,728  

Interest expense, net

     86,974       110,702  
  

 

 

   

 

 

 

Loss before income tax expense (benefit)

     (25,126     (70,974

Income tax expense (benefit)

     2,120       (139
  

 

 

   

 

 

 

Net loss

   $ (27,246   $ (70,835
  

 

 

   

 

 

 

 

4


CLAIRE’S STORES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

     July 29, 2017     January 28, 2017  
     (In thousands, except share and per
share amounts)
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 31,189     $ 55,792  

Inventories

     157,617       130,239  

Prepaid expenses

     18,772       14,642  

Other current assets

     25,136       25,270  
  

 

 

   

 

 

 

Total current assets

     232,714       225,943  
  

 

 

   

 

 

 

Property and equipment:

    

Furniture, fixtures and equipment

     224,812       218,804  

Leasehold improvements

     304,130       297,636  
  

 

 

   

 

 

 
     528,942       516,440  

Accumulated depreciation and amortization

     (402,795     (381,975
  

 

 

   

 

 

 
     126,147       134,465  
  

 

 

   

 

 

 

Leased property under capital lease:

    

Land and building

     18,055       18,055  

Accumulated depreciation and amortization

     (6,765     (6,313
  

 

 

   

 

 

 
     11,290       11,742  
  

 

 

   

 

 

 

Goodwill

     1,132,575       1,132,575  

Intangible assets, net of accumulated amortization of $83,969 and $80,502, respectively

     456,657       454,956  

Other assets

     43,337       40,525  
  

 

 

   

 

 

 
     1,632,569       1,628,056  
  

 

 

   

 

 

 

Total assets

   $ 2,002,720     $ 2,000,206  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDER’S DEFICIT

    

Current liabilities:

    

Current portion of long-term debt, net

   $ —       $ 18,405  

Trade accounts payable

     71,017       69,731  

Income taxes payable

     5,117       6,083  

Accrued interest payable

     53,111       53,266  

Accrued expenses and other current liabilities

     83,904       87,146  
  

 

 

   

 

 

 

Total current liabilities

     213,149       234,631  
  

 

 

   

 

 

 

Long-term debt, net

     2,116,949       2,118,653  

Revolving credit facility, net

     44,361       3,925  

Obligation under capital lease

     16,187       16,388  

Deferred tax liability

     99,488       99,255  

Deferred rent expense

     33,867       34,300  

Unfavorable lease obligations and other long-term liabilities

     9,090       10,376  
  

 

 

   

 

 

 
     2,319,942       2,282,897  
  

 

 

   

 

 

 

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

     630,652       630,496  

Accumulated other comprehensive loss, net of tax

     (37,840     (51,881

Accumulated deficit

     (1,123,183     (1,095,937
  

 

 

   

 

 

 
     (530,371     (517,322
  

 

 

   

 

 

 

Total liabilities and stockholder’s deficit

   $ 2,002,720     $ 2,000,206  
  

 

 

   

 

 

 

 

5


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.

 

6


CLAIRE’S STORES, INC. AND SUBSIDIARIES

ADJUSTED EBITDA

(UNAUDITED)

(In Thousands)

 

     Three Months
Ended

July 29, 2017
    Three Months
Ended

July 30, 2016
    Six Months
Ended

July 29, 2017
    Six Months
Ended

July 30, 2016
 

Net loss

   $ (20,488   $ (32,077   $ (27,246   $ (70,835

Income tax expense

     10,266       1,188       2,120       (139

Interest expense

     43,400       55,632       86,988       110,716  

Interest income

     (6     (9     (14     (14

Depreciation and amortization

     10,890       13,796       22,093       27,856  

Amortization of intangible assets

     794       713       1,862       1,371  

Stock compensation, book to cash rent (a)

     (178     (922     (572     (1,362

Management fee, consulting (b)

     552       795       1,347       1,740  

Other (c)

     2,164       (1,779     2,618       4,986  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 47,394     $ 37,337     $ 89,196     $ 74,319  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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 Cowen Group, Inc. and non-recurring consulting expenses.
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.

 

7