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): December 5, 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 December 5, 2017, Claire’s Stores, Inc. (the “Company”) issued a press release announcing results for the third 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 December 5, 2017

 

2


EXHIBIT INDEX

 

Exhibit No.

  

Description

99.1    Claire’s Stores, Inc. Press Release dated December 5, 2017

 

 

3


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: December 6, 2017     By:   /s/ Scott Huckins
        Scott Huckins
        Chief Financial Officer

 

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

THIRD QUARTER RESULTS

CHICAGO, December 5, 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 third quarter, which ended October 28, 2017.

Third Quarter Results

The Company reported net sales of $314.6 million for the fiscal 2017 third quarter, an increase of $2.5 million, or 0.8% compared to the fiscal 2016 third quarter. Sales would have decreased 1.1% excluding the favorable impact from foreign currency exchange rate changes. Excluding the foreign currency exchange rate effect, the decrease was primarily due to the effect of store closures, partially offset by an increase in same store sales and an increase in new concession and company-operated store sales.

Consolidated same store sales increased 1.1%, with North America same store sales increasing 2.4% and Europe same store sales decreasing 1.0%. 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 fourth quarter-to-date period, consolidated same store sales are flat, with North America performing similarly to Europe.

Gross profit percentage increased 200 basis points to 48.5% during the fiscal 2017 third quarter versus 46.5% for the prior year quarter. This increase in gross profit percentage consisted of a 120 basis point increase in merchandise margin and a 90 basis point decrease in occupancy, partially offset by a 10 basis point increase in buying and buying-related 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 $2.4 million, or 2.1%, compared to the fiscal 2016 third quarter. As a percentage of net sales, selling, general and administrative expenses increased 50 basis points. Selling, general, and administrative expenses would have increased $0.1 million excluding an unfavorable $2.3 million foreign currency translation effect.

Adjusted EBITDA in the fiscal 2017 third quarter was $42.4 million, an increase of $5.4 million, or 14.8% compared to the fiscal 2016 third quarter. Adjusted EBITDA would have been $41.7 million excluding the foreign currency translation effect in the third 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 October 28, 2017, cash and cash equivalents were $25.8 million. The Company had $71.0 million drawn on its ABL Credit Facility as of October 28, 2017. The fiscal 2017 third quarter cash balance decrease of $5.4 million from the second quarter consisted of $75.5 million of cash interest payments, $4.9 million of capital expenditures and $2.7 million for tax payments and other items, offset by positive impacts of $42.4 million of Adjusted EBITDA, $25.0 million from net borrowings under our ABL Credit Facility and $10.3 million from seasonal working capital sources.

 

5


Store Count as of:    October 28, 2017      January 28, 2017      October 29, 2016  

North America

     1,602        1,641        1,688  

Europe

     1,036        1,069        1,081  
  

 

 

    

 

 

    

 

 

 

Subtotal Company-operated

     2,638        2,710        2,769  
  

 

 

    

 

 

    

 

 

 

Franchise

     653        603        598  
  

 

 

    

 

 

    

 

 

 

Total global stores

     3,291        3,313        3,367  
  

 

 

    

 

 

    

 

 

 

Concession stores

     929        933        935  
  

 

 

    

 

 

    

 

 

 

Conference Call Information

The Company will host its third quarter conference call on Wednesday December 6, 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 January 6, 2018, by dialing 866-395-9163 (domestic) or 203-369-0499 (international). The password is 85431. The conference call will also be webcast and archived until January 6, 2018 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 28, 2017, Claire’s Stores, Inc. operated 2,638 stores in 17 countries throughout North America and Europe, excluding 929 concession locations. The Company franchised 653 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. 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

 

6


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.

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

 

7


CLAIRE’S STORES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF OPERATIONS

(In thousands)

THIRD FISCAL QUARTER

 

    

Three Months

Ended

   

Three Months

Ended

 
     October 28, 2017     October 29, 2016  

Net sales

   $ 314,584     $ 312,041  

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

     162,092       166,833  
  

 

 

   

 

 

 

Gross profit

     152,492       145,208  
  

 

 

   

 

 

 

Other expenses:

    

Selling, general and administrative

     115,336       112,964  

Depreciation and amortization

     10,755       14,061  

Impairment of assets

     —         142,271  

Severance and transaction-related costs

     335       205  

Other income, net

     (3,376     (3,900
  

 

 

   

 

 

 
     123,050       265,601  
  

 

 

   

 

 

 

Operating income (loss)

     29,442       (120,393

Gain on early debt extinguishment

     —         317,323  

Interest expense, net

     43,229       47,101  
  

 

 

   

 

 

 

(Loss) income before income tax expense (benefit)

     (13,787     149,829  

Income tax expense (benefit)

     1,758       (749
  

 

 

   

 

 

 

Net (loss) income

   $ (15,545   $ 150,578  
  

 

 

   

 

 

 
    

Nine Months

Ended

   

Nine Months

Ended

 
     October 28, 2017     October 29, 2016  

Net sales

   $ 930,842     $ 928,860  

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

     475,463       495,869  
  

 

 

   

 

 

 

Gross profit

     455,379       432,991  
  

 

 

   

 

 

 

Other expenses:

    

Selling, general and administrative

     338,622       333,058  

Depreciation and amortization

     32,848       41,917  

Impairment of assets

     —         142,271  

Severance and transaction-related costs

     867       1,903  

Other income, net

     (8,248     (5,493
  

 

 

   

 

 

 
     364,089       513,656  
  

 

 

   

 

 

 

Operating income

     91,290       (80,665

Gain on early debt extinguishment

     —         317,323  

Interest expense, net

     130,203       157,803  
  

 

 

   

 

 

 

(Loss) income before income tax expense (benefit)

     (38,913     78,855  

Income tax expense (benefit)

     3,878       (888
  

 

 

   

 

 

 

Net (loss) income

   $ (42,791   $ 79,743  
  

 

 

   

 

 

 

 

8


CLAIRE’S STORES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

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

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 25,819     $ 55,792  

Inventories

     157,827       130,239  

Prepaid expenses

     16,755       14,642  

Other current assets

     27,237       25,270  
  

 

 

   

 

 

 

Total current assets

     227,638       225,943  
  

 

 

   

 

 

 

Property and equipment:

    

Furniture, fixtures and equipment

     225,356       218,804  

Leasehold improvements

     302,042       297,636  
  

 

 

   

 

 

 
     527,398       516,440  

Accumulated depreciation and amortization

     (406,557     (381,975
  

 

 

   

 

 

 
     120,841       134,465  
  

 

 

   

 

 

 

Leased property under capital lease:

    

Land and building

     18,055       18,055  

Accumulated depreciation and amortization

     (6,990     (6,313
  

 

 

   

 

 

 
     11,065       11,742  
  

 

 

   

 

 

 

Goodwill

     1,132,575       1,132,575  

Intangible assets, net of accumulated amortization of $84,740 and $80,502, respectively

     454,215       454,956  

Other assets

     42,345       40,525  
  

 

 

   

 

 

 
     1,629,135       1,628,056  
  

 

 

   

 

 

 

Total assets

   $ 1,988,679     $ 2,000,206  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDER’S DEFICIT

    

Current liabilities:

    

Current portion of long-term debt, net

   $ —       $ 18,405  

Trade accounts payable

     80,887       69,731  

Income taxes payable

     5,761       6,083  

Accrued interest payable

     24,079       53,266  

Accrued expenses and other current liabilities

     85,494       87,146  
  

 

 

   

 

 

 

Total current liabilities

     196,221       234,631  
  

 

 

   

 

 

 

Long-term debt, net

     2,112,961       2,118,653  

Revolving credit facility, net

     69,607       3,925  

Obligation under capital lease

     16,082       16,388  

Deferred tax liability

     99,134       99,255  

Deferred rent expense

     33,977       34,300  

Unfavorable lease obligations and other long-term liabilities

     9,306       10,376  
  

 

 

   

 

 

 
     2,341,067       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

     630,686       630,496  

Accumulated other comprehensive loss, net of tax

     (40,567     (51,881

Accumulated deficit

     (1,138,728     (1,095,937
  

 

 

   

 

 

 
     (548,609     (517,322
  

 

 

   

 

 

 

Total liabilities and stockholder’s deficit

   $ 1,988,679     $ 2,000,206  
  

 

 

   

 

 

 

 

9


Net (Loss) Income Reconciliation to Adjusted EBITDA

Adjusted EBITDA represents net (loss) income, 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 (loss) income, 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 (loss) income 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.

 

10


CLAIRE’S STORES, INC. AND SUBSIDIARIES

ADJUSTED EBITDA

(UNAUDITED)

(In Thousands)

 

     Three Months
Ended
October 28, 2017
    Three Months
Ended
October 29, 2016
    Nine Months
Ended
October 28, 2017
    Nine Months
Ended
October 29, 2016
 

Net (loss) income

   $ (15,545   $ 150,578     $ (42,791   $ 79,743  

Income tax expense (benefit)

     1,758       (749     3,878       (888

Interest expense

     43,243       47,112       130,231       157,828  

Interest income

     (14     (11     (28     (25

Impairment of assets (a)

     —         142,271       —         142,271  

Gain on early debt extinguishment (b)

     —         (317,323     —         (317,323

Depreciation and amortization

     10,755       14,061       32,848       41,917  

Amortization of intangible assets

     1,315       683       3,177       2,054  

Stock compensation, book to cash rent (c)

     208       (251     (364     (1,613

Management fee, consulting (d)

     77       1,010       1,424       2,750  

Other (e)

     638       (419     3,256       4,567  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 42,435     $ 36,962     $ 131,631     $ 111,281  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

a) Represents estimated impairment charges recorded in connection with the Company’s assessment of impairment of goodwill and other indefinite-lived intangible assets.

 

b) Includes gain on early debt extinguishment in connection with the completion of a private exchange of notes for term loan debt and write-off of unamortized debt financing costs associated with the refinancing of the former U.S Credit Facility.

 

c) 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.

 

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

 

e) 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.

 

11