PEMBROKE PINES, Fla.--(Business Wire)--
Claire's Stores, Inc., a leading specialty retailer offering
value-priced jewelry and accessories, today reported its financial
results for the 2008 first quarter ending May 3, 2008. Effective with
the current fiscal quarter, the Company has changed its fiscal year
naming convention to coincide with the calendar year in which the
fiscal year begins. Accordingly, the current fiscal quarter is
referred to as the 2008 first quarter and the comparable prior year
quarter is referred to the 2007 first quarter.
First Quarter Results
The Company reported net sales of $327.0 million for the 2008
first quarter, a 4.0% decrease from the 2007 first quarter. The
decrease was primarily attributable to a decline in same store sales,
partially offset by the growth in our new store base and the effect of
foreign currency translation.
Consolidated same store sales declined 8.4% in the 2008 first
quarter consisting of a 3.7% increase in average transaction value
that was offset by a 12.5% decrease in the average number of
transactions. In North America, same store sales decreased 12.3%, with
sales at our Claire's stores declining less than at our Icing stores.
European same store sales were essentially flat with a decline of
0.2%. We compute same store sales on a local currency basis, which
eliminates any impact from changes in foreign exchange rates.
Commenting on first quarter results, Chief Executive Officer Gene
Kahn said, "We are genuinely disappointed with our first quarter
results. The challenging retail environment continues to impact our
sales with mall traffic declining, and consumers' discretionary
spending being crimped by large price increases in food and gasoline.
"Throughout this quarter, we have made significant progress in
improving our organizational model and bolstering our merchandise
offense by recruiting people to the business with strong industry,
management and leadership experience. We have confidence that our
improved team, combined with the benefits from the implementation of
the Pan European Transformation ("PET") project, will create momentum
and drive improvement in our sales during the second half of this
year. PET will allow us, for the first time, to have three separate,
dedicated merchandising teams focused on Claire's in North America,
Icing, and Claire's in Europe.
"We began 2008 with an expense structure that anticipated same
store sales growth. Given the current retail environment and economic
conditions, we carefully reviewed our cost structure and estimate that
we can save $40 million annually. We have begun to execute against a
number of the identified opportunities and expect that we can save $15
million in this fiscal year, with the full annualized savings achieved
in Fiscal 2009.
"Our same store sales, while still negative, have shown
improvement in the second quarter. We are encouraged that the new
merchandise organization, combined with our cost savings initiatives,
will drive improved performance during the second half of this year."
Merchandise margin remained strong in a soft sales environment,
decreasing only 30 basis points. However, gross margin, which
represents merchandise margin less buying and occupancy expense,
declined 520 basis points to 47.4%. The decrease is largely
attributable to the deleveraging effect of the decline in same store
sales on our buying and occupancy costs. First quarter 2008 buying
expenses include $1.2 million of non-recurring costs related to the
PET project.
Selling, general and administrative expenses increased 6.2% to
$131.3 million in the first quarter of Fiscal 2008 compared to $123.7
million in last year's comparable fiscal quarter. Adjusting for
changes in foreign exchange rates and excluding $1.4 million of
non-recurring PET costs and $0.8 million of sponsor management fees,
SG&A would have increased $0.5 million or 0.5%.
Adjusted EBITDA in the 2008 first quarter was $34.3 million
compared to $60.6 million in the 2007 first quarter. The Company
defines Adjusted EBITDA as earnings before interest, income taxes,
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.
At May 3, 2008 the Company's $200 million revolving credit
facility was undrawn and fully available aside from an ongoing $5.9
million letter of credit. Cash and cash equivalents were $68.0
million.
During the 2008 first quarter, cash used by operating activities
was approximately $1.4 million, compared with cash provided by
operating activities of $20.3 million during the 2007 first quarter.
The change in cash provided by operating activities was primarily
impacted by a decrease in operating income and an increase in interest
paid on the debt incurred to fund the acquisition, offset by a
decrease in working capital. Capital expenditures during the 2008
first quarter were $16.0 million, of which $11.7 million related to
store openings and remodeling projects. Capital expenditures during
the 2007 first quarter were $22.3 million.
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May 3, 2008 February 2, 2008 May 5, 2007
----------- ---------------- -----------
Store Count as of:
North America 2,142 2,135 2,126
Europe 911 905 877
----------- ---------------- -----------
Subtotal Company-Owned 3,053 3,040 3,003
Joint Venture 201 198 203
Franchise 169 166 145
----------- ---------------- -----------
Subtotal Non-Owned 370 364 348
Total 3,423 3,404 3,351
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Conference Call Information
The Company will host its first quarter conference call on June
11, 2008, at 10:00 a.m. (EDT). The call-in number is 630-395-0260 and
the password is "Claires." A replay will be available through June 20,
2008. The replay number is 203-369-0512 and the password is 25247. The
conference call is also being webcast and archived until June 13th on
the Company's corporate website at http://www.clairestores.com, where
it can be accessed by clicking on the "Conference Calls" link located
under "Financial Information" for a replay or download as an MP3 file.
Company Overview
Claire's Stores, Inc. is a leading specialty retailer of
value-priced jewelry and accessories for girls and young women through
its two store concepts: Claire's and Icing. While the latter operates
only in North America, Claire's operates worldwide. As of May 3, 2008,
Claire's Stores, Inc. operated 3,053 stores in North America and
Europe. Claire's Stores, Inc. also operates through its subsidiary,
Claire's Nippon, Co., Ltd., 201 stores in Japan as a 50:50 joint
venture with AEON, Co., Ltd. The Company also franchises 169 stores in
the Middle East, Turkey, Russia, South Africa, Poland and Guatemala.
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; general economic conditions such as
inflation and increased energy costs; 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; 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; significant increases
in our merchandise markdowns; inability to grow our store base in
Europe; inability to design and implement new information systems;
delays in anticipated store openings or renovations; uncertainty that
definitive financial results may differ from preliminary financial
results due to, among other things, final GAAP adjustments; changes in
applicable laws, rules and regulations, including changes in federal,
state or local regulations governing the sale of our products,
particularly regulations relating to the metal content in jewelry, and
employment laws relating to overtime pay, 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 February 2, 2008 filed with the
SEC on April 25, 2008. 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 10-Q reports are available
on Claire's business website at: http://www.clairestores.com.
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FIRST FISCAL QUARTER
CLAIRE'S STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(In thousands)
Successor Entity Predecessor Entity
------------------- -------------------
Three Months Ended Three Months Ended
May 3, 2008 May 5, 2007
------------------- -------------------
Net sales $327,003 100.0% $340,571 100.0%
Cost of sales, occupancy and
buying expenses 171,982 52.6 161,591 47.4
----------- ------- ------------ ------
Gross profit 155,021 47.4 178,980 52.6
----------- ------- ------------ ------
Other expenses (income):
Selling, general and
administrative 131,335 40.2 123,684 36.3
Depreciation and
amortization 22,101 6.8 15,234 4.5
Transaction-related costs 5,968 1.8 3,486 1.0
Other income (560) (0.2) (1,341) (0.4)
----------- ------- ------------ ------
158,844 48.6 141,063 41.4
----------- ------- ------------ ------
Operating income (loss) (3,823) (1.2) 37,917 11.2
Interest expense (income),
net 48,657 14.9 (3,753) (1.1)
----------- ------- ------------ ------
Income (loss) before income
taxes (52,480) (16.1) 41,670 12.3
Provision for income taxes /
(benefit) (16,910) (5.2) 12,888 3.8
----------- ------- ------------ ------
Net income (loss) $(35,570) (10.9)% $28,782 8.5 %
=========== ======= ============ ======
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CLAIRE'S STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
May 3, 2008 February 2, 2008
----------- ----------------
(In thousands, except share
and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents $68,014 $85,974
Inventories 117,783 117,679
Prepaid expenses 52,291 37,315
Other current assets 42,938 37,658
----------- ----------------
Total current assets 281,026 278,626
----------- ----------------
Property and equipment:
Land and building 22,288 22,288
Furniture, fixtures and equipment 137,239 130,130
Leasehold improvements 220,281 211,163
----------- ----------------
379,808 363,581
Less accumulated depreciation and
amortization (72,964) (53,972)
----------- ----------------
306,844 309,609
----------- ----------------
Intangible assets, net 781,758 777,130
Deferred financing costs, net of
accumulated amortization of $9,726 and
$7,079, respectively 67,863 70,511
Other assets 73,849 71,754
Goodwill 1,836,553 1,840,867
----------- ----------------
2,760,023 2,760,262
----------- ----------------
Total assets $3,347,893 $3,348,497
=========== ================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable $73,400 $56,089
Current portion of long-term debt 14,500 14,500
Income taxes payable 6,951 12,191
Accrued interest payable 42,157 19,536
Accrued expenses and other liabilities 120,483 117,076
----------- ----------------
Total current liabilities 257,491 219,392
----------- ----------------
Long-term debt 2,359,625 2,363,250
Deferred tax liability 124,978 139,506
Deferred rent expense 12,795 10,572
Other liabilities 11,293 10,577
----------- ----------------
2,508,691 2,523,905
----------- ----------------
Commitments and contingencies - -
Stockholder's equity:
Common stock par value $0.001 per
share; authorized 1,000 shares
issued and outstanding 100 shares - -
Additional paid-in capital 603,968 601,201
Accumulated other comprehensive
income, net of tax 12,672 3,358
Retained earnings (deficit) (34,929) 641
----------- ----------------
581,711 605,200
----------- ----------------
Total liabilities and stockholder's
equity $3,347,893 $3,348,497
=========== ================
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Net income (loss) reconciliation to EBITDA and Adjusted EBITDA
EBITDA represents net income (loss) before provision for income
taxes, interest income and expense, 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 GAAP, are 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 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 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 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 filings will we make
with the SEC.
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CLAIRE'S STORES, INC. AND SUBSIDIARIES
(UNAUDITED) (IN THOUSANDS)
Successor Entity Predecessor Entity
------------------ ------------------
Three Months Ended Three Months Ended
May 3, 2008 May 5, 2007
------------------ ------------------
Net income (loss) $(35,570) $28,782
Income tax expense (benefit) (16,910) 12,888
Interest expense 49,187 67
Interest income (530) (3,820)
Depreciation and amortization 22,101 15,234
------------------ ------------------
Reported EBITDA 18,278 53,151
Book to cash rent adjustment (a) 2,067 500
------------------ ------------------
EBITDA after rent related
adjustment 20,345 53,651
Amortization of intangible
assets (b) 528 444
Equity loss (income) (c) 133 (648)
Loss on retirement of property
and equipment, net (d) 27 872
Stock compensation expense (e) 2,767 1,275
Legal settlement and related
costs (f) 212 100
Consulting expenses (g) 835 251
Fixture leases (h) 159 376
Cost savings (i) - 747
Management fee (j) 750 -
Transaction related costs (k) 5,968 3,486
Pan European Transformation
costs (l) 2,555 -
------------------ ------------------
Adjusted EBITDA $34,279 $60,554
================== ==================
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The following footnotes relate to the tables on this page:
(a) Represents the elimination of net non-cash rent expense,
amortization of rent free periods and the inclusion of cash
landlord allowances.
(b) Represents the elimination of non-cash amortization of lease
rights.
(c) Represents the elimination of non-cash equity income or loss
related to our 50:50 joint venture with AEON Co. Ltd.
(d) Represents the elimination of non-cash losses on store related
property and equipment primarily associated with remodels,
relocations and closures.
(e) Represents the elimination of non-cash stock compensation
expense.
(f) Represents the elimination of a legal settlement and fees in
connection with wage and hour class action litigation in
California.
(g) Represents the elimination of non-recurring consulting expenses.
(h) Represents the elimination of non-cash amortization expenses
associated with synthetic leases of store fixtures. The Company
has not entered into any new synthetic leases after 2001.
(i) Reflects the adjustment of executive air travel and other costs
to the Company's estimate for such costs on a normalized basis
and the estimated savings on directors' and officers' insurance
reflective of the Company no longer being a public company. For
purposes of estimating these savings, we assumed an annual air
travel budget of $250,000 for our senior executive officers.
(j) Represents the management fee paid to Apollo Management and Tri-
Artisan Capital Partners.
(k) Transaction costs represent legal, financial advisory,
compensation, severance and other acquisition related expenses.
(l) Represents the non-recurring costs of our strategic Pan-European
Transformation project. These costs consist primarily of
consulting fees, compensation and legal expense incurred under
the buying and SG&A expense lines.
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Claire's Stores, Inc.
J. Per Brodin, 954-433-3900
Senior Vice President and Chief Financial Officer
Fax: 954-433-3999
E-mail: investor.relations@claires.com
Copyright Business Wire 2008
