Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

 FORM 10-Q
 (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 2019
May 2, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from               to              

Commission file number 0-23071

 THE CHILDRENS PLACE, INC.
(Exact name of registrant as specified in its charter)
Delaware31-1241495
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification Number)
Delaware31-1241495
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification Number)
500 Plaza Drive
Secaucus, New Jersey07094
(Address of Principal Executive Offices)(Zip Code)

(201) (201) 558-2400
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.10 par value
Trading Symbol: PLCE
Name of each exchange on which registered: Nasdaq Global Select Market

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer”filer", “accelerated filer”"accelerated filer", “smaller"smaller reporting company”company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one).
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
Emerging growth company o
 
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.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No x
 
The number of shares outstanding of the registrant’s common stock with a par value of $0.10 per share, as of August 23, 2019June 9, 2020 was 15,570,96014,585,719 shares.



Table of Contents
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
 
QUARTERLY REPORT ON FORM 10-Q
 
FOR THE PERIOD ENDED AUGUST 3, 2019MAY 2, 2020
 
TABLE OF CONTENTS
 




Table of Contents
PART I. FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION
Item 1.CONSOLIDATED FINANCIAL STATEMENTS
Item 1.CONSOLIDATED FINANCIAL STATEMENTS
1

Table of Contents
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 2,
2020
February 1,
2020
May 4,
2019
(unaudited)(unaudited)
(in thousands, except par value)
ASSETS   
Current assets:   
Cash and cash equivalents$71,751  $68,487  $66,111  
Accounts receivable37,173  32,812  39,562  
Inventories335,795  327,165  341,174  
Prepaid expenses and other current assets23,521  21,416  27,156  
Total current assets468,240  449,880  474,003  
Long-term assets:   
Property and equipment, net212,011  236,898  249,836  
Right-of-use assets349,646  393,820  458,702  
Tradenames, net73,090  73,291  73,656  
Deferred income taxes68,573  12,941  15,106  
Other assets13,376  14,567  14,651  
Total assets$1,184,936  $1,181,397  $1,285,954  
LIABILITIES AND STOCKHOLDERS’ EQUITY   
LIABILITIES:   
Current liabilities:   
Revolving loan$234,554  $170,808  $153,072  
Accounts payable263,984  213,115  205,643  
Current lease liabilities150,463  121,868  133,783  
Income taxes payable2,629  5,607  2,452  
Accrued expenses and other current liabilities107,370  83,609  105,252  
Total current liabilities759,000  595,007  600,202  
Long-term liabilities:   
Long-term lease liabilities281,839  311,908  367,307  
Other tax liabilities6,800  6,782  5,025  
Income taxes payable17,589  17,589  18,939  
Other long-term liabilities14,673  14,924  14,107  
Total liabilities1,079,901  946,210  1,005,580  
COMMITMENTS AND CONTINGENCIES   
STOCKHOLDERS’ EQUITY:   
Preferred stock, $1.00 par value, 1,000 shares authorized, 0 shares issued and outstanding—  —  —  
Common stock, $0.10 par value, 100,000 shares authorized; 14,581, 14,762, and 15,915 issued; 14,529, 14,711, and 15,867 outstanding1,458  1,476  1,592  
Additional paid-in capital135,328  139,041  149,435  
Treasury stock, at cost (52, 51, and 48 shares)(3,025) (2,956) (2,747) 
Deferred compensation3,025  2,956  2,747  
Accumulated other comprehensive loss(14,913) (13,545) (15,542) 
Retained earnings (deficit)(16,838) 108,215  144,889  
Total stockholders’ equity105,035  235,187  280,374  
Total liabilities and stockholders’ equity$1,184,936  $1,181,397  $1,285,954  
 August 3,
2019
 February 2,
2019
 August 4,
2018
 (unaudited)   (unaudited)
 (in thousands, except par value)
ASSETS 
  
  
Current assets: 
  
  
Cash and cash equivalents$65,357
 $69,136
 $106,405
Accounts receivable39,638
 35,123
 47,622
Inventories386,174
 303,466
 366,461
Prepaid expenses and other current assets30,258
 27,670
 53,224
Total current assets521,427
 435,395
 573,712
Long-term assets: 
  
  
Property and equipment, net248,777
 260,357
 257,055
Right-of-use assets430,145
 
 
Tradenames, net73,456
 
 
Deferred income taxes15,590
 17,750
 8,484
Other assets14,142
 13,544
 15,093
Total assets$1,303,537
 $727,046
 $854,344
      
LIABILITIES AND STOCKHOLDERS’ EQUITY 
  
  
LIABILITIES: 
  
  
Current liabilities: 
  
  
Revolving loan$196,352
 $48,861
 $89,335
Accounts payable236,619
 194,786
 250,184
Current lease liabilities127,695
 
 
Income taxes payable5,068
 997
 4,545
Accrued expenses and other current liabilities108,463
 86,755
 103,244
Total current liabilities674,197
 331,399
 447,308
Long-term liabilities: 
  
  
Deferred rent liabilities
 44,329
 47,928
Long-term lease liabilities341,828
 
 
Other tax liabilities5,043
 5,080
 3,922
Income taxes payable18,939
 18,939
 19,074
Other long-term liabilities14,274
 12,862
 12,989
Total liabilities1,054,281
 412,609
 531,221
COMMITMENTS AND CONTINGENCIES 
  
  
STOCKHOLDERS’ EQUITY: 
  
  
Preferred stock, $1.00 par value, 1,000 shares authorized, 0 shares issued and outstanding
 
 
Common stock, $0.10 par value, 100,000 shares authorized; 15,720, 15,873 and 16,489 issued; 15,671, 15,827 and 16,442 outstanding1,572
 1,588
 1,649
Additional paid-in capital149,140
 146,991
 138,342
Treasury stock, at cost (49, 47 and 47 shares)(2,816) (2,685) (2,560)
Deferred compensation2,816
 2,685
 2,560
Accumulated other comprehensive loss(15,245) (14,934) (15,449)
Retained earnings113,789
 180,792
 198,581
Total stockholders’ equity249,256
 314,437
 323,123
Total liabilities and stockholders’ equity$1,303,537
 $727,046
 $854,344
See accompanying notes to these consolidated financial statements.
2

Table of Contents

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Thirteen Weeks Ended Twenty-six Weeks Ended Thirteen Weeks Ended
August 3,
2019
 August 4,
2018
 August 3,
2019
 August 4,
2018
May 2,
2020
May 4,
2019
(In thousands, except earnings per share)(In thousands, except earnings and dividends per share)
Net sales$420,470
 $448,718
 $832,851
 $885,031
Net sales$255,207  $412,382  
Cost of sales (exclusive of depreciation and amortization)281,624
 293,912
 542,030
 570,034
Cost of sales (exclusive of depreciation and amortization)274,880  260,406  
Gross profit138,846
 154,806
 290,821
 314,997
Gross profit (loss)Gross profit (loss)(19,673) 151,976  
Selling, general, and administrative expenses116,417
 124,210
 244,423
 242,680
Selling, general, and administrative expenses98,491  128,006  
Depreciation and amortization18,472
 16,595
 37,056
 34,001
Depreciation and amortization17,888  18,584  
Asset impairment charges121
 3,979
 469
 5,236
Asset impairment charges37,091  348  
Operating income3,836
 10,022
 8,873
 33,080
Operating income (loss)Operating income (loss)(173,143) 5,038  
Interest expense(2,321) (1,035) (4,120) (1,697)Interest expense(1,889) (1,799) 
Interest income43
 89
 131
 454
Interest income49  88  
Income before provision for income taxes1,558
 9,076
 4,884
 31,837
Provision (benefit) for income taxes35
 1,590
 (1,128) (7,186)
Net income$1,523
 $7,486
 $6,012
 $39,023
Income (loss) before benefit for income taxesIncome (loss) before benefit for income taxes(174,983) 3,327  
Benefit for income taxesBenefit for income taxes(60,173) (1,163) 
       
Earnings per common share       
Net income (loss)Net income (loss)$(114,810) $4,490  
Earnings (loss) per common shareEarnings (loss) per common share
Basic$0.10
 $0.45
 $0.38
 $2.32
Basic$(7.86) $0.28  
Diluted$0.10
 $0.45
 $0.38
 $2.27
Diluted$(7.86) $0.28  
       
Weighted average common shares outstanding       Weighted average common shares outstanding
Basic15,818
 16,636
 15,832
 16,819
Basic14,611  15,847  
Diluted15,859
 16,715
 15,983
 17,225
Diluted14,611  16,107  
       
Cash dividends declared per common share$0.56
 $0.50
 $1.12
 $1.00
Cash dividends declared per common share$—  $0.56  
 
See accompanying notes to these consolidated financial statements.


3

Table of Contents
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)



 Thirteen Weeks Ended Twenty-six Weeks Ended
 August 3, 2019 August 4, 2018 August 3, 2019 August 4, 2018
 (In thousands)
Net income$1,523
 $7,486
 $6,012
 $39,023
Other comprehensive income:       
Foreign currency translation adjustment286
 (1,488) (397) (2,694)
Change in fair value of cash flow hedges, net of income taxes11
 49
 86
 76
Total comprehensive income$1,820
 $6,047
 $5,701
 $36,405
 Thirteen Weeks Ended
 May 2, 2020May 4, 2019
(In thousands)
Net income (loss)$(114,810) $4,490  
Other comprehensive income (loss):
Foreign currency translation adjustment(1,523) (683) 
Change in fair value of cash flow hedges, net of income taxes155  75  
Total comprehensive income (loss)$(116,178) $3,882  
 
See accompanying notes to these consolidated financial statements.


4

Table of Contents
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)



Thirteen Weeks Ended May 2, 2020
Accumulated
AdditionalRetainedOtherTotal
Common StockPaid-InDeferredEarningsComprehensiveTreasury StockStockholders'
(in thousands, except dividends per share)SharesAmountCapitalCompensation(Deficit)LossSharesValueEquity
BALANCE, February 1, 202014,762  $1,476  $139,041  $2,956  $108,215  $(13,545) (51) $(2,956) $235,187  
Vesting of stock awards81   (8) —  
Stock-based compensation585  585  
Purchase and retirement of shares(262) (26) (4,290) (10,243) (14,559) 
Change in cumulative translation
adjustment
(1,523) (1,523) 
Change in fair value of cash flow
hedges, net of income taxes
155  155  
Deferral of common stock into
deferred compensation plan
69  (1) (69) —  
Net income (loss)(114,810) (114,810) 
BALANCE, May 2, 202014,581  $1,458  $135,328  $3,025  $(16,838) $(14,913) (52) $(3,025) $105,035  








Thirteen Weeks Ended May 4, 2019
Accumulated
AdditionalOtherTotal
Common StockPaid-InDeferredRetainedComprehensiveTreasury StockStockholders'
(in thousands, except dividends per share)SharesAmountCapitalCompensationEarningsLossSharesValueEquity
BALANCE, February 2, 201915,873  $1,588  $146,991  $2,685  $180,792  $(14,934) (47) $(2,685) $314,437  
Vesting of stock awards403  40  (4) 36  
Stock-based compensation7,759  7,759  
Purchase and retirement of shares(363) (36) (5,526) (29,581) (35,143) 
Dividends declared ($0.56 per share)(8,930) (8,930) 
Unvested dividends215  (215) —  
ASC Topic 842 Adjustment(1,667) (1,667) 
Change in cumulative translation
adjustment
(683) (683) 
Change in fair value of cash flow
hedges, net of income taxes
75  75  
Deferral of common stock into
deferred compensation plan
62  (1) (62) —  
Net income (loss)4,490  4,490  
BALANCE, May 4, 201915,913  $1,592  $149,435  $2,747  $144,889  $(15,542) (48) $(2,747) $280,374  










            Accumulated      
      Additional     Other     Total
  Common Stock Paid-In Deferred Retained Comprehensive Treasury Stock Stockholders'
(in thousands, except dividends per share) Shares Amount Capital Compensation Earnings Loss Shares Value Equity
BALANCE, February 3, 2018 17,257
 $1,726
 $258,501
 $2,436
 $226,303
 $(12,831) (46) $(2,436) 
$473,699
Vesting of stock awards 458
 46
 (70)           (24)
Stock-based compensation     8,801
           8,801
Capitalized stock-based compensation     85
           85
Purchase and retirement of shares (306) (31) (25,000)   (37,217)   (757) (100,000) (162,248)
Dividends declared ($0.50 per share)         (8,409)       (8,409)
Unvested dividends     358
   (358)       
ASC Topic 606 Adjustment         875
       875
Change in cumulative translation
 adjustment
           (1,206)     (1,206)
Change in fair value of cash flow
 hedges, net of income taxes
           27
     27
Deferral of common stock into
 deferred compensation plan
       62
     
 (62) 
Net income         31,537
       31,537
BALANCE, May 5, 2018 17,409
 $1,741
 $242,675
 $2,498
 $212,731
 $(14,010) (803) $(102,498) $343,137
Vesting of stock awards 244
 24
 (4)           20
Stock-based compensation     7,416
           7,416
Capitalized stock-based compensation     91
           91
Purchase and retirement of shares (1,167) (116) (112,197)   (12,966)   757
 100,000
 (25,279)
Dividends declared ($0.50 per share)         (8,309)       (8,309)
Unvested dividends     361
   (361)       
Change in cumulative translation
 adjustment
           (1,488)     (1,488)
Change in fair value of cash flow
 hedges, net of income taxes
           49
     49
Deferral of common stock into
 deferred compensation plan
       62
     
 (62) 
Net income         7,486
       7,486
BALANCE, August 4, 2018 16,486
 $1,649
 $138,342
 $2,560
 $198,581
 $(15,449) (46) $(2,560) $323,123
                   
BALANCE, February 2, 2019 15,873
 $1,588
 $146,991
 $2,685
 $180,792
 $(14,934) (47) $(2,685) $314,437
Vesting of stock awards 403
 40
 (4)           36
Stock-based compensation     7,759
           7,759
Purchase and retirement of shares (363) (36) (5,526)   (29,581)       (35,143)
Dividends declared ($0.56 per share)         (8,930)       (8,930)
Unvested dividends     215
   (215)       
ASC Topic 842 Adjustment         (1,667)       (1,667)
Change in cumulative translation
 adjustment
           (683)     (683)
Change in fair value of cash flow
 hedges, net of income taxes
           75
     75
Deferral of common stock into
 deferred compensation plan
       62
     (1) (62) 
Net income         4,490
       4,490
BALANCE, May 4, 2019 15,913
 $1,592
 $149,435
 $2,747
 $144,889
 $(15,542) (48) $(2,747) $280,374
Vesting of stock awards 63
 6
 (1)           5
Stock-based compensation     3,512
           3,512
Purchase and retirement of shares (257) (26) (4,131)   (23,428)       (27,585)
Dividends declared ($0.56 per share)         (8,869)       (8,869)
Unvested dividends     325
   (325)       
Change in cumulative translation
 adjustment
           286
     286
Change in fair value of cash flow
 hedges, net of income taxes
           11
     11
Deferral of common stock into
 deferred compensation plan
       69
     (1) (69) 
Net income         1,523
       1,523
BALANCE, August 3, 2019 15,719
 $1,572
 $149,140
 $2,816
 $113,789
 $(15,245) (49) $(2,816) $249,256
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Table of Contents
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Twenty-six Weeks Ended Thirteen Weeks Ended
August 3,
2019
 August 4,
2018
May 2,
2020
May 4,
2019
(In thousands)(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: 
  
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income$6,012
 $39,023
Reconciliation of net income to net cash provided by operating activities: 
  
Non-cash portion of operating lease expense66,387
 
Net income (loss)Net income (loss)$(114,810) $4,490  
Reconciliation of net income (loss) to net cash provided by (used in) operating activities:Reconciliation of net income (loss) to net cash provided by (used in) operating activities:  
Amortization of operating lease assetsAmortization of operating lease assets29,365  38,731  
Depreciation and amortization37,056
 34,001
Depreciation and amortization17,888  18,584  
Stock-based compensation11,273
 16,217
Deferred taxes2,132
 4,031
Non-cash stock-based compensationNon-cash stock-based compensation585  7,759  
Deferred income tax (benefit)Deferred income tax (benefit)(55,656) 3,169  
Asset impairment charges469
 5,236
Asset impairment charges37,091  348  
Other544
 184
Other non-cash charges, netOther non-cash charges, net58  69  
Changes in operating assets and liabilities:   Changes in operating assets and liabilities:
Inventories(82,807) (43,151)Inventories(8,629) (38,323) 
Accounts receivable and other assets(2,197) (23,851)Accounts receivable and other assets(3,508) (1,074) 
Prepaid expenses and other current assets10,521
 (2,005)Prepaid expenses and other current assets3,511  4,840  
Income taxes payable, net of prepayments(3,290) (22,509)Income taxes payable, net of prepayments(8,858) (2,965) 
Accounts payable and other current liabilities59,301
 11,254
Accounts payable and other current liabilities69,307  28,699  
Other long-term liabilities(82,106) (7,119)Other long-term liabilities(6,795) (43,142) 
Net cash provided by operating activities23,295
 11,311
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities(40,451) 21,185  
CASH FLOWS FROM INVESTING ACTIVITIES: 
  
CASH FLOWS FROM INVESTING ACTIVITIES:  
Capital expenditures(21,840) (27,846)Capital expenditures(5,733) (11,009) 
Acquisition of assets(76,000) 
Proceeds from sale of short-term investments
 15,000
Acquisition of intangible assetsAcquisition of intangible assets—  (76,000) 
Change in deferred compensation plan372
 (469)Change in deferred compensation plan121  517  
Net cash used in investing activities(97,468) (13,315)Net cash used in investing activities(5,612) (86,492) 
CASH FLOWS FROM FINANCING ACTIVITIES: 
  
CASH FLOWS FROM FINANCING ACTIVITIES:  
Repurchase of common stock, including shares surrendered for tax withholdings and transaction costs(60,386) (187,522)
Purchase and retirement of common stock, including shares surrendered for tax withholdings and transaction costsPurchase and retirement of common stock, including shares surrendered for tax withholdings and transaction costs(14,559) (33,319) 
Payment of dividends(17,799) (16,718)Payment of dividends—  (8,930) 
Borrowings under revolving loan519,757
 486,270
Repayments under revolving loan(372,266) (418,395)
Net cash provided by (used in) financing activities69,306
 (136,365)
Borrowings under revolving credit facilityBorrowings under revolving credit facility134,130  306,279  
Repayments under revolving credit facilityRepayments under revolving credit facility(70,384) (202,068) 
Net cash provided by financing activitiesNet cash provided by financing activities49,187  61,962  
Effect of exchange rate changes on cash and cash equivalents1,088
 255
Effect of exchange rate changes on cash and cash equivalents140  320  
Net decrease in cash and cash equivalents(3,779) (138,114)
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents3,264  (3,025) 
Cash and cash equivalents, beginning of period69,136
 244,519
Cash and cash equivalents, beginning of period68,487  69,136  
Cash and cash equivalents, end of period$65,357
 $106,405
Cash and cash equivalents, end of period$71,751  $66,111  
 
See accompanying notes to these consolidated financial statements.

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Table of Contents
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Twenty-six Weeks Ended Thirteen Weeks Ended
August 3,
2019
 August 4,
2018
May 2,
2020
May 4,
2019
(In thousands)(In thousands)
OTHER CASH FLOW INFORMATION: 
  
OTHER CASH FLOW INFORMATION:  
Net cash paid (refunded) during the period for income taxes$(671) $12,661
Net cash paid during the period for income taxesNet cash paid during the period for income taxes$4,676  $(1,379) 
Cash paid during the period for interest2,608
 1,391
Cash paid during the period for interest1,702  1,537  
Increase (decrease) in accrued purchases of property and equipment(359) 9,212
Increase in accrued purchases of property and equipmentIncrease in accrued purchases of property and equipment(1,093) (2,019) 
 
See accompanying notes to these consolidated financial statements.


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Table of Contents
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.BASIS OF PRESENTATION
1.BASIS OF PRESENTATION
Description of Business
The Children'sChildren’s Place, Inc. and subsidiaries (the “Company”) is the largest pure-play children's specialty apparel retailer in North America. The Company provides apparel, footwear, accessories, and other items for children. The Company designs, contracts to manufacture, sells at retail and wholesale, and licenses to sell trend right, high-quality merchandise predominately at value prices, the substantial majority of which isprimarily under itsour proprietary “The Children's Place���Children’s Place”, "Place"“Place”, “Baby Place”, and "Baby Place"“Gymboree” brand names.
The Company classifies its business into two segments: The Children’s Place U.S. and The Children’s Place International.  Included in The Children’s Place U.S. segment are the Company'sCompany’s U.S. and Puerto Rico-based stores and revenue from its U.S.- based wholesale business. Included in The Children'sChildren’s Place International segment are its Canadian-based stores, revenue from the Company'sCompany’s Canada wholesale business, as well as revenue from international franchisees. Each segment includes an e-commerce businessbusinesses located at www.childrensplace.com.www.childrensplace.com and www.gymboree.com.
Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Accordingly, certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of August 3,May 2, 2020 and May 4, 2019 and August 4, 2018 and the results of its consolidated operations for the thirteen and twenty-six weeks ended August 3,May 2, 2020 and May 4, 2019 and August 4, 2018 and cash flows for the twenty-sixthirteen weeks ended August 3,May 2, 2020 and May 4, 2019 and August 4, 2018 and stockholders'stockholders’ equity for the thirteen and twenty-six weeks ended August 3, 2019May 2, 2020 and AugustMay 4, 2018. 2019. The consolidated financial position as of February 2, 20191, 2020 was derived from audited financial statements.  Due to the seasonal nature of the Company’s business, the results of operations for the twenty-sixthirteen weeks ended August 3,May 2, 2020 and May 4, 2019 and August 4, 2018 are not necessarily indicative of operating results for a full fiscal year.  These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2,1, 2020.
In December 2019,. there was an outbreak of a new strain of coronavirus (“COVID-19”) that began in Wuhan, China and has since spread to the other regions of the world. In March 2020, the World Health Organization declared COVID-19 a global pandemic and the President of the United States declared a national emergency. Federal, state, and local governments and private entities mandated various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories, and quarantining of people who may have been exposed to the virus. The COVID-19 pandemic has significantly negatively affected the global economy, significantly disrupted global supply chains, and created significant disruption of the financial and retail markets, including a significant disruption in consumer demand for children’s clothing and accessories. As such, the comparability of the Company's operating results has been affected by significant adverse impacts related to the COVID-19 pandemic.
Terms that are commonly used in the Company’s notes to consolidated financial statements are defined as follows:
SecondFirst Quarter 2020 — The thirteen weeks ended May 2, 2020
First Quarter 2019 — The thirteen weeks ended August 3,May 4, 2019
Second Quarter 2018 — The thirteen weeks ended August 4, 2018
Year-To-Date 2019 — The twenty-six weeks ended August 3, 2019
Year-To-Date 2018 — The twenty-six weeks ended August 4, 2018
FASB — Financial Accounting Standards Board
SEC — U.S. Securities and Exchange Commission
U.S. GAAP — Generally Accepted Accounting Principles in the United States
FASB ASC — FASB Accounting Standards Codification, which serves as the source for authoritative U.S. GAAP, except that rules and interpretive releases by the SEC are also sources of authoritative U.S. GAAP for SEC registrants
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly‑ownedwholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. FASB ASC 810--Consolidation is considered when determining whether an entity is subject to consolidation.
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Fiscal Year
The Company'sCompany’s fiscal year is a 52-week or 53-week period ending on the Saturday on or nearest to January 31.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and amounts of revenues and expenses reported during the period. Actual results could differ from the

assumptions used and estimates made by management, which could have a material impact on the Company'sCompany’s financial position or results of operations. Significant estimates inherent in the preparation of the consolidated financial statements include: reserves for the realizability of inventory; reserves for litigation and other contingencies; useful lives and impairments of long-lived assets; fair value measurements; accounting for income taxes and related uncertain tax positions; insurance reserves; valuation of stock-based compensation awards and related estimated forfeiture rates, among others.
Reclassifications
Certain reclassifications have been made to prior period financial statements to conform to the current period presentation.
Leases
The Company adopted Accounting Standards Update No. 2016-02 "Leases" ("Topic 842") as of the beginning of fiscal 2019 using the modified retrospective transition method. Topic 842 requires that all leases greater than 12 months be recorded on the balance sheet as a right-of-use asset with a corresponding liability.
See Note 3 "Leases" for further details on the Company's adoption of Topic 842.
Inventories
Inventories, which consist primarily of finished goods, are stated at the lower of cost or net realizable value, with cost determined on an average cost basis. The Company capitalizes certain supply chain costs in inventory and these costs are reflected within cost of sales as the inventories are sold. Inventory shrinkage is estimated in interim periods based upon the historical results of physical inventory counts in the context of current year facts and circumstances.
The Company's estimated realizable value of its inventory as of May 2, 2020 reflects material adverse impacts associated with the COVID-19 pandemic business disruptions, which include the temporary closure of the Company's and its franchisees' stores, as well as significant declines in retail traffic.
Impairment of Long-Lived Assets
The Company periodically reviews its long-lived assets when events indicate that their carrying value may not be recoverable. Such events include historical trends or projected trend of cash flow losses or a future expectation that the Company will sell or dispose of an asset significantly before the end of its previously estimated useful life. In reviewing for impairment, the Company groups its long-lived assets at the lowest possible level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
The Company reviews all stores that have reached comparable sales status, or sooner if circumstances should dictate, on at least an annual basis. The Company believes waiting this period of time allows a store to reach a maturity level where a more comprehensive analysis of financial performance can be performed. For each store that shows indications of operating losses,impairment, the Company projects future cash flows over the remaining life of the lease, adjusted for lease payments, and compares the total undiscounted cash flows to the net book value of the related long-lived assets, including right-of-use (“ROU”) assets. If the undiscounted cash flows are less than the related net book value of the long-lived assets, they are written down to their fair market value. The Company primarily determines fair market value to be theuses discounted future cash flows directly associated with those assets to determine fair market value of long-lived assets and ROU assets. In evaluating future cash flows, the Company considers external and internal factors. External factors comprise the local environment in which the store resides, including mall traffic and competition and their effect on sales trends.trends, as well as macroeconomic factors, such as global pandemics. Internal factors include the Company'sCompany’s ability to gauge the fashion taste of its customers, control variable costs such as cost of sales and payroll and, in certain cases, its ability to renegotiate lease costs.
Asset impairment charges during the First Quarter 2020 were related to underperforming stores identified in our ongoing store portfolio evaluation primarily as a result of decreased net revenues and cash flow projections resulting from the COVID-19 disruption.
Stock-based Compensation
The Company generally grants time vesting stock awards ("(“Deferred Awards"Awards”) and performance-based stock awards ("Performance Awards") to employees at management levels.  The Company also grants Deferred Awards to its non-employee directors.  Deferred Awards are granted in the form of a defined number of restricted stock units that require each recipient to complete a service period. Deferred Awards generally vest ratably over three years, except for those granted to non-employee directors, which generally vest after one year. Performance Awards are granted in the form of restricted stock units which have performance criteria that must be achieved for the awards to vest (the "Target Shares"“Target Shares”) in addition to a service period requirement. For Performance Awards issued during fiscal 2017 (the “2017 Performance Awards”), an employee may earn from 0% to 200% of their Target Shares based on the achievement of cumulative adjusted earnings per share achieved for the
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applicable performance period, which is generally three years, adjusted operating margin expansion achieved for the performance period, and adjusted return on invested capital ("adjusted ROIC") achieved as of the end of the performance period. The 2017 Performance Awards cliff vest, if earned,vested after completion of the performance period. The fair value of the 2017 Performance Awards granted is based on the closing price of our common stock on the grant date. For Performance Awards issued during fiscal 2018 and 2019 (the “2018 and 2019 Performance Awards”), an employee may earn from 0% to 250% of their Target Shares based on cumulative adjusted earnings per share achieved for the applicable performance period, which is generally three years, adjusted operating margin expansion achieved for the performance period, adjusted ROIC achieved as of the end of the performance period, and the ranking of our adjusted ROIC relative to that of companies in our peer group as of the end of the performance period. The 2018 and 2019 Performance Awards cliff vest, if earned, after

completion of the performance period. The fair value of the 2018 and 2019 Performance Awards granted is based on the closing price of our common stock on the grant date.
Stock-based compensation expense is recognized ratably over the related service period reduced for estimated forfeitures of those awards not expected to vest due to employee turnover. Stock-based compensation expense, as it relates to Performance Awards, is also adjusted based on the Company'sCompany’s estimate of adjusted earnings per share and adjusted operating margin expansion and adjusted return on invested capitalROIC and, as applicable, ranking of our adjusted return on investment capitalROIC relative to that of companies in our peer group as they occur.
Deferred Compensation Plan
The Company has a deferred compensation plan (the “Deferred Compensation Plan”), which is a nonqualified plan, for eligible senior level employees.  Under the plan, participants may elect to defer up to 80% of his or her base salary and/or up to 100% of his or her bonus to be earned for the year following the year in which the deferral election is made.  The Deferred Compensation Plan also permits members of the Board of Directors to elect to defer payment of all or a portion of their retainer and other fees to be earned for the year following the year in which a deferral election is made.  In addition, eligible employees and directors of the Company may also elect to defer payment of any shares of Company stock that is earned with respect to stock-based awards.  Directors may elect to have all or a certain portion of their fees earned for their service on the Board invested in shares of the Company’s common stock.  Such elections are irrevocable.  The Company is not required to contribute to the Deferred Compensation Plan, but at its sole discretion, can make additional contributions on behalf of the participants. Deferred amounts are not subject to forfeiture and are deemed invested among investment funds offered under the Deferred Compensation Plan, as directed by each participant.  Payments of deferred amounts (as adjusted for earnings and losses) are payable following separation from service or at a date or dates elected by the participant at the time the deferral is elected.  Payments of deferred amounts are generally made in either a lump sum or in annual installments over a period not exceeding 15 years.  All deferred amounts are payable in the form in which they were made, except for board fees invested in shares of the Company'sCompany’s common stock, which will be settled in shares of Company common stock.  Earlier distributions are not permitted except in the case of an unforeseen hardship.
The Company has established a rabbi trust that serves as an investment to shadow the Deferred Compensation Plan liability. The assets of the rabbi trust are general assets of the Company and, as such, would be subject to the claims of creditors in the event of bankruptcy or insolvency.  Investments of the rabbi trust consist of mutual funds and Company common stock.  The Deferred Compensation Plan liability, excluding Company common stock, is included within other long-term liabilities and changes in the balance, except those relating to payments, are recognized as compensation expense within selling, general, and administrative expenses.  The value of the mutual funds is included in other assets and related earnings and losses are recognized as investment income or loss, which is included within selling, general, and administrative expenses.  Company stock deferrals are included within the equity section of the Company’s consolidated balance sheet as treasury stock and as a deferred compensation liability.  Deferred stock is recorded at fair market value at the time of deferral, and any subsequent changes in fair market value are not recognized.
Fair Value Measurement and Financial Instruments- FASB ASC 820--Fair Value Measurements and DisclosureMeasurement provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities.
This topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The three levels of the hierarchy are defined as follows:
Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities
Level 2 - inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
Level 3 - inputs to the valuation techniques that are unobservable for the assets or liabilities
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Our cash and cash equivalents, accounts receivable, assets of the Company’s Deferred Compensation Plan, accounts payable, current lease liabilities, and revolving loan are all short-term in nature.  As such, their carrying amounts approximate fair value and fall within Level 1 of the fair value hierarchy. The Company stock included in the Deferred Compensation Plan is not subject to fair value measurement.

Our derivative assets and liabilities include foreign exchange forward contracts that are measured at fair value using observable market inputs such as forward rates, our credit risk, and our counterparties’ credit risks. Based on these inputs, our derivative assets and liabilities are classified within Level 2 of the valuationfair value hierarchy.


Our assets measured at fair value on a nonrecurring basis include long-lived assets, such as intangible assets, fixed assets, and right-of-useROU assets. We review the carrying amounts of such assets when events indicate that their carrying amounts may not be recoverable. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurements of the assets are considered to fall within Level 3 of the fair value hierarchy.

Recently Issued Accounting Standards

Adopted in Fiscal 20192020

In August 2017, the FASB issued guidance relating to the accounting for hedging activities. This guidance aims to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in the guidance expand and refine hedge accounting for both non-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. We adopted this guidance in the first quarter of fiscal 2019. This adoption did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued guidance relating to the accounting for leases. This guidance applies a right-of-use model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset for the lease term and a liability to make lease payments. The lease term is the noncancellable period of the lease, and includes both periods covered by an option to extend the lease, if the lessee is reasonably certain to exercise that option, and periods covered by an option to terminate the lease, if the lessee is reasonably certain not to exercise that termination option. We adopted this guidance in the in the first quarter of fiscal 2019 using the modified-retrospective method. Refer to Note 3, "Leases”, for additional information.

To Be Adopted After Fiscal 2019

In August 2018, the FASB issued guidance related to the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aims to alignaligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. TheWe adopted this guidance is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. We doin the First Quarter 2020. This adoption did not expect the guidance to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued guidance related to disclosure requirements for fair value measurement. The amendments modify current fair value measurement disclosure requirements by removing, adding, or modifying certain fair value measurement disclosures. TheWe adopted this guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We plan to adopt the new disclosure requirements on a prospective basis beginning in the year of adoption. We doFirst Quarter 2020. This adoption did not expect the guidance to have a material impact on our consolidated financial statements.

In June 2016, the FASB issued guidance related to the accounting for financial instrument credit losses. The guidance aims to provideprovides more decision-usefuldecision useful information about the expected credit losses on financial instruments by replacing the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We adopted this guidance in the First Quarter 2020. This adoption did not have a material impact on our consolidated financial statements.

To Be Adopted After Fiscal 2020

In December 2019, the FASB issued guidance related to the accounting for income taxes. The guidance aims to simplify the accounting for income taxes by removing certain exceptions to the general principles within the current guidance and by clarifying and amending the current guidance. The guidance is effective for annual reporting periods, and interim reporting periods within those years, beginning after December 15, 2019.2020. We do not expect the guidance to have a material impact on our consolidated financial statements.

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2. REVENUES
Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The following table presents our revenues disaggregated by geography:

 Thirteen Weeks Ended Twenty-six Weeks Ended
 August 3,
2019
 August 4,
2018
 August 3,
2019
 August 4,
2018
Net sales:(In thousands)
South$152,645
 $159,770
 $299,709
 $313,534
Northeast92,240
 101,939
 190,143
 207,817
West67,137
 70,894
 129,131
 137,499
Midwest49,307
 52,884
 103,955
 110,385
International and other59,141
 63,231
 109,913
 115,796
Total net sales$420,470
 $448,718
 $832,851
 $885,031

 Thirteen Weeks Ended
 May 2,
2020
May 4,
2019
Net sales:(In thousands)
South$97,936  $147,064  
Northeast51,830  97,903  
West37,262  61,994  
Midwest37,233  54,648  
International and other30,946  50,773  
Total net sales$255,207  $412,382  

The Company recognizes revenue, including shipping and handling fees billed to customers, upon purchase at the Company's retail stores or when received by the customer if the product was purchased via e-commerce, net of coupon redemptions and anticipated sales returns. The Company deferred approximately $5.0$15.1 million and $5.4$5.1 million as of August 3,May 2, 2020 and May 4, 2019, and August 4, 2018, respectively, based upon estimated time of delivery, at which point control passes to the customer, and is recorded in accrued expenses and other current liabilities. Sales tax collected from customers is excluded from revenue.

For the sale of goods with a right of return, the Company recognizes revenue for the consideration it expects to be entitled to and calculates an allowance for estimated sales returns based upon the Company's sales return experience. Adjustments to the allowance for estimated sales returns in subsequent periods are generally not material based on historical data, thereby reducing the uncertainty inherent in such estimates. The allowance for estimated sales returns, which is recorded in accrued expenses and other current liabilities, was approximately $2.5$1.1 million and $2.3$1.6 million as of August 3,May 2, 2020 and May 4, 2019, and August 4, 2018, respectively.

Our private label credit card is issued to our customers for use exclusively at The Children'sChildren’s Place stores and online at www.childrensplace.comand www.gymboree.com, and credit is extended to such customers by a third-party financial institution on a non-recourse basis to us. The private label credit card includes multiple performance obligations for the Company, including marketing and promoting the program on behalf of the bank and the operation of the loyalty rewards program. Included in the agreement with the third-party financial institution was an upfront bonus paid to the Company. The upfront bonus is recognized as revenue and allocated between brand and reward obligations. As the license of the Company’s brand is the predominant item in the performance obligation, the amount allocated to the brand obligation is recognized on a straight-line basis over the initial term. The amount allocated to the reward obligation is recognized on a point-in-time basis as redemptions under the loyalty program occur.

In measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer, the Company takes into account the related elements of variable consideration, such as additional bonuses, including profit-sharing, over the life of the program. Similar to the upfront bonus, the usage-based royalties and bonuses are recognized as revenue and allocated between the brand and reward obligations. The amount allocated to the brand obligation is recognized on a straight-line basis over the initial term. The amount allocated to the reward obligation is recognized on a point-in-time basis as redemptions under the loyalty program occur. In addition, the annual profit-sharing amount is estimated and recognized quarterly within an annual period when earned. The additional bonuses are amortized over the contract term based on anticipated progress against future targets and level of risk associated with achieving the targets.

The Company has a points-based customer loyalty program, in which customers earn points based on purchases and other promotional activities. These points can be redeemed for coupons to discount future purchases. A contract liability is estimated based on the standalone selling price of benefits earned by customers through the program and the related redemption experience under the program. The value of each point earned is recorded as deferred revenue and is included within accrued expenses and other current liabilities. The total contract liabilityliabilities related to this program was $5.3were $2.1 million and $1.2$3.8 million as of August 3,May 2, 2020 and May 4, 2019, and August 4, 2018, respectively.


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The Company'sCompany’s policy with respect to gift cards is to record revenue as and when the gift cards are redeemed for merchandise. The Company recognizes gift card breakage income in proportion to the pattern of rights exercised by the customer when the Company expects to be entitled to breakage and the Company determines that it does not have a legal obligation to remit the value of the unredeemed gift card to the relevant jurisdiction as unclaimed or abandoned property and is recorded within net sales. Prior to their redemption, gift cards are recorded as a liability, included within accrued expenses and other current liabilities. The total contract liability related to gift cards issued was $15.7$14.9 million and $16.2$17.0 million as of August 3,May 2, 2020 and May 4, 2019, and August 4, 2018, respectively. The liability is estimated based on expected breakage that considers historical patterns of redemption. The following table provides the reconciliation of the contract liability related to gift cards:

 Contract Liability
 (In thousands)
Balance at February 2, 2019$17,867
Gift cards sold14,597
Gift cards redeemed(13,545)
Gift card breakage(3,267)
Balance at August 3, 2019$15,652

Contract Liability
(In thousands)
Balance at February 1, 2020$16,100 
Gift cards sold3,352 
Gift cards redeemed(3,834)
Gift card breakage(677)
Balance at May 2, 2020$14,941 

The Company has an international expansion program through territorial agreements with franchisees. The Company generates revenues from the franchisees from the sale of product and, in certain cases, sales royalties. The Company records net sales and cost of goods sold on the sale of product to franchisees when the franchisee takes ownership of the product. The Company records net sales for royalties when the applicable franchisee sells the product to their customers. Under certain agreements, the Company receives a fee from each franchisee for exclusive territorial rights and based on the opening of new stores. The Company records these territorial fees as deferred revenue and amortizes the fee into net sales over the life of the territorial agreement.

3. LEASES
Adoption of ASC Topic 842, "Leases"

On February 3, 2019, the Company adopted ASC Topic 842 "Leases" ("Topic 842") using the modified retrospective method. Results for reporting periods beginning in fiscal 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with ASC Topic 840 "Leases" ("Topic 840").

On February 3, 2019, the Company recognized a cumulative-effect charge of $1.7 million, net of tax, to the opening balance of retained earnings, which represents the initial impairment of right-of-use assets related to retail locations.

ForWe have operating leases for retail stores, corporate offices, distribution facilities, and certain equipment. Our leases have remaining lease terms of less than 1 year up to 10 years, some of which may include options to extend the leases for up to five years, and some of which may include options to early terminate the lease.

The lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. The right-of-useFor operating leases, the ROU asset is initially and subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, less any accrued lease payments and unamortized lease incentives. For finance leases, the right-of-useROU asset is initially measured at cost and subsequently amortized using the straight-line method generally from the lease commencement date to the earlier of the end of its useful life or the end of the lease term.

The Company has elected the package of practical expedients permitted under the transition guidance within the new standard. Accordingly, we have adopted these practical expedients and did not reassess: (1) whether an expired or existing contract is a lease or contains an embedded lease; (2) lease classification of an expired or existing lease; (3) capitalization of initial direct costs for an expired or existing lease.

The Company has made an accounting policy election by class of underlying asset to not apply the recognition requirements of Topic 842 to leases with an initial term of 12 months or less. Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

In certain leases, the Company has the right to exercise lease renewal options. Renewal option periods are included in the measurement of lease right-of-use assets and lease liabilities where the exercise is reasonably certain to occur.

The Company has lease agreements with lease and non-lease components. The Company elected a policy to account for lease and non-lease components as a single component for all asset classes.

The discount rate is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the Company is required to use its incremental borrowing rate. The discount rate for a lease is determined based on the information available at the later of adoption of Topic 842 or at lease commencement. In general, the Company accounts for the underlying leased asset and applies a discount rate at the lease level. However, there are certain non-real estate leases for which the Company utilizes the portfolio method by aggregating similar leased assets based on the underlying lease term.

The Company has made an accounting policy election by class of underlying asset to not apply the recognition requirements of FASB ASC 842--Leases ("Topic 842") to leases with an initial term of 12 months or less. Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components. The Company has elected a policy to account for lease and non-lease components as a single component for all asset classes.

In certain leases, the Company has the right to exercise lease renewal options. Renewal option periods are included in the measurement of lease ROU assets and lease liabilities where the exercise is reasonably certain to occur.

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As of August 3, 2019,May 2, 2020, the Company's finance leases were not material to the consolidated balance sheets, consolidated statements of operations, or consolidated statementstatements of cash flows.

We have certain lease agreements structured with both a fixed base rent and a contingent rent based on a percentage of sales over contractual levels, others with only contingent rent based on a percentage of sales, and some with a fixed base rent adjusted periodically for inflation or changes in fair market value of the underlying real estate. Contingent rent is recognized as sales occur. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We have operating leases for retail stores, corporate offices, distribution facilities, and certain equipment. Our leases have remaining lease terms of less than 1 year up to 10 years, some of which may include options to extend the leases for up to five years, and some of which may include options to early terminate the lease.

We record all occupancy costs in cost of sales, except administrative office buildings, which are recorded in selling, general, and administrative expenses.

The following components of lease expense are included in the Company's consolidated statementstatements of operations.
 Thirteen Weeks EndedThirteen Weeks Ended
May 2, 2020May 4, 2019
(in thousands)(in thousands)
Operating lease cost$40,152  $38,731  
Variable lease cost1
11,133  15,937  
Total lease cost$51,285  $54,668  
 Thirteen Weeks Ended Twenty-six Weeks Ended
 August 3, 2019
 (in thousands)
Operating lease cost$37,236
 $75,968
Variable lease cost1
14,829
 30,766
Total lease cost$52,065
 $106,734
1Includes short term leases with lease periods of less than 12 months.

As of August 3, 2019,May 2, 2020, the weighted-average remaining operating lease term was 4.84.5 years, and the weighted-average discount rate for operating leases was 5.0%.

Cash paid for amounts included in the measurement of operating lease liabilities in the SecondFirst Quarter 2019 and Year-To-Date 20192020 was approximately $39.8 million and $79.6 million, respectively.$11.8 million.

Right-of-useROU assets obtained in exchange for new operating lease liabilities waswere approximately $51.5$37.8 million.

During the First Quarter 2020, the Company recorded ROU assets impairment of approximately $17.9 million.

As of August 3, 2019,May 2, 2020, the future minimum annual lease payments under operating lease agreements were as follows:

May 2, 2020
Operating Leases
(in thousands)
Remainder of 2020$135,620  
2021112,628  
202275,372  
202345,371  
202427,026  
Thereafter69,085  
Total lease payments$465,102  
Less: imputed interest$(32,800) 
Present value of lease liabilities$432,302  
 August 3, 2019
 Operating Leases
 (in thousands)
Remainder of 2019$80,641
2020134,811
2021102,739
202270,677
202345,582
Thereafter87,301
Total lease payments$521,751
Less: imputed interest$(52,228)
Present value of lease liabilities$469,523



4. INTANGIBLE ASSETS
During the first quarter of fiscal 2019, theThe Company acquired certain intellectual property and related assets (the “Gymboree Assets”) of Gymboree Group, Inc. and related entities, which included the worldwide rights to the names “Gymboree” and “Crazy 8” and other intellectual property, including trademarks, domain names, copyrights, and customer databases. These intangible assets, inclusive of acquisition costs, are recorded in the long-term assets section of the consolidated balance sheets.
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The Company'sCompany’s intangible assets includes both indefinite and finite assets. Intangible assets with indefinite lives consist primarily of trademarks and acquired trade names, which are tested for impairment annually or whenever circumstances indicate that a decline in value may have occurred. The Company estimates the fair value of these intangible assets based on an income approach using the relief-from-royalty method. The Company’s finite-lived intangible assets consist primarily of customer lists and other acquisition-related assets. Finite-lived intangible assets are amortized over their estimated useful economic lives and are reviewed for impairment when factors indicate that an impairment may have occurred. The Company recognizes an impairment charge when the estimated fair value of the intangible asset is less than the carrying value.
The Company’s intangible assets were as follows as of August 3, 2019:
May 2, 2020:
    August 3, 2019
  Useful life Gross amount Accumulated amortization Net amount
    (in thousands)
Gymboree tradename(1)
 Indefinite $69,725
 $
 $69,725
Crazy 8 tradename(1)
 5 years 4,000
 269
 3,731
Customer databases(2)
 3 years 3,000
 333
 2,667
Total intangibles, net   $76,725
 $602
 $76,123
(1)
Included within Tradenames, net in the consolidated balance sheets.
(2)
Included within Other assets in the consolidated balance sheets.

May 2, 2020
Useful lifeGross amountAccumulated amortizationNet amount
(in thousands)
Gymboree tradename(1)
Indefinite$69,951  $—  $69,951  
Crazy 8 tradename(1)
5 years4,000  (861) 3,139  
Customer databases(2)
3 years3,000  (1,077) 1,923  
Total intangibles, net$76,951  $(1,938) $75,013  
(1)Included within Tradenames, net in the consolidated balance sheets.
(2)Included within Other assets in the consolidated balance sheets.

5. STOCKHOLDERS’ EQUITY
Share Repurchase Programs
The Company'sIn March 2018, the Board of Directors has authorized the followinga $250 million share repurchase programs which were active during Year-To-Date 2019 and Year-To-Date 2018: (1) $250 million in March 2017program (the "2017“2018 Share Repurchase Program"); and (2) $250 million in March 2018 (the "2018 Share Repurchase Program"Program”). The 2017 Share Repurchase Program has been completed. At August 3, 2019,May 2, 2020, there was approximately $179.0$93.8 million remaining on the 2018 Share Repurchase Program. Under these programs,this program, the Company may repurchase shares inon the open market at current market prices at the time of purchase or in privately negotiated transactions. The timing and actual number of shares repurchased under a program will depend on a variety of factors including price, corporate and regulatory requirements, and other market and business conditions. The Company may suspend or discontinue a program at any time and may thereafter reinstitute purchases, all without prior announcement. In March 2020, the Company temporarily suspended share repurchases due to the COVID-19 pandemic.
Pursuant to the Company'sCompany’s practice, including due to restrictions imposed by the Company'sCompany’s insider trading policy during black-out periods, the Company withholds and repurchases shares of vesting stock awards and makes payments to taxing authorities as required by law to satisfy the withholding tax requirements of all equity award recipients. The Company'sCompany’s payment of the withholding taxes in exchange for the surrendered shares constitutes a purchase of its common stock. The Company also acquires shares of its common stock in conjunction with liabilities owed under the Company's Deferred Compensation Plan, which are held in treasury.

The following table summarizes the Company'sCompany’s share repurchases:
Thirteen Weeks Ended
May 2, 2020May 4, 2019
 SharesValue SharesValue
(In thousands)
 Shares repurchases related to:
 2018 Share Repurchase Program(1)
262  $14,559  344  $33,319  
Shares acquired and held in treasury under Deferred Compensation Plan1.1  $69  0.7  $62  
  Twenty-six Weeks Ended
  August 3, 2019 August 4, 2018
   Shares Value  Shares Value
  (In thousands)
 Shares repurchases related to:        
 2017 Share Repurchase Program(1)
 
 $
 1,474
 $187,522
 2018 Share Repurchase Program(2)(3)
 611
 $60,386
 
 $
Shares acquired and held in treasury under Deferred Compensation Plan 1.3
 $131
 0.9
 $124
(1)
Inclusive of 0.2 million shares for approximately $15.3 million during First Quarter 2019 withheld to cover taxes in conjunction with the vesting of stock awards.
(1)
Inclusive of 0.3 million shares for approximately $42.9 million during Year-To-Date 2018 withheld to cover taxes in conjunction with the vesting of stock awards. Inclusive of approximately 1.0 million shares for $125.0 million repurchased pursuant to an accelerated repurchase program.
(2)
Inclusive of 0.2 million shares for approximately $19.8 million during Year-To-Date 2019 withheld to cover taxes in conjunction with the vesting of stock awards.
(3)
Subsequent to August 3, 2019 and through August 23, 2019, the Company repurchased approximately 0.1 million shares for approximately $8.3 million.
In accordance with the FASB ASC 505--Equity, the par value of the shares retired is charged against common stock and the remaining purchase price is allocated between additional paid-in capital and retained earnings.  The portion charged against additional paid-in capital is determined using a pro-rata allocation based on total shares outstanding.  Related to all shares retired during Year-To-DateFirst Quarter 2020 and First Quarter 2019, and Year-To-Date 2018, approximately $53.0$10.2 million and $50.2$29.6 million,, respectively, were charged to retained earnings.

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Dividends
The SecondIn March 2020, the Company announced it had temporarily suspended its dividend payments. During the First Quarter 2019, dividend of $0.56 per share was paid on June 28, 2019 to shareholders of record on the close of business on June 18, 2019. During Year-To-Date 2019, $18.3 $9.1 million was charged to retained earnings, of which $17.8$8.9 million related to cash dividends paid and $0.5$0.2 million related to dividend share equivalents on unvested Deferred Awards and Performance Awards. During Year-To-Date 2018, $17.4 million was charged to retained earnings, of which $16.7 million related to cash dividends paid and $0.7 million related to dividend share equivalents on unvested Deferred Awards and Performance Awards.
The Company's Board of Directors declared a quarterly cash dividend of $0.56 per share to be paid October 4, 2019 to shareholders of record at the close of business on September 23, 2019. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to approval by the Company’s Board of Directors based on a number of factors, including business and market conditions, the Company’s future financial performance, and other investment priorities.


6. STOCK-BASED COMPENSATION
The following table summarizes the Company’s stock-based compensation expense:
 Thirteen Weeks Ended Twenty-six Weeks Ended
 August 3,
2019
 August 4,
2018
 August 3,
2019
 August 4,
2018
 (In thousands)
   Deferred Awards$5,595
 $3,533
 $9,745
 $7,346
   Performance Awards(2,081) 3,887
 1,528
 8,871
Total stock-based compensation expense (1)
$3,514
 $7,420
 $11,273
 $16,217

 Thirteen Weeks Ended
 May 2,
2020
May 4,
2019
(In thousands)
   Deferred Awards$4,314  $4,150  
   Performance Awards(3,729) 3,609  
Total stock-based compensation expense (1)
$585  $7,759  

(1)
During the Second Quarter 2019 and the Second Quarter 2018, approximately $0.9
(1)During the First Quarter 2020 and the First Quarter 2019, approximately $0.1 million and $1.0 million, and $1.0 million, respectively, were included within cost of sales. During Year-To-Date 2019 and the Year-To-Date 2018, approximately $1.9 million and $1.9 million, respectively, were included within cost of sales (exclusive of depreciation and amortization). All other stock-based compensation is included in selling, general, and administrative expenses. 
The Company recognized a tax benefit related to stock-based compensation expense of approximately $3.0$0.2 million and $4.3$2.1 million during Year-To-DateFirst Quarter 2020 and First Quarter 2019, and Year-To-Date 2018, respectively.
Changes in the Company’s Unvested Stock Awards during Year-To-Date 2019the First Quarter 2020
Deferred Awards
 Number of
Shares
Weighted
Average
Grant Date
Fair Value
 (In thousands) 
Unvested Deferred Awards, beginning of period377  $97.88  
Granted17  63.03  
Vested(78) 99.97  
Forfeited(20) 108.77  
Unvested Deferred Awards, end of period296  $94.56  
 
Number of
Shares
 
Weighted
Average
Grant Date
Fair Value
 (In thousands)  
Unvested Deferred Awards, beginning of period299
 $99.98
Granted251
 103.79
Vested(116) 104.43
Forfeited(20) 112.95
Unvested Deferred Awards, end of period414
 $100.42


Total unrecognized stock-based compensation expense related to unvested Deferred Awards approximated $31.3$6.9 million as of August 3, 2019,May 2, 2020, which will be recognized over a weighted average period of approximately 2.01.9 years.

Performance Awards
 
Number of
Shares (1)
 
Weighted
Average
Grant Date
Fair Value
 (In thousands)  
Unvested Performance Awards, beginning of period352
 $90.66
Granted194
 99.57
Shares earned in excess of target181
 75.83
Vested shares, including shares earned in excess of target(349) 75.83
Forfeited(9) 116.63
Unvested Performance Awards, end of period369
 $101.51

 
Number of
Shares (1)
Weighted
Average
Grant Date
Fair Value
 (In thousands) 
Unvested Performance Awards, beginning of period342  $99.97  
Shares unearned (below target)101  118.00  
Vested shares(3) 105.86  
Forfeited(8) 110.77  
Unvested Performance Awards, end of period432  $103.95  

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(1)
For those awards in which the performance period is complete, the number of unvested shares is based on actual shares that will vest upon completion of the service period. 
Table of Contents
(1)For those awards in which the performance period is complete, the number of unvested shares is based on actual shares that will vest upon completion of the service period. 
For those awards in which the performance period is not yet complete, the number of unvested shares in the table above is based on the participants earning their Target Shares at 100%. However, the cumulative expense recognized reflects changes in estimated adjusted earnings per share, adjusted operating margin expansion, adjusted return on invested capital, and ranking of our adjusted return on investmentinvested capital relative to that of companies in our peer group as they occur. TotalThe Company does not have any unrecognized stock-based compensation expense related to unvested Performance Awards approximated $21.0 million as of May 2, 2020.
August 3, 2019, which will be recognized over a weighted average period of approximately 2.1 years.

7. EARNINGS (LOSS) PER COMMON SHARE
The following table reconciles net income (loss) and share amounts utilized to calculate basic and diluted earnings per common share:
 Thirteen Weeks Ended
 May 2, 2020May 4, 2019
(In thousands)
Net income (loss)$(114,810) $4,490  
Basic weighted average common shares14,611  15,847  
Dilutive effect of stock awards—  260  
Diluted weighted average common shares14,611  16,107  
 Thirteen Weeks Ended Twenty-six Weeks Ended
 August 3, 2019 August 4, 2018 August 3, 2019 August 4, 2018
 (In thousands)
Net income$1,523
 $7,486
 $6,012
 $39,023
        
Basic weighted average common shares15,818
 16,636
 15,832
 16,819
Dilutive effect of stock awards41
 79
 151
 406
Diluted weighted average common shares15,859
 16,715
 15,983
 17,225



8. PROPERTY AND EQUIPMENT
Property and equipment, net consist of the following:
 May 2, 2020February 1, 2020May 4, 2019
(In thousands)
Property and equipment:   
Land and land improvements$3,403  $3,403  $3,403  
Building and improvements35,927  35,568  35,568  
Material handling equipment56,475  53,540  51,934  
Leasehold improvements270,988  285,955  299,735  
Store fixtures and equipment269,237  272,158  270,755  
Capitalized software287,918  265,610  256,343  
Construction in progress14,845  33,240  20,568  
 938,793  949,474  938,306  
Accumulated depreciation and amortization(726,782) (712,576) (688,470) 
Property and equipment, net$212,011  $236,898  $249,836  
  August 3, 2019 February 2, 2019 August 4, 2018
  (In thousands)
Property and equipment:  
  
  
Land and land improvements $3,403
 $3,403
 $3,403
Building and improvements 35,568
 35,568
 35,548
Material handling equipment 52,219
 51,934
 50,230
Leasehold improvements 301,844
 301,233
 310,669
Store fixtures and equipment 270,956
 273,430
 274,661
Capitalized software 260,266
 254,064
 240,471
Construction in progress 28,343
 14,823
 11,135
  952,599
 934,455
 926,117
Accumulated depreciation and amortization (703,822) (674,098) (669,062)
Property and equipment, net $248,777
 $260,357
 $257,055


At August 3, 2019,May 2, 2020, the Company performed impairment testing on 961920 stores with a total net book value of approximately $71.3$65.0 million. During the SecondFirst Quarter 2020, the Company recorded asset impairment charges of $37.1 million, including approximately $19.2 million related to fixed assets and approximately $17.9 million related to ROU assets recorded in connection with Topic 842, primarily for 412 stores. These charges were related to underperforming stores identified in our ongoing store portfolio evaluation primarily as a result of decreased net revenues and cash flow projections resulting from the COVID-19 disruption.
At May 4, 2019, the Company performed impairment testing on 971 stores with a total net book value of approximately $72.0 million. During the First Quarter 2019, the Company recorded asset impairment charges of $0.1$0.3 million primarily for twofive stores, bothall of which were fully impaired. During Year-To-Date 2019, the Company recorded asset impairment charges
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Table of $0.5 million primarily for seven stores.Contents
At August 4, 2018, the Company performed impairment testing on 992 stores with a total net book value of approximately $84.5 million. During the Second Quarter 2018, the Company recorded asset impairment charges of $0.6 million primarily for two stores, both of which were fully impaired. Additionally, during the Second Quarter 2018, the Company recorded asset impairment charges of $3.4 million related to the write-down of information technology systems. During Year-To-Date 2018, the Company recorded asset impairment charges of $0.8 million primarily for four stores. Additionally, during Year-To-Date 2018, the Company recorded asset impairment charges of $4.4 million related to the write-down of information technology systems.


9. CREDIT FACILITY
The Company and certain of its subsidiaries maintain a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), Bank of America, N.A., HSBC Business Credit (USA) Inc., and JPMorgan Chase Bank, N.A., as lenders (collectively, the “Lenders”) and Wells Fargo, as Administrative Agent, Collateral Agent, and Swing Line Lender. The Credit Agreement was amended and restated on May 9, 2019, and the provisions below reflect the terms of the amended Credit Agreement.
The Credit Agreement, which expires in May 2024, consists of a $325$360 million asset based revolving credit facility, that was recently increased from $325 million as a result of finalizing an amendment with lenders on April 24, 2020 to secure the Company an additional $35 million available under the accordion feature for a period of one year, and including a $25 million Canadian sublimit, with a $50$50 million sublimit for standby and documentary letters of credit and an uncommitted accordion feature that could provide up to $50 million of additional availability.credit. Revolving credit loans outstanding under the Credit Agreement bear interest, at the Company’s option, at:

(i)
the prime rate, plus a margin of 0.38% to 0.50% based on the amount of the Company’s average excess availability under the facility; or
(ii)
the London InterBank Offered Rate, or “LIBOR”, for an interest period of one, two, three, or six months, as selected by the Company, plus a margin of 1.13% to 1.38% based on the amount of the Company’s average excess availability under the facility.
(i)the prime rate, plus a margin of 1.75% to 1.88% based on the amount of the Company’s average excess availability under the facility; or
(ii)the London InterBank Offered Rate, or “LIBOR”, for an interest period of one, two, three, or six months, as selected by the Company, plus a margin of 2.50% to 2.75% based on the amount of the Company’s average excess availability under the facility.
The Company is charged a fee of 0.20%0.25% on the unused portion of the commitments.  Letter of credit fees range from 0.56%1.25% to 0.69%1.38% for commercial letters of credit and from 0.63%2.00% to 0.88%2.25% for standby letters of credit.  Letter of credit fees are determined based on the amount of the Company's average excess availability under the facility. The amount available for loans and letters of credit under the Credit Agreement is determined by a borrowing base consisting of certain credit card receivables, certain trade and franchise receivables, certain inventory, and the fair market value of certain real estate, subject to certain reserves.

The outstanding obligations under the Credit Agreement may be accelerated upon the occurrence of certain events, including, among others, non-payment, breach of covenants, the institution of insolvency proceedings, defaults under other material indebtedness and a change of control, subject, in the case of certain defaults, to the expiration of applicable grace periods.  The Company is not subject to any early termination fees. 
The Credit Agreement contains covenants which include conditions on stock buybacks and the payment of cash dividends or similar payments.  Credit extended under the Credit Agreement is secured by a first priority security interest in substantially all of the Company’s U.S. and Canadian assets excluding intellectual property, software, equipment, and fixtures.
The Company has capitalized an aggregate of approximately $5.0$5.3 million in deferred financing costs related to the Credit Agreement. The unamortized balance of deferred financing costs at August 3, 2019May 2, 2020 was approximately $1.0 million.$1.1 million. Unamortized deferred financing costs are amortized over the remaining term of the Credit Agreement.
The table below presents the components of the Company’s credit facility:
 May 2,
2020
February 1,
2020
May 4,
2019
(In millions)
Credit facility maximum$360.0  $325.0  $250.0  
Borrowing base329.1  282.1  250.0  
Outstanding borrowings234.6  170.8  153.1  
Letters of credit outstanding—standby6.2  6.2  6.3  
Utilization of credit facility at end of period240.7  177.0  159.4  
Availability (1)
$88.4  $105.1  $90.6  
Interest rate at end of period3.4 %3.4 %3.8 %

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 August 3,
2019
 February 2,
2019
 August 4,
2018
 (In millions)
Credit facility maximum$325.0
 $250.0
 $250.0
Borrowing base325.0
 250.0
 250.0
      
Outstanding borrowings196.4
 48.9
 89.3
Letters of credit outstanding—standby6.2
 7.0
 7.0
Utilization of credit facility at end of period202.5
 55.9
 96.3
      
Availability (1)
$122.5
 $194.1
 $153.7
      
Interest rate at end of period3.8% 6.0% 3.5%
Year-To-Date 2019 
Fiscal
2018
 Year-To-Date 2018 First Quarter 2020Fiscal
2019
First Quarter 2019
Average end of day loan balance during the period$176.6
 $64.4
 $64.6
Average end of day loan balance during the period$237.2  $192.0  $141.8  
Highest end of day loan balance during the period247.5
 156.4
 151.6
Highest end of day loan balance during the period272.2  262.5  196.8  
Average interest rate4.3% 4.3% 4.0%Average interest rate3.1 %4.0 %4.6 %

(1)
(1)The sublimit availability for the letters of credit were $43.8 million at May 2, 2020 and February 1, 2020, respectively, and $43.7 million at May 4, 2019.
The sublimit availability for the letters of credit were $43.8 million at August 3, 2019 and $43.0 million at February 2, 2019 and August 4, 2018, respectively.



10. LEGAL AND REGULATORY MATTERS
 
The Company is a defendant in Rael v. The Children’s Place, Inc., a purported class action, pending in the U.S. District Court, Southern District of California. In the initial complaint filed in February 2016, the plaintiff alleged that the Company falsely advertised discount prices in violation of California’s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act. The plaintiff filed an amended complaint in April 2016, adding allegations of violations of other state consumer protection laws. In August 2016, the plaintiff filed a second amended complaint, adding an additional plaintiff and removing the other state law claims. The plaintiffs’ second amended complaint seeks to represent a class of California purchasers and seeks, among other items, injunctive relief, damages, and attorneys’ fees and costs.
The Company engaged in mediation proceedings with the plaintiffs in December 2016 and April 2017. The parties reached an agreement in principle in April 2017, and signed a definitive settlement agreement in November 2017, to settle the matter on a class basis with all individuals in the U.S. who made a qualifying purchase at The Children’s Place from February 11, 2012 through the date of preliminary approval by the court of the settlement. The settlement is subject to court approval and provides for merchandise vouchers for class members who submit valid claims, as well as payment of legal fees and expenses and claims administration expenses. The court stayed the matter, in April 2018, pending an appellate court ruling in another lawsuit to which the Company is not a party.  Inparty, from April 2, 2018 through June 2019,17, 2019. On January 28, 2020, the court entered an order liftinggranting preliminary approval of the stay.settlement. The settlement is also subject to the court’s final approval and the final fairness hearing is scheduled for July 31, 2020. The settlement, if ultimatelyfinally approved by the court, will result in the dismissal of all claims through the date of the court’s preliminary approval of the settlement. However, if the settlement is ultimately rejected by the court, the parties will likely return to litigation, and in such

event, no assurance can be given as to the ultimate outcome of this matter. In connection with the proposed settlement, the Company recorded a reserve for $5.0 million in its consolidated financial statements in the first quarter of 2017.

The Company is also involved in various legal proceedings arising in the normal course of business. In the opinion of management, any ultimate liability arising out of these proceedings will not have a material adverse effect on the Company's financial position, results of operations, or cash flows.

11. INCOME TAXES
The Company computes income taxes using the liability method. This method requires recognition of deferred tax assets and liabilities, measured by enacted rates, attributable to temporary differences between the financial statement and income tax basis of assets and liabilities. The Company'sCompany’s deferred tax assets and liabilities are comprised largely of differences relating to depreciation, rent expense, inventory, stock-based compensation, and various accruals and reserves.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act, ("CARES Act") was signed into law. The CARES Act includes changes that may benefit the Company such as a five-year net operating loss carryback, changes in the deductibility of interest expense, and accelerated depreciation on certain store leasehold improvements. The CARES Act also allows for the deferral of employer FICA taxes and an employee retention credit.

The Company’s effective tax rate for the SecondFirst Quarter 2020 was a benefit of 34.4% compared to a benefit of 35.0% during the First Quarter 2019. The First Quarter 2020 benefit was primarily driven by a favorable benefit due to the enactment of the CARES Act. The First Quarter 2019 benefit was an expense of 2.2% compared to an expense of 17.5% during the Second Quarter 2018. The effective tax rate was lower during the Second Quarter 2019 primarily due to a higherdriven by an excess tax benefit related to the vesting of equity shares, onwhich caused a percentage basis during the Second Quarter 2019 when applied to income before provisionbenefit for income taxes year over year.
The Company’s effective tax rate for Year-To-Date 2019 was a benefit of 23.1%, compared to a benefit of 22.6% for Year-To-Date 2018. The effective tax rate was lower forin the Year-To-Date 2019 primarily due to a higher excess tax benefit related to the vesting of equity shares on a percentage basis during Year-To-Date 2019 when applied to income before provision for income taxes year over year.
On December 22, 2017, the U.S. government passed the Tax Cuts and Jobs Act (“the Tax Act”), which required U.S. companies to pay a mandatory one-time transition tax on historical offshore earnings that have not been repatriated to the U.S. While the Company is no longer permanently reinvested to the extent earnings were subject to the transition tax under the Tax Act, no additional income taxes have been provided on any earnings subsequent to the transition or for any additional outside basis differences inherent in these entities, as these amounts continue to be permanently reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any additional outside basis differences in these entities (i.e., basis differences in excess of that subject to the one-time transition tax) is not practicable.quarter.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in provision for income taxes. The total amount of unrecognized tax benefits as of August 3,May 2, 2020, February 1, 2020, and May 4, 2019 February 2, 2019, and August 4, 2018 were $5.0$6.8 million, $5.0$6.8 million, and $3.9$5.0 million, respectively, and is included within non-current liabilities. The Company recognized less than $0.1
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$0.1 million in each of the SecondFirst Quarter 20192020 and the SecondFirst Quarter 2018,2019, respectively, of additional interest expense related to its unrecognized tax benefits. During each of Year-To-Date 2019 and Year-To-Date 2018, the Company recognized less than $0.1 million of additional interest expense. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in provision for income taxes.
The Company is subject to tax in the United States and foreign jurisdictions, including Canada and Hong Kong. The Company, joined by its domestic subsidiaries, files a consolidated income tax return for federal income tax purposes. The Company, with certain exceptions, is no longer subject to income tax examinations by U.S. federal, state and local, or foreign tax authorities for tax years 2013 and prior.
Management believes that an adequate provision has been made for any adjustments that may result from tax examinations; however, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company's tax audits are resolved in a manner not consistent with management's expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs.

12. DERIVATIVE INSTRUMENTS
The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates attributable to inventory purchases denominated in a foreign currency. Specifically, our Canadian subsidiary’s functional currency is the Canadian dollar but purchases inventory from suppliers in U.S. dollars. In order to mitigate the variability of cash flows associated with certain of these forecasted inventory purchases, we enter into foreign exchange forward contracts. These contracts typically mature within 12 months. We do not use forward contracts to engage in currency speculation, and we do not enter into derivative financial instruments for trading purposes.
The Company accounts for all of its derivatives and hedging activity under FASB ASC 815--Derivatives and Hedging.
Under the Company’s risk management policy and in accordance with guidance under the topic, in order to qualify for hedge accounting treatment, a derivative must be considered highly effective at offsetting changes in either the hedged item’s

cash flows or fair value. Additionally, the hedge relationship must be documented to include the risk management objective and strategy, the hedging instrument, the hedged item, the risk exposure, and how hedge effectiveness will be assessed prospectively and retrospectively. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis. The Company would discontinue hedge accounting under a foreign exchange forward contract prospectivelyprospectively: (i) if management determines that the derivative is no longer highly effective in offsetting changes in the cash flows of a hedged item, (ii) when the derivative expires or is terminated, (iii) if the forecasted transaction being hedged by the derivative is no longer probable of occurring, or (iv) if management determines that designation of the derivative as a hedge instrument is no longer appropriate.
All derivative instruments are presented at gross fair value on the consolidated balance sheets within either prepaid expenses and other current assets or accrued expenses and other current liabilities. As of August 3, 2019,May 2, 2020, the Company had foreign exchange forward contracts with an aggregate notional amount of $15.9$2.7 million, and the fair value of the derivative instruments was an asset of $1.5$1.4 million. As these foreign exchange forward contracts are measured at fair value using observable market inputs such as forward rates, the Company's credit risk, and our counterparties’ credit risks, they are classified within Level 2 of the valuationfair value hierarchy. Cash settlements related to these forward contracts are recorded within cash flows from operating activities within the consolidated statements of cash flows.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings within cost of sales (exclusive of depreciation and amortization) in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in earnings within selling, general, and administrative expenses, consistent with where the Company records realized and unrealized foreign currency gains and losses on transactions in foreign denominated currencies. There were no losses related to hedge ineffectiveness during Year-To-Date 2019.2020. Assuming August 3, 2019May 2, 2020 exchange rates remain constant, $0.7$0.9 million of gains, net of tax, related to hedges of these transactions are expected to be reclassified from OCI into earnings over the next 12 months. Changes in fair value associated with derivatives that are not designated and qualified as cash flow hedges are recognized as earnings within selling, general, and administrative expenses.
The Company enters into foreign exchange forward contracts with major banks and has risk exposure in the event of nonperformance by either party. However, based on our assessment, the Company believes that obligations under the contracts will be fully satisfied. Accordingly, there was no requirement to post collateral or other security to support the contracts as of August 3, 2019.May 2, 2020.


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13. SEGMENT INFORMATION
In accordance with FASB ASC 280---280--Segment Reporting, the Company reports segment data based on geography: The Children’s Place U.S. and The Children’s Place International.  Each segment includes an e-commerce businessbusinesses located at www.childrensplace.comand www.gymboree.com.  Included in The Children’s Place U.S. segment are the Company’s U.S. and Puerto Rico-based stores and revenue from the Company'sCompany’s U.S.-based wholesale business. Included in The Children'sChildren’s Place International segment are the Company's Canadian-based stores, revenue from the Company'sCompany’s Canadian wholesale business, and revenue from international franchisees. The Company measures its segment profitability based on operating income, defined as income before interest and taxes.  Net sales and direct costs are recorded by each segment.  Certain inventory procurement functions such as production and design as well as corporate overhead, including executive management, finance, real estate, human resources, legal, and information technology services are managed by The Children’s Place U.S. segment.  Expenses related to these functions, including depreciation and amortization, are allocated to The Children’s Place International segment based primarily on net sales.  The assets related to these functions are not allocated.  The Company periodically reviews these allocations and adjusts them based upon changes in business circumstances.  Net sales to external customers are derived from merchandise sales, and the Company has no major customers that account for more than 10% of its net sales.  As of August 3, 2019,May 2, 2020, The Children’s Place U.S. owned and operated 840had 800 stores and The Children’s Place International owned and operated 121had 120 stores. As of AugustMay 4, 2018,2019, The Children’s Place U.S. owned and operated 866had 849 stores and The Children’s Place International owned and operated 126had 122 stores.
The following tables provide segment level financial information:

 Thirteen Weeks Ended
 May 2,
2020
May 4,
2019
(In thousands)
Net sales (1):
  
The Children’s Place U.S.$234,948  $374,657  
The Children’s Place International (2)
20,259  37,725  
Total net sales$255,207  $412,382  
Operating income (loss) (1):
  
The Children’s Place U.S.$(159,336) $4,161  
The Children’s Place International(13,807) 877  
Total operating income (loss)$(173,143) $5,038  
Operating income (loss) as a percent of net sales(1):
  
The Children’s Place U.S.  (67.8)%1.1 %
The Children’s Place International  (68.2)%2.3 %
Total operating income (loss) as a percent of net sales (67.8)%1.2 %
Depreciation and amortization:  
The Children’s Place U.S.$16,186  $16,709  
The Children’s Place International1,702  1,875  
Total depreciation and amortization$17,888  $18,584  
Capital expenditures:  
The Children’s Place U.S.$5,200  $10,800  
The Children’s Place International533  209  
Total capital expenditures$5,733  $11,009  
 ___________________________________________
 Thirteen Weeks Ended Twenty-six Weeks Ended
 August 3,
2019
 August 4,
2018
 August 3,
2019

August 4,
2018
 (In thousands)
Net sales: 
  
  
  
The Children’s Place U.S.$374,725
 $399,299
 $749,381
 $795,077
The Children’s Place International (1)
45,745
 49,419
 83,470
 89,954
Total net sales$420,470
 $448,718
 $832,851
 $885,031
Operating income: 
  
  
  
The Children’s Place U.S.$3,433
 $6,286
 $7,593
 $26,675
The Children’s Place International403
 3,736
 1,280
 6,405
Total operating income$3,836
 $10,022
 $8,873
 $33,080
Operating income as a percent of net sales: 
  
  
  
The Children’s Place U.S.0.9% 1.6% 1.0% 3.4%
The Children’s Place International0.9% 7.6% 1.5% 7.1%
Total operating income as a percent of net sales0.9% 2.2% 1.1% 3.7%
Depreciation and amortization: 
  
  
  
The Children’s Place U.S.$16,621
 $14,863
 $33,330
 $30,404
The Children’s Place International1,851
 1,732
 3,726
 3,597
Total depreciation and amortization$18,472
 $16,595
 $37,056
 $34,001
Capital expenditures: 
  
  
  
The Children’s Place U.S.$10,615
 $16,376
 $21,415
 $27,222
The Children’s Place International216
 405
 425
 624
Total capital expenditures$10,831
 $16,781
 $21,840
 $27,846
(1)Net sales and operating income (loss) were significantly impacted by the COVID-19 pandemic.

(1)
(2)Net sales from The Children's Place International are primarily derived from revenues from Canadian operations.
Net sales from The Children's Place International are primarily derived from revenues from Canadian operations.

May 2, 2020February 1, 2020May 4, 2019
Total assets:(In thousands)
The Children’s Place U.S.$1,097,544  $1,080,665  $1,183,611  
The Children’s Place International87,392  100,732  102,343  
Total assets$1,184,936  $1,181,397  $1,285,954  
 August 3, 2019 February 2, 2019 August 4, 2018
Total assets:(In thousands)
The Children’s Place U.S.$1,195,038
 $651,728
 $781,336
The Children’s Place International108,499
 75,318
 73,008
Total assets$1,303,537
 $727,046
 $854,344

14. SUBSEQUENT EVENTS
Subsequent to August 4, 2019 and through August 23, 2019, the Company repurchased approximately 0.1 million shares for approximately $8.3 million.
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The Company announced that its Board of Directors has declared a quarterly cash dividend of $0.56 per share to be paid on October 4, 2019 to shareholders of record at the close of business on September 23, 2019.




Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This Quarterly Report on Form 10-Q contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company's current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially. Some of these risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission, including in the “Risk Factors” section of its Annual Reportannual report on Form 10-K for the fiscal year ended February 2, 2019.1, 2020. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by changes in economic conditions, the risks related to the COVID-19 pandemic, including the impact of the COVID-19 pandemic on our business or the economy in general (including decreased customer traffic, closures of schools and other activities causing decreased demand for our products and negative impacts on our customers’ spending patterns due to decreased income or actual or perceived wealth and the impact of the CARES Act and other legislation related to the COVID-19 pandemic, and any changes to the CARES Act or such other legislation), the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions and disruptions in the Company’s global supply chain, including resulting from COVID-19 or other disease outbreaks, foreign sources of supply in less developed countries or more politically unstable countries, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, various types of litigation, including class action litigations brought under consumer protection, employment, and privacy and information security laws and regulations, the imposition of regulations affecting the importation of foreign-produced merchandise, including duties and tariffs, and the uncertainty of weather patterns. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with the Company’s unaudited financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the annual audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended February 2, 2019.1, 2020.
Terms that are commonly used in our management’s discussion and analysis of financial condition and results of operations are defined as follows:
Second
First Quarter 2020 — The thirteen weeks ended May 2, 2020
First Quarter 2019 — The thirteen weeks ended August 3, 2019
Second Quarter 2018 — The thirteen weeks ended August 4, 2018
Year-To-Date 2019 — The twenty-sixthirteen weeks ended August 3,May 4, 2019
Year-To-Date 2018 — The twenty-six weeks ended August 4, 2018
Comparable Retail Sales — Net sales, in constant currency, from stores that have been open for at least 14 consecutive months and from our e-commerce store, excluding postage and handling fees.  Store closures in the current fiscal year will be excluded from Comparable Retail Sales beginning in the fiscal quarter in which the store closes.  A store that is closed for a substantial remodel, relocation, or material change in size will be excluded from Comparable Retail Sales for at least 14 months beginning in the fiscal quarter in which the closure occurred.  However, stores that temporarily close will be excluded from Comparable Retail Sales until the store is re-opened for a full fiscal month.
Gross Margin — Gross profit expressed as a percentage of net sales
SG&A — Selling, general, and administrative expenses
FASB — Financial Accounting Standards Board
SEC — U.S. Securities and Exchange Commission
U.S. GAAP — Generally Accepted Accounting Principles in the United States
FASB ASC — FASB Accounting Standards Codification, which serves as the source for authoritative U.S. GAAP, except that rules and interpretive releases by the SEC are also sources of authoritative U.S. GAAP for SEC registrants
Our Business
We are the largest pure-play children's specialty apparel retailer in North America. We design, contract to manufacture, sell at retail and wholesale, and license to sell, trend right, high quality merchandise predominately at value prices, the substantial majority of which isprimarily under our proprietary “The Children's Place”, "Place"“Place”, “Baby Place”, and "Baby Place"“Gymboree” brand names. As of August 3, 2019,May 2, 2020, we operated 961had 920 stores across North America, our e-commerce businessbusinesses at www.childrensplace.comand www.gymboree.com, and had 225266 international points of distribution open and operated bywith our eight franchise partners in 19 countries.


Segment Reporting
In accordance with the “Segment Reporting” topic of the FASB ASC, we report segment data based on geography: The Children’s Place U.S. and The Children’s Place International.  Each segment includes an e-commerce business located at
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www.childrensplace.com www.childrensplace.comand www.gymboree.com.  Included in The Children’s Place U.S. segment are our U.S. and Puerto Rico-based stores and revenue from our U.S.-based wholesale business. Included in The Children'sChildren’s Place International segment are our Canadian- basedCanadian-based stores, revenue from the Company's Canadian wholesale business, as well as revenue from international franchisees. We measure our segment profitability based on operating income, defined as income before interest and taxes.  Net sales and direct costs are recorded by each segment.  Certain inventory procurement functions such as production and design as well as corporate overhead, including executive management, finance, real estate, human resources, legal, and information technology services are managed by The Children’s Place U.S. segment.  Expenses related to these functions, including depreciation and amortization, are allocated to The Children’s Place International segment based primarily on net sales.  The assets related to these functions are not allocated.  We periodically review these allocations and adjust them based upon changes in business circumstances.  Net sales from external customers are derived from merchandise sales, and we have no major customers that account for more than 10% of our net sales.  As of August 3, 2019,May 2, 2020, The Children’s Place U.S. owned and operated 840had 800 stores and The Children’s Place International owned and operated 121had 120 stores. As of AugustMay 4, 2018,2019, The Children’s Place U.S. owned and operated 866had 849 stores and The Children’s Place International owned and operated 126had 122 stores.
Recent Developments
On May 10, 2019, tariffsThe COVID-19 pandemic has impacted regions all around the world, resulting in restrictions and shutdowns implemented by national, state, and local authorities, leading to significant adverse economic conditions and business disruptions, as well as significant volatility in global financial markets. Governments worldwide have imposed varying degrees of preventative and protective actions, such as temporary travel bans, forced business closures, and stay-at-home orders, all in an effort to reduce the spread of the virus. Such factors, among others, have resulted in a significant decline in retail traffic and consumer spending on certain merchandise imported from China increased from 10% to 25%.  These tariffs are expected to increase to 30% on October 1, 2019. Fordiscretionary items.

As a result of the Company, the impacted products include backpacks, fashion bags, lunch bags, and hats.  The impact of this increase had,the COVID-19 pandemic, we have experienced significant business disruption, and is expectedon March 18, 2020, we temporarily closed all of our stores across the U.S. and Canada. Our distribution centers remain open and operating to support our e-commerce business, which has accelerated since the temporary store closures.

In response to the COVID-19 pandemic, we have a minimal adverse affect ontaken the following actions designed to preserve our financial position, resultsflexibility:

Executing a substantial reduction and/or deferral of operations,all non-essential expenses and cash flows.  On September 1, 2019capital expenditures;
Collaborating with vendor partners to extend payment terms and December 15, 2019, tariffs of 15% are expectedbalance forward inventory receipts to be imposedreflect reduced demand;
Suspended rent payments on all of our U.S. and Canadian retail stores;
Evaluating our options on store lease events occurring through the remaining productsend of fiscal 2021, which impact approximately 70% of our current store fleet, targeting 300 additional retail store closures through fiscal 2021;
Effective April 1, 2020, Jane Elfers, President and Chief Executive Officer, agreed to forgo 100% of her salary until further notice. In addition, the senior leadership team took a temporary 25% reduction in salary until further notice and the independent Directors of the Board unanimously approved to forgo their cash compensation until further notice;
Effective April 5, 2020, all U.S. and Canadian field management and store associates were temporarily furloughed. We continue to furlough a portion of our U.S. and Canadian field management and store associates not supporting ship from store activities;
Effective April 5, 2020, we instituted a combination of temporary furloughs and pay reductions for the substantial majority of our corporate staff;
Finalized an amendment to our revolving credit facility, which increased borrowing capacity from $325 million to $360 million for a period of one year; and
Temporarily suspended the Company’s capital return program, inclusive of share repurchases and dividends.

On May 19, 2020, the Company imports from China, suchreopened stores in 10 states: Alabama, Arkansas, Idaho, Mississippi, Montana, Nebraska, North Dakota, Oklahoma, South Dakota, and Utah. The Company intends to reopen stores on a phased timeline, as apparel, accessories,state and footwear,local guidelines and if imposed, will haveconditions permit, taking an adverse impactinformed, measured approach based on our financial position, resultsa number of operations, and cash flows.    factors.
Operating Highlights
Our Comparable Retail Sales decreased 3.8% during the Second Quarter 2019. Net sales decreased by $28.2$157.2 million, or 6.3%38.1%, to $420.5$255.2 million during the SecondFirst Quarter 20192020 from $448.7$412.4 million during the SecondFirst Quarter 2018.2019.  The net sales decrease of $28.2$157.2 million was primarily driven by a Comparable Retail Sales decrease of 3.8%,resulted from temporary store closures on March 18, 2020 due to the adverse impact of competitor liquidations, and operating fewer stores.COVID-19 pandemic.
  Gross profit (loss)decreased by $16.0$171.7 million to $138.8$(19.7) million during the SecondFirst Quarter 20192020 from $154.8$152.0 million during the SecondFirst Quarter 2018.  Gross2019.  The comparability of our gross profit (loss) was impacted by: an inventory provision of
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approximately $63.2 million, related to the adverse business disruption resulting from the COVID-19 pandemic, including the store closures; occupancy expense of approximately $23.1 million for our stores temporarily closed due to COVID-19; and incremental expenses, primarily personal protective equipment and incentive pay for our associates, of approximately $1.7 million. Excluding the impact of these charges, gross margin de-leveraged 150990 basis points to 33.0% during the Second Quarter 2019 from 34.5% during the Second Quarter 2018.points. The decrease resulted primarily from de-leverage of fixed expenses due to negative Comparable Retail Sales and the continued increased penetration of our e-commerce business and its higher fulfillment costs, along with a modestthe deleverage of fixed expenses resulting from the decline in merchandise marginsales as a result of difficult traffic,store closures related to the COVID-19 pandemic.
Selling, general, and administrative expenses decreased $29.5 million to $98.5 million during the First Quarter 2020 from $128.0 million during the First Quarter 2019. The comparability of our SG&A was impacted by: payroll and benefit costs for certain employees during the period our stores were closed due to the COVID-19 pandemic, net of a payroll tax credit benefit resulting from the CARES Act, of approximately $4.2 million; restructuring costs, primarily related to severance costs for corporate associates, of approximately $3.4 million; the write-off of certain account receivables of approximately $1.0 million; and incremental operating expenses, primarily personal protective equipment for our associates, of approximately $0.7 million. Excluding the impact of these charges, SG&A de-leveraged 380 basis points due to the de-leverage of fixed expenses resulting from the decline in sales as a result of temporary store closures, partially offset by a reduction in operating expenses associated with actions taken in response to the COVID-19 pandemic.
Asset impairment charges were $37.1 million during the First Quarter 2020, including the ROU assets recorded in connection with Topic 842, primarily for 412 stores. These charges were related to underperforming stores identified in our ongoing store portfolio evaluation primarily as a result of decreased net revenues and cash flow projections resulting from the COVID-19 disruption. Asset impairment charges during the First Quarter 2019 were $0.3 million, which ledrelated to an increase in promotional activity across the sector.full impairment of primarily five stores.
ProvisionBenefit for income taxes was an expense of $35 thousand during the Second Quarter 2019 compared to an expense of $1.6$60.2 million during the SecondFirst Quarter 2018.2020 compared to a benefit of $1.2 million during the First Quarter 2019.  Our effective tax rate was 2.2%a benefit of 34.4% and 17.5%35.0% in the SecondFirst Quarter 2020 and the First Quarter 2019, and the Second Quarter 2018, respectively. The effective tax rateFirst Quarter 2020 benefit was lower duringprimarily driven by a favorable benefit due to the Secondenactment of the CARES Act. The First Quarter 2019 benefit was primarily due to a higherdriven by an excess tax benefit related to the vesting of equity shares, onwhich caused a percentage basis during the Second Quarter 2019 when applied to income before provisionbenefit for income taxes year over year.in the quarter.
Net income (loss) was $1.5$(114.8) million during the SecondFirst Quarter 20192020 compared to $7.5income of $4.5 million during the SecondFirst Quarter 2018,2019, due to the COVID-19 pandemic and the other factors discussed above.  Earnings (loss) per diluted share was $0.10a loss of $(7.86) in the SecondFirst Quarter 20192020 compared to $0.45earnings of $0.28 per diluted share in the SecondFirst Quarter 2018.2019.  This decrease in earnings per share is due to the factors noted above, partially offset by a lower weighted average common shares outstanding of approximately 0.91.5 million, which is the result of our share repurchase program.
WeAlthough we are facing a period of uncertainty regarding the future impact of the COVID-19 pandemic, we continue to make significant progressfocus on our key strategic growth initiatives--superior product, business transformation through technology, alternate channels of distribution, and fleet optimization.
Focus on product remains our top priority and strong product acceptance and our inventory management areis anticipated to deliver gross margin and inventory productivity benefits. We reintroduced the iconic Gymboree brand in February 2020 on an enhanced Gymboree website and in co-branded locations in over 200 Company stores in the U.S. and Canada by designing, sourcing, and merchandising Spring 2020 collections.
Our business transformation through technology initiative has two key components: digital transformation and inventory management. With respect to digital transformation, our goal is to deliver one to one personalization focusing on improving customer acquisition and increasing customer engagement with our brand and to continue to gain market share. The transformation of our digital capabilities will continue during fiscal 2019 as we continuecontinues to make foundational enhancements to further support our digital platform, including: implementingexpand with the development of a completely redesigned responsive design for our e-commerce website, which will provide a consistent customer experience across all computersite and mobile devices; addingapplication, providing a rich online shopping experience geared towards the needs of our “on-the-go” mobile customers, expanded customer personalization, which delivers unique, relevant content management system;

adding a digital asset management system; cross device linking to drive personalization; a full point-of-sale roll-out with save the sale functionality;sales, loyalty and retention, and the continued roll-out of buy-on-line shipability to store. With respect to inventory management, we have implemented assortment planning, allocation, replenishment, order planning, and forecasting tools.
With respect to alternate channels of distribution, we continued our international expansion program during Year-To-Date 2019entire store fleet equipped with our franchise partners and added additional international points of distribution (stores, shop in shops, e-commerce site) bringing our total count to 225 points of distribution operating in 19 countries. Along with Semir, our Chinese partner and China's largest specialty children's apparel retailer, we plan to open approximately 15 locations in the China market in fiscal 2019.ship-from-store capabilities.
We continue to evaluate our store fleet as part of our fleet optimization initiative to improve store productivity and plan to close approximately 300initiative. We have closed 275 stores, through fiscal 2020, which includesincluding the 226four stores closed in the First Quarter 2020, since the announcement of this initiative. WeOur fleet optimization strategy has resulted in an average lease life of approximately two years with approximately 70% of our stores having a lease event by the end of fiscal 2021. As accelerated demand for online purchasing has increased our digital business, partly as a result of COVID-19, we have identified 25 newincreased our planned store openings through our Gymboree due diligenceclosures and have opened three new stores during Year-To-Date 2019. However, we will remain a net closerare targeting to close approximately 300 additional store locations by the end of stores.fiscal 2021, with approximately 200 closing in fiscal 2020.
During Year-To-Date 2019,the First Quarter 2020, we repurchased approximately 0.60.3 million shares for approximately $60.4$14.6 million, inclusive of shares surrendered to cover tax withholdings associated with the vesting of equity awards. As of August 3, 2019,May 2, 2020, there was approximately $179.0$93.8 million in aggregate remaining pursuant to the 2018 Share Repurchase Program. We also paid cash dividendsIn March 2020, we announced a temporary suspension of $17.8 million during Year-To-Date 2019our capital return program, inclusive of share repurchases and announced that our Board of Directors has declared a quarterly cash dividend of $0.56 per share to be paid on October 4, 2019 to shareholders of record at the close of business on September 23, 2019.dividends.
We have subsidiaries whose operating results are based in foreign currencies and are thus subject to the fluctuations of the corresponding translation rates into U.S. dollars. The table below summarizes those average translation rates that most impact our operating results:
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Thirteen Weeks Ended Twenty-six Weeks Ended Thirteen Weeks Ended
August 3,
2019
 August 4,
2018
 August 3,
2019
 August 4,
2018
May 2,
2020
May 4,
2019
Average Translation Rates (1)
       
Average Translation Rates (1)
  
Canadian Dollar0.7537 0.7672 0.7521 0.7756Canadian Dollar0.72750.7505
Hong Kong Dollar0.1277 0.1274 0.1276 0.1275Hong Kong Dollar0.12880.1274
China Yuan Renminbi0.1453 0.1530 0.1471 0.1550China Yuan Renminbi0.14220.1490

(1)
(1)The average translation rates are the average of the monthly translation rates used during each period to translate the respective income statements.  The rates represent the U.S. dollar equivalent of a unit of each foreign currency.
The average translation rates are the average of the monthly translation rates used during each period to translate the respective income statements.  The rates represent the U.S. dollar equivalent of a unit of each foreign currency.



CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reported period.  In many cases, there are alternative policies or estimation techniques that could be used.  We continuously review the application of our accounting policies and evaluate the appropriateness of the estimates used in preparing our financial statements; however, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.  Consequently, actual results could differ from our estimates.
The accounting policies and estimates discussed below include those that we believe are the most critical to aid in fully understanding and evaluating our financial results.  Senior management has discussed the development and selection of our critical accounting policies and estimates with the Audit Committee of our Board of Directors, which has reviewed our related disclosures herein.
Inventory ValuationValuation-- We value inventory at the lower of cost or net realizable value, with cost determined using an average cost method. The estimated market value of inventory is determined based on an analysis of historical sales trends of our individual product categories, the impact of market trends and economic conditions, and a forecast of future demand, as well as plans to sell through inventory. Estimates may differ from actual results due to the quantity, quality, and mix of products in inventory, consumer and retailer preferences, and market conditions.conditions, such as those resulting from disease pandemics and other catastrophic events.  Our historical estimates have not differed materially from actual results and a 10% difference in our reserveresults.
The Company's estimated realizable value of its inventory as of August 3, 2019 would have impacted net income by approximately $0.1 million.  Our reserve balance at August 3, 2019 was approximately $1.7 million compared to $4.3 million at August 4, 2018.

May 2, 2020 reflects material adverse impacts associated with the COVID-19 pandemic business disruptions, which include the temporary closure of the Company's and its franchisees' stores, as well as significant declines in retail traffic.
Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts. A 0.5% difference in our shrinkage rate as a percentage of cost of goods sold could impact each quarter's net income by approximately $0.7$0.6 million.
Stock-Based Compensation- We account for stock-based compensation according to the provisions of FASB ASC 718-- Compensation-Stock Compensation.
Time Vesting and Performance-Based Awards
We generally grant time vesting and performance-based stock awards to employees at management levels and above.  We also grant time vesting stock awards to our non-employee directors.  Time vesting awards are granted in the form of restricted stock units that require each recipient to complete a service period ("Deferred Awards"). Deferred Awards granted to employees generally vest ratably over three years. Deferred Awards granted to non-employee directors generally vest after one year. Performance-based stock awards are granted in the form of restricted stock units which have a performance criteria that must be achieved for the awards to be earned in addition to a service period requirement ("Performance Awards"), and each Performance Award has a defined number of shares that an employee can earn (the "Target Shares"). With the approval of the Board's Compensation Committee, the Company may settle vested Deferred Awards and Performance Awards to the employee in shares, in a cash amount equal to the market value of such shares at the time all requirements for delivery of the award have been met, or in part shares and cash. For Performance Awards issued during fiscal 2017 (the “2017 Performance Awards”), an employee may earn from 0% to 200% of their Target Shares based on the cumulative adjusted earnings per share achieved for the applicable performance period, which is generally three years, adjusted operating margin expansion achieved for the performance period, and adjusted return on invested capital ("adjusted ROIC") achieved at the end of the performance period. The 2017 Performance Awards cliff vest, if earned, after completion of the applicable performance period. The fair value of the
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2017 Performance Awards granted is based on the closing price of our common stock on the grant date. For Performance Awards issued during fiscal 2018 and fiscal 2019 (the “2018 and 2019 Performance Awards”), an employee may earn from 0% to 250% of their Target Shares based on the cumulative adjusted earnings per share achieved for the applicable performance period, which is generally three years, adjusted operating margin expansion achieved for the performance period, adjusted ROIC achieved as of the end of the performance period, and our adjusted ROIC relative to that of companies in our peer group as of the end of the performance period. The 2018 and 2019 Performance Awards cliff vest, if earned, after completion of the performance period. The fair value of the 2018 and 2019 Performance Awards granted is based on the closing price of our common stock on the grant date. Compensation expense is recognized ratably over the related service period reduced for estimated forfeitures of those awards not expected to vest due to employee turnover. While actual forfeitures could vary significantly from those estimated, a 10% change in our estimated forfeiture rate would impact our fiscal 20192020 net income by approximately $0.5$0.9 million.
Impairment of Long-Lived Assets- We periodically review our long-lived assets when events indicate that their carrying value may not be recoverable.  Such events include a historical or projected trend of cash flow losses or a future expectation that we will sell or dispose of an asset significantly before the end of its previously estimated useful life.  In reviewing for impairment, we group our long-lived assets at the lowest possible level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
We review all stores that have been open for at least two years,reached comparable sales status, or sooner if circumstances should dictate, on at least an annual basis.  We believe waiting two yearsthis period of time allows a store to reach a maturity level where a more comprehensive analysis of financial performance can be performed. For each store that shows indications of operating losses,impairment, we project future cash flows over the remaining life of the lease, adjusted for lease payments, and compare the total undiscounted cash flows to the net book value of the related long-lived assets, including ROU assets.  If the undiscounted cash flows are less than the related net book value of the long-lived assets, they are written down to their fair market value.  We primarily use discounted future cash flows directly associated with those assets to determine fair market value to be the discounted future cash flows associated with thoseof long-lived assets and ROU assets.  In evaluating future cash flows, we consider external and internal factors.  External factors comprise the local environment in which the store resides, including mall traffic and competition and their effect on sales trends.trends, as well as macroeconomic factors, such as global pandemics.  Internal factors include our ability to gauge the fashion taste of our customers, control variable costs such as cost of sales and payroll, and in certain cases, our ability to renegotiate lease costs. If external factors should change unfavorably, if actual sales should differ from our projections, or if our ability to control costs is insufficient to sustain the necessary cash flows, future impairment charges could be material. At August 3, 2019,
Asset impairment charges during the averageFirst Quarter 2020 were related to underperforming stores identified in our ongoing store portfolio evaluation primarily as a result of decreased net book value per store was approximately $0.1 million.revenues and cash flow projections resulting from the COVID-19 disruption.
Income Taxes-We- We utilize the liability method of accounting for income taxes as set forth in FASB ASC 740--Income Taxes.740--Income Taxes.  Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities, as well as for net operating losses and tax credit carryforwards.  Deferred tax assets and liabilities are measured using currently enacted tax rates that apply to taxable income in effect for the years in which the basis differences and tax assets are expected to be realized.  A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.  In determining the need for valuation allowances, we consider projected future taxable income, the availability of tax planning strategies, taxable income in prior carryback years, and future reversals of existing taxable temporary differences.  If, in the future, we determine that we would not be able to realize our

recorded deferred tax assets, an increase in the valuation allowance would decrease earnings in the period in which such determination is made.
 We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances, and information available at the reporting date.  For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.
Fair Value Measurement and Financial Instruments- FASB ASC 820--Fair Value Measurements and DisclosureMeasurement provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities.
This topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The three levels of the hierarchy are defined as follows:
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Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities
Level 2 - inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
Level 3 - inputs to the valuation techniques that are unobservable for the assets or liabilities

Our cash and cash equivalents, accounts receivable, assets of the Company’s Deferred Compensation Plan, accounts payable, current lease liabilities, and revolving loan are all short-term in nature.  As such, their carrying amounts approximate fair value and fall within Level 1 of the fair value hierarchy. The Company stock included in the Deferred Compensation Plan is not subject to fair value measurement.

Our derivative assets and liabilities include foreign exchange forward contracts that are measured at fair value using observable market inputs such as forward rates, our credit risk, and our counterparties’ credit risks. Based on these inputs, our derivative assets and liabilities are classified within Level 2 of the valuationfair value hierarchy.

Our assets measured at fair value on a nonrecurring basis include long-lived assets, such as intangible assets, fixed assets, and right-of-useROU assets. We review the carrying amounts of such assets when events indicate that their carrying amounts may not be recoverable. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurements of the assets are considered to fall within Level 3 of the fair value hierarchy.
Insurance and Self-Insurance Liabilities- Based on our assessment of risk and cost efficiency, we self-insure as well as purchase insurance policies to provide for workers' compensation, general liability and property losses, cyber-security coverage, as well as directors' and officers' liability, vehicle liability, and employee medical benefits.  We estimate risks and record a liability based upon historical claim experience, insurance deductibles, severity factors, and other actuarial assumptions.  These estimates include inherent uncertainties due to the variability of the factors involved, including type of injury or claim, required services by the providers, healing time, age of claimant, case management costs, location of the claimant, and governmental regulations.  While we believe that our risk assessments are appropriate, these uncertainties or a deviation in future claims trends from recent historical patterns could result in our recording additional or reduced expenses, which may be material to our results of operations.  Our historical estimates have not differed materially from actual results and a 10% difference in our insurance reserves as of August 3, 2019May 2, 2020 would have impacted net income by approximately $0.5 million.
Recently Issued Accounting Standards

Adopted in Fiscal 2019

In August 2017, the FASB issued guidance relating to the accounting for hedging activities. This guidance aims to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in the guidance expand and refine hedge accounting for both non-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. We adopted this guidance in the first quarter of 2019. This adoption did not have a material impact on the Company’s consolidated financial statements.


In February 2016, the FASB issued guidance relating to the accounting for leases. This guidance applies a right-of-use model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset for the lease term and a liability to make lease payments. The lease term is the noncancellable period of the lease, and includes both periods covered by an option to extend the lease, if the lessee is reasonably certain to exercise that option, and periods covered by an option to terminate the lease, if the lessee is reasonably certain not to exercise that termination option. We adopted this guidance in the first quarter of 2019 using the modified-retrospective method. Refer to Note 3, "Leases”, for additional information.

To Be Adopted After Fiscal 2019

2020
In August 2018, the FASB issued guidance related to the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aims to alignaligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. TheWe adopted this guidance is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. We doin the First Quarter 2020. This adoption did not expect the guidance to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued guidance related to disclosure requirements for fair value measurement. The amendments modify current fair value measurement disclosure requirements by removing, adding, or modifying certain fair value measurement disclosures. TheWe adopted this guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We plan to adopt the new disclosure requirements on a prospective basis beginning in the year of adoption. We doFirst Quarter 2020. This adoption did not expect the guidance to have a material impact on our consolidated financial statements.

In June 2016, the FASB issued guidance related to the accounting for financial instrument credit losses. The guidance aims to provideprovides more decision-usefuldecision useful information about the expected credit losses on financial instruments by replacing the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We adopted this guidance in the First Quarter 2020. This adoption did not have a material impact on our consolidated financial statements.
To Be Adopted After Fiscal 2020
In December 2019, the FASB issued guidance related to the accounting for income taxes. The guidance aims to simplify the accounting for income taxes by removing certain exceptions to the general principles within the current guidance and by clarifying and amending the current guidance. The guidance is effective for annual reporting periods, and interim reporting periods within those years, beginning after December 15, 2019.2020. We do not expect the guidance to have a material impact on our consolidated financial statements.

RESULTS OF OPERATIONS
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The following table sets forth, for the periods indicated, selected statementstatements of operations data expressed as a percentage of net sales. We primarily evaluate the results of our operations as a percentage of net sales rather than in terms of absolute dollar increases or decreases by analyzing the year over year change in our business expressed as a percentage of net sales (i.e., “basis points”). For example, gross profit decreasedSG&A increased approximately 150760 basis points to 33.0%38.6% of net sales during the SecondFirst Quarter 20192020 from 34.5%31.0% during the SecondFirst Quarter 2018.2019.  Accordingly, to the extent that our sales have increased at a faster rate than our costs (i.e., “leveraging”), the more efficiently we have utilized the investments we have made in our business.  Conversely, if our sales decrease or if our costs grow at a faster pace than our sales (i.e., “de-leveraging”), we have less efficiently utilized the investments we have made in our business.
 Thirteen Weeks Ended Twenty-six Weeks Ended
 August 3,
2019
 August 4,
2018
 August 3,
2019
 August 4,
2018
Net sales100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales (exclusive of depreciation and amortization)67.0
 65.5
 65.1
 64.4
Gross profit33.0
 34.5
 34.9
 35.6
Selling, general, and administrative expenses27.7
 27.7
 29.3
 27.4
Depreciation and amortization4.4
 3.7
 4.4
 3.8
Asset impairment charge
 0.9
 0.1
 0.6
Operating income0.9
 2.2
 1.1
 3.7
Interest (expense), net(0.5) (0.2) (0.5) (0.2)
Income before income taxes0.4
 2.0
 0.6
 3.6
Provision (benefit) for income taxes
 0.4
 (0.1) (0.8)
Net income0.4 % 1.7 % 0.7 % 4.4 %
Number of Company-operated stores, end of period961
 992
 961
 992

 Thirteen Weeks Ended
 May 2,
2020
May 4,
2019
Net sales100.0 %100.0 %
Cost of sales (exclusive of depreciation and amortization)107.7  63.1  
Gross profit (loss)(7.7) 36.9  
Selling, general, and administrative expenses38.6  31.0  
Depreciation and amortization7.0  4.5  
Asset impairment charges14.5  0.1  
Operating income (loss)(67.8) 1.2  
Income (loss) before benefit for income taxes(68.6) 0.8  
Benefit for income taxes(23.6) (0.3) 
Net income (loss)(45.0)%1.1 %
Number of Company-operated stores, end of period920  971  

 Table may not add due to rounding.
 

The following tables settable sets forth net sales by segment, for the periods indicated.
Thirteen Weeks Ended Twenty-six Weeks Ended Thirteen Weeks Ended
August 3,
2019
 August 4,
2018
 August 3,
2019
 August 4,
2018
May 2,
2020
May 4,
2019
Net sales:(In thousands) Net sales:(In thousands) 
The Children’s Place U.S.$374,725
 $399,299
 $749,381
 $795,077
The Children’s Place U.S.$234,948  $374,657  
The Children’s Place International45,745
 49,419
 83,470
 89,954
The Children’s Place International20,259  37,725  
Total net sales$420,470
 $448,718
 $832,851
 $885,031
Total net sales$255,207  $412,382  
 
SecondFirst Quarter 20192020 Compared to the SecondFirst Quarter 20182019
 
Net salesdecreased by $28.2$157.2 million, or 6.3%38.1%, to $420.5$255.2 million during the SecondFirst Quarter 20192020 from $448.7$412.4 million during the SecondFirst Quarter 2018.2019.  The net sales decrease of $28.2$157.2 million was primarily driven by a Comparable Retail Sales decrease of 3.8%,resulted from temporary store closures on March 18, 2020 due to the adverse impact of competitor liquidations, and operating fewer stores.COVID-19 pandemic.
We believe that our e-commerce and brick-and-mortar retail store operations are highly interdependent, with both sharing common customers purchasing from a common pool of product inventory. Accordingly, we believe that consolidated omni-channel reporting presents the most meaningful and appropriate measure of our performance, including Comparative Retail Sales and net sales.
The Children’s Place U.S. net sales decreased $24.6$139.8 million, or 6.2%37.3%, to $234.9 million in the First Quarter 2020 compared to $374.7 million in the SecondFirst Quarter 2019 compared to $399.3 million in the Second Quarter 2018.2019.  This decrease primarily resulted from a U.S. Comparable Retail Sales decrease of 4.2%,temporary store closures due to the adverse impact of competitor liquidations, and operating fewer stores.COVID-19 pandemic.
The Children’s Place International net sales decreased $3.7$17.4 million, or 7.5%46.2%, to $45.7$20.3 million in the SecondFirst Quarter 20192020 compared to $49.4$37.7 million in the SecondFirst Quarter 2018.2019.  The decrease resulted primarily from operating fewer stores,temporary store closures and a decrease in revenue from international franchisees and unfavorable changes indue to the Canadian exchange rate.COVID-19 pandemic.
Total e-commerce sales, which include postage and handling, increased to approximately 28.6%53.0% of net sales during the SecondFirst Quarter 2020 from 29.2% during the First Quarter 2019 from approximately 26.2% during the Second Quarter 2018.due to accelerating e-commerce demand.
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Gross profit (loss) decreased by $16.0$171.7 million to $138.8$(19.7) million during the SecondFirst Quarter 20192020 from $154.8$152.0 million during the SecondFirst Quarter 2018.  Gross2019.  The comparability of our gross profit (loss) was impacted by an inventory provision of approximately $63.2, related to the adverse business disruption resulting from the COVID-19 pandemic, including the store closures; occupancy expense of approximately $23.1 million for our stores temporarily closed due to COVID-19; and incremental expenses, primarily personal protective equipment and incentive pay for our associates, of approximately $1.7 million. Excluding the impact of these charges, gross margin de-leveraged 150990 basis points to 33.0% during the Second Quarter 2019 from 34.5% during the Second Quarter 2018.points. The decrease resulted primarily from de-leverage of fixed expenses due to negative Comparable Retail Sales and the continued increased penetration of our e-commerce business and its higher fulfillment costs, along with a modestthe deleverage of fixed expenses resulting from the decline in merchandise marginsales as a result of difficult traffic, which ledstore closures related to an increase in promotional activity across the sector.COVID-19 pandemic.
Gross profit as a percentage of net revenues is dependent upon a variety of factors, including changes in the relative sales mix among distribution channels, changes in the mix of products sold, the timing and level of promotional activities, foreign currency exchange rates, and fluctuations in material costs. These factors, among others, may cause gross profit as a percentage of net sales to fluctuate from period to period.
Selling, general, and administrative expenses decreased $7.8$29.5 million to $116.4$98.5 million during the SecondFirst Quarter 20192020 from $124.2$128.0 million during the SecondFirst Quarter 2018. As a percentage2019. The comparability of net sales,our SG&A was flat at 27.7%.impacted by: payroll and benefit costs for certain employees during the period our stores were closed due to the COVID-19 pandemic, net of a payroll tax credit benefit resulting from the CARES Act, of approximately $4.2 million; restructuring costs, primarily related to severance costs for corporate associates, of approximately $3.4 million; the write-off of certain account receivables of approximately $1.0 million; and incremental operating expenses, primarily personal protective equipment for our associates, of approximately $0.7 million. Excluding the impact of these charges, SG&A de-leveraged 380 basis points due to the de-leverage of fixed expenses resulting from the decline in sales as a result of temporary store closures, partially offset by a reduction in operating expenses associated with actions taken in response to the COVID-19 pandemic.
Asset impairment charges were $0.1$37.1 million during the SecondFirst Quarter 2020, including the ROU assets recorded in connection with Topic 842, primarily for 412 stores. These charges were related to underperforming stores identified in our ongoing store portfolio evaluation primarily as a result of decreased net revenues and cash flow projections resulting from the COVID-19 disruption. Asset impairment charges during the First Quarter 2019 primarily all ofwere $0.3 million, which related to the full impairment of twoprimarily five stores. Asset impairment charges during the Second Quarter 2018 were $4.0 million, of which $0.6 million related to the full impairment of primarily two stores, and $3.4 million related to the write-down of information technology systems.
Depreciation and amortization was $18.5$17.9 million during the SecondFirst Quarter 20192020 compared to $16.6$18.6 million during the SecondFirst Quarter 2018 reflecting increased depreciation associated with our ongoing investment in business transformation initiatives.2019.
ProvisionBenefit for income taxes was an expense of $35 thousand during the Second Quarter 2019 compared to an expense of $1.6$60.2 million during the SecondFirst Quarter 2018.2020 compared to a benefit of $1.2 million during the First Quarter 2019.  Our effective tax rate was 2.2%a benefit of 34.4% and 17.5%35.0% in the SecondFirst Quarter 2020 and the First Quarter 2019, and the Second Quarter 2018, respectively. The effective tax rateFirst Quarter 2020 benefit was lower duringprimarily driven by a favorable benefit due to the Secondenactment of the CARES Act. The First Quarter 2019 benefit was primarily due to a higher

driven by an excess tax benefit related to the vesting of equity shares, onwhich caused a percentage basis during the Second Quarter 2019 when applied to income before provisionbenefit for income taxes year over year.in the quarter.
Net income (loss) was $1.5$(114.8) million during the SecondFirst Quarter 20192020 compared to $7.5income of $4.5 million during the SecondFirst Quarter 2018,2019, due to the COVID-19 pandemic and the other factors discussed above.  Earnings (loss) per diluted share was $0.10a loss of $(7.86) in the SecondFirst Quarter 20192020 compared to $0.45earnings of $0.28 per diluted share in the SecondFirst Quarter 2018.2019.  This decrease in earnings per share is due to the factors noted above, partially offset by a lower weighted average common shares outstanding of approximately 0.91.5 million, which is the result of our share repurchase program.
Year-To-Date 2019 Compared to the Year-To-Date 2018
Net sales decreased by $52.1 million, or 5.9%, to $832.9 million during Year-To-Date 2019 from $885.0 million during Year-To-Date 2018.  The net sales decrease was primarily driven by a Comparable Retail Sales decrease of 4.2%, the adverse impact of competitor liquidations, and operating fewer stores.
We believe that our e-commerce and brick-and-mortar retail store operations are highly interdependent, with both sharing common customers purchasing from a common pool of product inventory. Accordingly, we believe that consolidated omni-channel reporting presents the most meaningful and appropriate measure of our performance, including Comparative Retail Sales and net sales.
The Children’s Place U.S. net sales decreased $45.7 million, or 5.7%, to $749.4 million during Year-To-Date 2019 compared to $795.1 million during Year-To-Date 2018.  This decrease primarily resulted from a U.S. Comparable Retail Sales decrease of 4.3%, the adverse impact of competitor liquidations, and operating fewer stores.
The Children’s Place International net sales decreased $6.5 million, or 7.2%, to $83.5 million during Year-To-Date 2019 compared to $90.0 million during Year-To-Date 2018.  The decrease resulted primarily from a Canadian Comparable Retail Sales decrease of 2.9%, operating fewer stores, and unfavorable changes in the Canadian exchange rate.
Total e-commerce sales, which include postage and handling, increased to approximately 28.9% of net sales during Year-To-Date 2019 from approximately 26.5% during Year-To-Date 2018.
Gross profit decreased by $24.2 million to $290.8 million during Year-To-Date 2019 from $315.0 million during Year-To-Date 2018.  Gross margin de-leveraged 70 basis points to 34.9% during Year-To-Date 2019 from 35.6% during Year-To-Date 2018. The de-leverage resulted primarily from de-leverage of fixed expenses due to negative Comparable Retail Sales and increased penetration of our e-commerce business, which operates at a lower gross margin rate due to higher fulfillment costs.
Gross profit as a percentage of net revenues is dependent upon a variety of factors, including changes in the relative sales mix among distribution channels, changes in the mix of products sold, the timing and level of promotional activities, foreign currency exchange rates, and fluctuations in material costs. These factors, among others, may cause gross profit as a percentage of net sales to fluctuate from period to period.
Selling, general, and administrative expenses increased $1.7 million to $244.4 million during Year-To-Date 2019 from $242.7 million during Year-To-Date 2018. As a percentage of net sales, SG&A increased 190 basis points to 29.3% during Year-To-Date 2019 from 27.4% during Year-To-Date 2018. The de-leverage was primarily due to de-leverage of fixed expenses due to negative Comparable Retail Sales and higher incentive compensation expense.
Asset impairment charges were $0.5 million during Year-To-Date 2019, primarily all of which related to the full impairment of seven stores. Asset impairment charges during Year-To-Date 2018 were $5.2 million, of which $0.8 million related to the full impairment of primarily four stores, and $4.4 million related to the write-down of information technology systems.
Depreciation and amortization was $37.1 million during Year-To-Date 2019 compared to $34.0 million during Year-To-Date 2018 reflecting increased depreciation associated with our ongoing investment in business transformation initiatives.
Benefit for income taxes was $1.1 million during Year-To-Date 2019 compared to $7.2 million during Year-To-Date 2018.  Our effective tax rate was (23.1)% and (22.6)% during Year-To-Date 2019 and Year-To-Date 2018, respectively. The effective tax rate was lower for the Year-To-Date 2019 primarily due to a higher excess tax benefit related to the vesting of equity shares on a percentage basis during Year-To-Date 2019 when applied to income before provision for income taxes year over year.
Net income was $6.0 million during Year-To-Date 2019 compared to $39.0 million during Year-To-Date 2018, due to the factors discussed above.  Earnings per diluted share was $0.38 during Year-To-Date 2019 compared to $2.27 per diluted share during Year-To-Date 2018.  This decrease in earnings per share is due to the factors noted above, partially offset by a lower

weighted average common shares outstanding of approximately 1.2 million, which is the result of our share repurchase program.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
In response to the COVID-19 pandemic, the Company has taken the following actions to preserve financial flexibility:
Executing a substantial reduction and/or deferral of all non-essential expenses and capital expenditures;
Collaborating with vendor partners to extend payment terms and balance forward inventory receipts to reflect reduced demand;
Suspended rent payments on all of our U.S. and Canadian retail stores;
Evaluating our options on store lease events occurring through the end of fiscal 2021, which impact approximately 70% of our current store fleet, targeting 300 additional retail store closures through fiscal 2021;
Effective April 1, 2020, Jane Elfers, President and Chief Executive Officer, agreed to forgo 100% of her salary until further notice. In addition, the senior leadership team took a temporary 25% reduction in salary until further notice and the independent Directors of the Board unanimously approved to forgo their cash compensation until further notice;
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Effective April 5, 2020, all U.S. and Canadian field management and store associates were temporarily furloughed. We continue to furlough a portion of our U.S. and Canadian field management and store associates not supporting ship from store activities;
Effective April 5, 2020, we instituted a combination of temporary furloughs and pay reductions for the substantial majority of our corporate staff;
Finalized an amendment to our revolving credit facility, which increased borrowing capacity from $325 million to $360 million for a period of one year; and
Temporarily suspended the Company’s capital return program, inclusive of share repurchases and dividends.

Our working capital needs typically follow a seasonal pattern, peaking during the third fiscal quarter based on seasonal inventory purchases.  Our primary uses of cash are for working capital requirements, which are principally inventory purchases, and the financing of capital projects, including investments in new systems, and, prior to the suspension of our capital return program, the repurchases of our common stock and payment of dividends.
Our working capital decreased $279.2deficit increased $164.6 million to a deficit of $152.8$290.8 million at August 3, 2019May 2, 2020 compared to $126.4$126.2 million at AugustMay 4, 2018,2019, primarily due to seasonal cash usage and the fundingimpact of the Gymboree assets acquisition andCOVID-19 pandemic, partially offset by cash management. During the adoption of Topic 842, which resulted in an increase in current lease liabilities. During Year-To-Date 2019,First Quarter 2020, we repurchased approximately 0.60.3 million shares for approximately $60.4$14.6 million.  During Year-To-Date 2018, wethe First Quarter 2019, the Company repurchased approximately 1.50.3 million shares for approximately $187.5 million. We also paid cash dividends$33.3 million, inclusive of $17.8 millionshares repurchased and $16.7 million during Year-To-Date 2019 and Year-To-Date 2018, respectively. Subsequentsurrendered to August 3, 2019 and through August 23, 2019, we repurchased approximately 0.1 million shares for approximately $8.3 million and declared a quarterly cash dividendcover tax withholdings associated with the vesting of $0.56 per share to be paid on October 4, 2019 to shareholders of record at the close of business on September 23, 2019.equity awards.
Our credit facility provides for borrowings up to the lesser of $325.0$360.0 million, until April 2021, when it reduces to $325 million, or our borrowing base, as defined by the credit facility agreement (see “Credit Facility” below).  At August 3, 2019,May 2, 2020, we had $196.4$234.6 million of outstanding borrowings and $122.5$88.4 million available for borrowing. In addition, at August 3, 2019,May 2, 2020, we had $6.2 million of outstanding letters of credit with an additional $43.8 million available for issuing letters of credit.
We expect to be able to meet our working capital and capital expenditure requirements for the foreseeable future by using our cash on hand, cash flows from operations, and availability under our credit facility. 
Credit Facility
We and certain of our subsidiaries maintain a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), Bank of America, N.A., HSBC Business Credit (USA) Inc., and JPMorgan Chase Bank, N.A. as lenders (collectively, the “Lenders”) and Wells Fargo, as Administrative Agent, Collateral Agent, and Swing Line Lender (the “Credit Agreement”). The Credit Agreement was amended and restated on May 9, 2019, and the provisions below reflect the terms of the amended Credit Agreement.
The Credit Agreement, which expires in May 2024, consists of a $325$360 million asset based revolving credit facility, that was recently increased from $325 million as a result of finalizing an amendment with lenders on April 24, 2020 to secure the Company an additional $35 million available under the accordion feature for a period of one year, and including a $25 million Canadian sublimit, with a $50$50 million sublimit for standby and documentary letters of credit and an uncommitted accordion feature that could provide up to $50 million of additional availability.credit. Revolving credit loans outstanding under the Credit Agreement bear interest, at the Company’s option, at:
(i)the prime rate plus a margin of 1.75% to 1.88% based on the amount of our average excess availability under the facility; or
(i)
the prime rate plus a margin of 0.38% to 0.50% based on the amount of our average excess availability under the facility; or
(ii)
the London InterBank Offered Rate, or “LIBOR”, for an interest period of one, two, three, or six months, as selected by us, plus a margin of 1.13% to 1.38% based on the amount of our average excess availability under the facility.
(ii)the London InterBank Offered Rate, or “LIBOR”, for an interest period of one, two, three, or six months, as selected by us, plus a margin of 2.50% to 2.75% based on the amount of our average excess availability under the facility.
We are charged an unused line fee of 0.20%0.25% on the unused portion of the commitments.  Letter of credit fees range from 0.56%1.25% to 0.69%1.38% for commercial letters of credit and range from 0.63%2.00% to 0.88%2.25% for standby letters of credit.  Letter of credit fees are determined based on the amount of our average excess availability under the facility. The amount available for loans and letters of credit under the Credit Agreement is determined by a borrowing base consisting of certain credit card receivables, certain trade and franchise receivables, certain inventory, and the fair market value of certain real estate, subject to certain reserves.
The outstanding obligations under the Credit Agreement may be accelerated upon the occurrence of certain events, including, among others, non-payment, breach of covenants, the institution of insolvency proceedings, defaults under other material indebtedness and a change of control, subject, in the case of certain defaults, to the expiration of applicable grace periods.  We are not subject to any early termination fees. 
The Credit Agreement contains covenants, which include conditions on stock repurchases and the payment of cash dividends or similar payments.  Credit extended under the Credit Agreement is secured by a first priority security interest in substantially all of the Company’s U.S. and Canadian assets excluding intellectual property, software, equipment, and fixtures.

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We have capitalized an aggregate of approximately $5.0$5.3 million in deferred financing costs related to the Credit Agreement. The unamortized balance of deferred financing costs at August 3, 2019May 2, 2020 was approximately $1.0$1.1 million. Unamortized deferred financing costs are amortized over the remaining term of the Credit Agreement.
Cash Flows/Capital Expenditures
During Year-To-Date 2019,the First Quarter 2020, cash flows used in operating activities were $40.5 million compared to cash flows provided by operating activities were $23.3 million compared to $11.3of $21.2 million during Year-To-Date 2018.the First Quarter 2019. The increasedecrease was primarily as a result of a net loss in the quarter due to temporary store closures due to the COVID-19 pandemic, partially offset by strategic working capital management.management and the extension of vendor payment terms.
During Year-To-Date 2019,the First Quarter 2020, cash flows used in investing activities were $97.5$5.6 million compared to $13.3$86.5 million during Year-To-Date 2018.the First Quarter 2019. This change was primarily due to the Gymboree intellectual property and related assets acquisition.acquisition during the First Quarter 2019 and a reduction in capital expenditures.
During Year-To-Date 2019,the First Quarter 2020, cash flows provided by financing activities were $69.3$49.2 million compared to cash flows used in financing activities of $136.4$62.0 million during Year-To-Date 2018.the First Quarter 2019.  The increasedecrease primarily resulted from an increasea decrease in borrowings under our revolving credit facility, andpartially offset by a decrease in purchases of our common stock primarily related to our accelerated share repurchase program during Year-To-Date 2018.
We anticipate that total capital expenditures will be approximately $65 to $70 million in fiscal 2019, primarily related to our business transformation initiatives, system integration costs associated with our re-launchand the suspension of the Gymboree brand,payment of dividends. In March 2020, we temporarily suspended our capital return program, inclusive of share repurchases and new store openings, compared to $71 million in fiscal 2018. dividends.
Our ability to continue to meet our capital requirements in fiscal 20192020 depends on our cash on hand, our ability to generate cash flows from operations, and our available borrowings under our credit facility.  Cash flow generated from operations depends on our ability to achieve our financial plans.  During Year-To-Date 2019,the First Quarter 2020, we were able to fund our capital expenditures with cash on hand and cash generated from operating activities supplemented by funds from our credit facility.  We believe that our existing cash on hand, cash generated from operations, and funds available to us through our credit facility will be sufficient to fund our capital and other cash requirements for the foreseeable future. 
Derivative Instruments
We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates attributable to inventory purchases denominated in a foreign currency. Specifically, our Canadian subsidiary’s functional currency is the Canadian dollar but purchases inventory from suppliers in U.S. dollars. In order to mitigate the variability of cash flows associated with certain of these forecasted inventory purchases, we enter into foreign exchange forward contracts. These contracts typically mature within 12 months. We do not use forward contracts to engage in currency speculation, and we do not enter into derivative financial instruments for trading purposes.
All derivative instruments are presented at gross fair value on the consolidated balance sheets within either prepaid expenses and other current assets or accrued expenses and other current liabilities. As of August 3, 2019,May 2, 2020, we had foreign exchange forward contracts with an aggregate notional amount of $15.9$2.7 million, and the fair value of the derivative instruments was an asset of $1.5$1.4 million.

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of business, our financial position and results of operations are routinely subject to market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities, income, and expenses.  We utilize cash from operations and short-term borrowings to fund our working capital and investment needs. 
Cash and Cash Equivalents
Cash and cash equivalents are normally invested in short-term financial instruments that will be used in operations within 90 days of the balance sheet date.  Because of the short-term nature of these instruments, changes in interest rates would not materially affect the fair value of these financial instruments. 
Interest Rates
Our credit facility bears interest at a floating rate equal to the prime rate or LIBOR, plus a calculated spread based on our average excess availability.  As of August 3, 2019,May 2, 2020, we had $196.4$234.6 million in borrowings under our credit facility. A 10% change in the prime rate or LIBOR interest rates would not have had a material impact on our interest expense.



Foreign Assets and Liabilities
Assets and liabilities outside the United States are primarily located in Canada and Hong Kong.  Our investments in our Canadian and Hong Kong subsidiaries are considered long-term. As of August 3, 2019,May 2, 2020, net assets in Canada and Hong Kong were
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approximately $34.6$29.4 million and $38.6$8.4 million, respectively.  A 10% increase or decrease in the Canadian and Hong Kong exchange rates would increase or decrease the corresponding net investment by approximately $3.5$2.9 million and $3.9$0.8 million, respectively.  All changes in the net investment of our foreign subsidiaries are recorded in other comprehensive income as unrealized gains or losses. 
As of August 3, 2019,May 2, 2020, we had approximately $56.3$20.9 million of our cash and cash equivalents held in foreign countries, of which approximately $13.4$12.5 million was in Canada, approximately $38.5$4.1 million was in Hong Kong, and approximately $4.4$4.3 million was in other foreign countries.
Foreign Operations
We have exchange rate exposure primarily with respect to certain revenues and expenses denominated in Canadian dollars. As a result, fluctuations in exchange rates impact the amount of our reported sales and expenses.  Assuming a 10% change in foreign exchange rates, Year-To-Date 2019First Quarter 2020 net sales could have decreased or increased by approximately $7.1$1.7 million, and total costs and expenses could have decreased or increased by approximately $9.8$5.8 million.  Additionally, we have foreign currency denominated receivables and payables that when settled, result in transaction gains or losses.  At August 3, 2019,May 2, 2020, we had foreign currency denominated receivables and payables, including inter-company balances, of $3.5$8.6 million and $5.3$5.1 million, respectively.
Our Canadian subsidiary’s functional currency is the Canadian dollar but purchases inventory from suppliers in U.S. dollars. In order to mitigate the variability of cash flows associated with certain of these forecasted inventory purchases, we enter into foreign exchange forward contracts. As of August 3, 2019,May 2, 2020, we had foreign exchange forward contracts with an aggregate notional amount of $15.9$2.7 million, and the fair value of the derivative instruments was an asset of $1.5$1.4 million. Assuming a 10% change in Canadian foreign exchange rates, the fair value of these instruments could have decreased by or increased by approximately $1.6$0.3 million. Any resulting changes in the fair value of the instruments would be partially offset by changes in the underlying balance sheet positions. We do not hedge all transactions denominated in foreign currency.
We import a vast majority of our merchandise from foreign countries, primarily Cambodia, China, Bangladesh,India, Vietnam, India, and Indonesia.  Consequently, any significant or sudden change in these foreign countries' political, foreign trade, financial, banking or currency policies and practices, or the occurrence of significant labor unrest, could have a material adverse impact on our financial position, results of operations, and cash flows.

Item 4.CONTROLS AND PROCEDURES.
Item 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed only to provide "reasonable assurance"“reasonable assurance” that the controls and procedures will meet their objectives. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our companyCompany have been detected.
Management, including our Chief Executive Officer and President and our Chief Operating Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), as of August 3, 2019.May 2, 2020. Based on that evaluation, our Chief Executive Officer and President and our Chief Operating Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level, as of August 3, 2019,May 2, 2020, to ensure that all information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including our principal executive, principal accounting, and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS.
Item 1.LEGAL PROCEEDINGS.
 
Certain legal proceedings in which we are involved are discussed in Note 1012 to the consolidated financial statements and Part I, Item 3 of our Annual Report on Form 10-K for the year ended February 2, 2019.1, 2020. See Note 10 to the accompanying consolidated financial statements for a discussion of the recent developments concerning our legal proceedings.
 
Item 1A.RISK FACTORS.
Item 1A.RISK FACTORS.
 
There werehave been no material changes to the risk factors disclosed in Item 1A of Part I in our Annual Report on Form 10-K for the year ended February 1, 2020, other than as set out below.
The COVID-19 pandemic has significantly disrupted and is expected to continue to significantly disrupt our business, which in turn could have a material adverse effect on our business, financial condition, and results of operations.

In December 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) that began in Wuhan, China and has since spread to the other regions of the world. In March 2020, the World Health Organization declared COVID-19 a global pandemic and the President of the United States declared a national emergency. Federal, state, and local governments and private entities mandated various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories, and quarantining of people who may have been exposed to the virus. The COVID-19 pandemic has significantly negatively affected the global economy, significantly disrupted global supply chains, and created significant disruption of the financial and retail markets, including a significant disruption in consumer demand for children’s clothing and accessories.

The COVID-19 pandemic has had, and will likely continue to have, a significant adverse effect on our business, financial condition, and results of operations. For example:

February 2, 2019In March 2020, for the safety of customers and employees, we suspended retail store operations in the U.S. and Canada, which has had a significant adverse effect on the results of operations of our business. On May 19, 2020 the Company reopened stores in ten states, and we intend to continue to reopen our stores on a phased timeline, as state and local guidelines and conditions permit, taking an informed, measured approach. The decision to reopen stores is driven by a number of factors, including evaluating the safety of the Company’s customers and employees, as well as an evaluation of guidance provided by the federal, state, and local governments.

.The Company experienced reductions and volatility in demand for its retail products as customers are not able to purchase merchandise due to illness, quarantine, or government or self-imposed restrictions placed on the Company’s stores’ operations. Additionally, the Company expects that social distancing measures and changes in consumer spending behaviors due to COVID-19 may continue to impact traffic in stores after operations are resumed and such actions could result in a significant loss of sales and profit.

The Company has experienced, and may continue to experience, significant temporary or long-term disruptions in its global supply chain, as the outbreak has resulted in travel disruptions and has significantly adversely impacted manufacturing and distribution throughout the world. The receipt of products or raw material sourced from impacted areas has been, and may continue to be, slowed or disrupted which could adversely impact the fulfillment of merchandise orders from the Company’s vendors.

 Our management has been focused on mitigating the effects of the COVID-19 pandemic, including reducing costs, inventory commitments, and capital expenditures, which has required and will continue to require, a significant investment of time and resources across our enterprise. Actions to mitigate the effects of the outbreak include:

Executing a substantial reduction and/or deferral of all non-essential expenses and capital expenditures;
Collaborating with vendor partners to extend payment terms and balance forward inventory receipts to reflect reduced demand;
Suspended rent payments on all of our U.S. and Canadian retail stores;
Evaluating our options on store lease events occurring through the end of fiscal 2021, which impact approximately 70% of our current store fleet, targeting 300 additional retail store closures through fiscal 2021;
Effective April 1, 2020, Jane Elfers, President and Chief Executive Officer, agreed to forgo 100% of her salary until further notice. In addition, the senior leadership team took a temporary 25% reduction in salary until further notice
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and the independent Directors of the Board unanimously approved to forgo their cash compensation until further notice;
Effective April 5, 2020, all U.S. and Canadian field management and store associates were temporarily furloughed. We continue to furlough a portion of our U.S. and Canadian field management and store associates not supporting ship from store activities;
Effective April 5, 2020, we instituted a combination of temporary furloughs and pay reductions for the substantial majority of our corporate staff;
Finalized an amendment to our revolving credit facility, which increased borrowing capacity from $325 million to $360 million for a period of one year; and
Temporarily suspended the Company’s capital return program, inclusive of share repurchases and dividends.
These measures, other measures taken in response to the COVID-19 pandemic, and/or the significant disruptions caused by the COVID-19 pandemic may have a material adverse effect on our business, financial condition, and results of operations.

The Company cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can it predict the severity and duration of its impact. As such, impacts of COVID-19 on the Company are highly uncertain, and the Company will continue to assess the financial impacts. The significant disruption to the global economy and to the Company's business may lead to additional triggering events that may indicate that the carrying value of certain assets, including inventories, long-lived assets, and intangibles may not be recoverable. The situation is changing rapidly and future material impacts may materialize that are not yet known.

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
In March 2018, the Board of Directors authorized a $250 million share repurchase program (the "2018“2018 Share Repurchase Program"Program”). Under the Share Repurchase Programs,Program, the Company may repurchase shares inon the open market at current market prices at the time of purchase or in privately negotiated transactions. The timing and actual number of shares repurchased under the programs will depend on a variety of factors including price, corporate and regulatory requirements, and other market and business conditions. We may suspend or discontinue the program at any time, and may thereafter reinstitute purchases, all without prior announcement.

The following table provides a month-by-month summary of our share repurchase activity during the SecondFirst Quarter 2019:2020:
PeriodTotal Number of
Shares Purchased
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Approximate Dollar
Value (in thousands) of
Shares that May Yet
Be Purchased Under
the Plans or Programs
2/2/20-2/29/20 (1)
150,450  $65.57  149,395  $98,552  
3/1/20-4/4/20 (2)
95,227  45.39  95,227  94,230  
4/5/20-5/2/20 (3)
17,722  23.96  17,722  93,805  
Total263,399  $55.47  262,344  $93,805  

(1) Consists of 1,055 shares acquired as treasury stock as directed by participants in the Company's deferred compensation plan and 4,971 shares withheld to cover taxes in conjunction with the vesting of stock awards.
(2) Consists of 1,227 shares withheld to cover taxes in conjunction with the vesting of stock awards.
(3) Consists of 17,722 shares withheld to cover taxes in conjunction with the vesting of stock awards.




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Period 
Total Number of
Shares Purchased
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
 
Approximate Dollar
Value (in thousands) of
Shares that May Yet
Be Purchased Under
the Plans or Programs
5/5/19-6/1/19 (1)
 113,658
 $108.08
 113,020
 $193,500
6/2/19-7/6/19 (2)
 118,516
 94.28
 118,516
 182,326
7/7/19-8/3/19 (3)
 38,509
 96.68
 38,509
 178,603
Total 270,683
 $100.42
 270,045
 $178,603

Consists of 638 shares acquired as treasury stock as directed by participants in the Company's deferred compensation plan and 39,187 shares withheld to cover taxes in conjunction with the vesting of stock awards.
(2)
Consists of 406 shares withheld to cover taxes in conjunction with the vesting of stock awards.
(3)
Consists of 109 shares withheld to cover taxes in conjunction with the vesting of stock awards.




Item 6.Exhibits.
Item 6. Exhibits.
 
The following exhibits are filed with this Quarterly Report on Form 10-Q:
 
First amendment to amended and restated credit agreement, dated April 24, 2020, by and among the Company and The Children's Place Services Company, LLC, as borrowers The Children's Place (International), LLC, The Children's Place Canada Holdings, Inc., the childrensplace.com, inc., TCP IH II, LLC, TCP International IP Holdings, LLC and TCP International Product Holdings, LLC, as
guarantors, Wells Fargo Bank, National Association (successor by merger to Wells Fargo Retail Finance, LLC), as Administrative Agent and Collateral Agent, L/C Issuer, Swing Line Lender and as a lender and HSBC Bank USA, N.A. and JPMorgan Chase Bank, N.A., as lenders.

101.INS*XBRL Instance Document.
101.SCH*XBRL Taxonomy Extension Schema.
101.CAL*XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*XBRL Taxonomy Extension Definition Linkbase.
101.LAB*XBRL Taxonomy Extension Label Linkbase.
101.PRE*XBRL Taxonomy Extension Presentation Linkbase.


(+) Filed herewith.
(*) Compensation arrangement.

*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement  or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement  or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
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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, thereunto duly authorized.
THE CHILDREN’S PLACE, INC.
Date:June 11, 2020By:/S/ JANE T. ELFERS
JANE T. ELFERS
Chief Executive Officer and President
(Principal Executive Officer)
Date:June 11, 2020THE CHILDREN’S PLACE, INC.
By:
Date:August 27, 2019By:/S/ JANE T. ELFERS
JANE T. ELFERS
Chief Executive Officer and President
(Principal Executive Officer)
Date:August 27, 2019By:/S/ ROBERT HELM
ROBERT HELM
GroupSenior Vice President, Finance and AccountingInventory Management
(Principal Accounting Officer)

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