SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 5, 2001
/ / 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 CHILDREN'S PLACE RETAIL STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 31-1241495
(State or other jurisdiction of (I. R. S. employer identification
incorporation or organization) number)
915 SECAUCUS ROAD
SECAUCUS, NEW JERSEY 07094
(Address of Principal Executive Offices) (Zip Code)
(201) 558-2400
(Registrant's Telephone Number, Including Area Code)
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 / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $0.10 per share, outstanding at June 1, 2001:
26,245,561 shares.
THE CHILDREN'S PLACE RETAIL STORES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MAY 5, 2001
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements: PAGE
Consolidated Balance Sheets.................................... 1
Consolidated Statements of Income.............................. 2
Consolidated Statements of Cash Flows.......................... 3
Notes to Consolidated Financial Statements..................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 5
Item 3. Quantitative and Qualitative Disclosures about Market Risks.... 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 8
Item 6. Exhibits and Reports on Form 8-K .............................. 8
Signatures.............................................................. 9
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
THE CHILDREN'S PLACE RETAIL STORES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MAY 5, 2001 FEBRUARY 3, 2001
----------- ----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 24,193 $ 8,141
Accounts receivable ....................................................... 13,165 9,118
Inventories ............................................................... 48,404 68,105
Prepaid expenses and other current assets ................................. 11,974 11,054
Deferred income taxes ..................................................... 2,555 2,555
--------- ---------
Total current assets ................................................... 100,291 98,973
Property and equipment, net ................................................... 130,317 121,975
Deferred income taxes ......................................................... 4,166 4,166
Other assets .................................................................. 8,431 6,582
--------- ---------
Total assets ........................................................... $ 243,205 $ 231,696
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Revolving credit facility ................................................. $ 0 $ 3,324
Accounts payable .......................................................... 19,918 28,366
Taxes payable ............................................................. 8,736 2,656
Accrued expenses, interest and other current liabilities .................. 26,832 23,683
--------- ---------
Total current liabilities .............................................. 55,486 58,029
Other long-term liabilities ................................................... 7,459 7,000
--------- ---------
Total liabilities ...................................................... 62,945 65,029
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value; 100,000,000 shares authorized; 26,196,942 shares
and 26,095,296 shares issued and outstanding, at May 5, 2001 and
February 3, 2001, respectively ............................................ 2,620 2,610
Additional paid-in capital .................................................... 93,017 92,252
Translation adjustments ....................................................... (14) (12)
Retained earnings ............................................................. 84,637 71,817
--------- ---------
Total stockholders' equity ............................................. 180,260 166,667
--------- ---------
Total liabilities and stockholders' equity ............................. $ 243,205 $ 231,696
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
1
THE CHILDREN'S PLACE RETAIL STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THIRTEEEN WEEKS ENDED
---------------------------
MAY 5, 2001 APRIL 29, 2000
----------- --------------
Net sales ........................................ $160,461 $130,181
Cost of sales .................................... 92,299 73,432
-------- --------
Gross profit ..................................... 68,162 56,749
Selling, general and administrative expenses ..... 38,964 34,067
Pre-opening costs ................................ 2,288 2,683
Depreciation and amortization .................... 5,869 4,471
-------- --------
Operating income ................................. 21,041 15,528
Interest expense, net ............................ 31 181
Other expense, net ............................... 0 3
-------- --------
Income before income taxes ....................... 21,010 15,344
Provision for income taxes ....................... 8,192 5,970
-------- --------
Net income ....................................... $ 12,818 $ 9,374
======== ========
Basic net income per common share ................ $ 0.49 $ 0.36
Basic weighted average common shares outstanding . 26,161 25,736
Diluted net income per common share .............. $ 0.48 $ 0.36
Diluted weighted average common shares outstanding 26,844 26,352
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
2
THE CHILDREN'S PLACE RETAIL STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THIRTEEN WEEKS ENDED
-----------------------------
MAY 5, 2001 APRIL 29, 2000
----------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $ 12,818 $ 9,374
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .......................... 5,869 4,471
Deferred financing fee amortization .................... 16 11
Loss on disposals of property and equipment ............ 223 110
Deferred taxes ......................................... 129 203
Deferred rent .......................................... 452 290
Changes in operating assets and liabilities:
Accounts receivable .................................... (4,047) (7,105)
Inventories ............................................ 19,701 8,306
Prepaid expenses and other current assets .............. (920) (617)
Other assets ........................................... (2,129) (489)
Accounts payable ....................................... (8,448) 3,271
Accrued expenses, interest and other current liabilities 8,585 8,448
--------- ---------
Total adjustments ................................... 19,431 16,899
--------- ---------
Net cash provided by operating activities ..................... 32,249 26,273
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchases .............................. (13,518) (15,794)
--------- ---------
Net cash used in investing activities ......................... (13,518) (15,794)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and employee stock purchases ........ 647 393
Borrowings under revolving credit facility .................... 164,544 128,681
Repayments under revolving credit facility .................... (167,868) (135,188)
--------- ---------
Net cash used by financing activities ......................... (2,677) (6,114)
--------- ---------
Effect of exchange rate on cash ............................... (2) (9)
--------- ---------
Net increase in cash and cash equivalents .............. 16,052 4,356
Cash and cash equivalents, beginning of period ......... 8,141 2,204
--------- ---------
Cash and cash equivalents, end of period ...................... $ 24,193 $ 6,560
========= =========
OTHER CASH FLOW INFORMATION:
Cash paid during the period for interest ...................... $ 236 $ 331
Cash paid during the period for income taxes .................. 2,790 2,443
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
3
THE CHILDREN'S PLACE RETAIL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States ("GAAP") for interim financial information. Certain information
and footnote disclosures required by GAAP for complete financial statements have
been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
accompanying unaudited financial statements contain all material adjustments,
consisting of normal recurring accruals, necessary to present fairly the
Company's financial position, results of operations and cash flow for the
periods indicated, and have been prepared in a manner consistent with the
audited financial statements as of February 3, 2001. These financial statements
should be read in conjunction with the audited financial statements and
footnotes for the fiscal year ended February 3, 2001 included in the Company's
Annual Report on Form 10-K for the year ended February 3, 2001 filed with the
Securities and Exchange Commission. Due to the seasonal nature of the Company's
business, the results of operations for the thirteen weeks ended May 5, 2001 are
not necessarily indicative of operating results for a full fiscal year.
2. NET INCOME PER COMMON SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," the following table reconciles net income and share
amounts utilized to calculate basic and diluted net income per common share.
THIRTEEN WEEKS ENDED
---------------------------
MAY 5, 2001 APRIL 29, 2000
----------- --------------
Net income (in thousands).............. $12,818 $9,374
======= ======
Basic shares........................... 26,160,956 25,735,532
Dilutive effect of stock options....... 683,352 616,299
---------- ----------
Dilutive shares........................ 26,844,308 26,351,831
========== ==========
Antidilutive options................... 258,733 699,130
Antidilutive options consist of the weighted average of stock options for
the respective periods ended May 5, 2001 and April 29, 2000 that had an exercise
price greater than the average market price during the period. Such options are
therefore excluded from the computation of diluted shares.
3. LITIGATION
The Company is involved in various legal proceedings arising in the normal
course of its business. In the opinion of management, any ultimate liability
arising out of such proceedings will not have a material adverse effect on the
Company's financial position or results of operations.
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF FEDERAL SECURITIES LAWS, WHICH ARE INTENDED TO BE COVERED
BY THE SAFE HARBORS CREATED THEREBY. THOSE STATEMENTS INCLUDE, BUT MAY NOT BE
LIMITED TO, THE DISCUSSIONS OF THE COMPANY'S OPERATING AND GROWTH STRATEGY.
INVESTORS ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH UNDER THE CAPTION
"RISK FACTORS" IN THE BUSINESS SECTION OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED FEBRUARY 3, 2001. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, ANY OF THE ASSUMPTIONS COULD PROVE TO BE INACCURATE, AND THEREFORE,
THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
QUARTERLY REPORT ON FORM 10-Q WILL PROVE TO BE ACCURATE. IN LIGHT OF THE
SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED
HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS
OF THE COMPANY WILL BE ACHIEVED. THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY RELEASE ANY REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN TO REFLECT EVENTS AND CIRCUMSTANCES OCCURRING 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 3, 2001 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected income
statement data expressed as a percentage of net sales:
THIRTEEN WEEKS ENDED
---------------------------
MAY 5, 2001 APRIL 29, 2000
----------- --------------
Net sales ................................... 100.0% 100.0%
Cost of sales ............................... 57.5 56.4
------- -------
Gross profit ................................ 42.5 43.6
Selling, general and administrative expenses 24.3 26.2
Pre-opening costs ........................... 1.4 2.1
Depreciation and amortization ............... 3.7 3.4
------- -------
Operating income ............................ 13.1 11.9
Interest expense, net ....................... -- 0.1
------- -------
Income before income taxes .................. 13.1 11.8
Provision for income taxes .................. 5.1 4.6
------- -------
Net income .................................. 8.0% 7.2%
======= =======
Number of stores, end of period ............. 437 335
THIRTEEN WEEKS ENDED MAY 5, 2001 (THE "FIRST QUARTER 2001") COMPARED TO THIRTEEN
WEEKS ENDED APRIL 29, 2000 (THE "FIRST QUARTER 2000")
Net sales increased by $30.3 million, or 23%, to $160.5 million during the
First Quarter 2001 from $130.2 million during the First Quarter 2000. During the
First Quarter 2001, we opened 37 new stores. Net sales for the 37 new stores, as
well as the other stores that did not qualify as comparable stores, contributed
$32.6 million of our net sales increase. This net sales increase was partially
offset by a 2% comparable store sales decline in the First Quarter 2001, which
decreased our net sales by $2.3 million. Comparable store sales increased 5%
during the First Quarter 2000. During the first nine weeks of the First Quarter
2001, we experienced a 7% same store sales decline that was primarily
attributable to unseasonable weather and a difficult economic environment.
During April, comparable store sales increased 10% due to exceptional
customer response to our summer merchandise, complemented by a highly
successful merchandise promotion and favorable weather. To more closely match
the same period last year, comparable store sales calculations for fiscal
2001 have shifted last year's sales by one week since fiscal 2000 was a fifty
three week year. As of May 5, 2001, we operated 437 stores in 43 states,
primarily located in regional shopping malls. During the four weeks ended
June 2,
5
2001, we experienced a 14% same store sales decline as compared to a 7% increase
for the comparable four week period in fiscal 2000. Sales were unfavorably
impacted primarily by a slowdown in store traffic along with unseasonable
weather.
Gross profit increased by $11.4 million to $68.2 million during the First
Quarter 2001 from $56.8 million during the First Quarter 2000. As a percentage
of net sales, gross profit decreased 1.1% to 42.5% during the First Quarter 2001
from 43.6% during the First Quarter 2000. The decrease in gross profit, as a
percentage of net sales, was principally due to higher markdowns and higher
occupancy costs, primarily offset by higher initial markups achieved through
effective product sourcing and the leveraging our production, design,
distribution and buying expenses. Our markdowns were higher, as a percentage of
net sales, due to the weak sales environment during the first nine weeks of the
First Quarter 2001 and increased promotional activity during April 2001.
Occupancy costs were higher, as a percentage of net sales, due to increased
occupancy costs from new stores that have not been open long enough to leverage
their rent through an established sales base.
Selling, general and administrative expenses increased $4.9 million to
$39.0 million during the First Quarter 2001 from $34.1 million during the First
Quarter 2000. Selling, general and administrative expenses were 24.3% of net
sales during the First Quarter 2001 as compared with 26.2% during the First
Quarter 2000. The decrease, as a percentage of net sales, was primarily due to
the leveraging of our corporate administrative and marketing expenses, partially
offset by higher store payroll wage rates and higher medical benefit costs. In
addition, First Quarter 2000 expenses were unfavorably impacted by an executive
severance settlement and E-commerce marketing expenses.
During the First Quarter 2001, pre-opening costs were $2.3 million, or
1.4% of net sales, as compared to $2.7 million, or 2.1% of net sales, during the
First Quarter 2000. We opened 37 stores and 43 stores, during the First Quarter
2001 and the First Quarter 2000, respectively. During the First Quarter 2001,
pre-opening costs were favorably impacted by the leveraging of these costs over
a higher sales base, as well as the timing and location of our new store
openings.
Depreciation and amortization amounted to $5.9 million, or 3.7% of net
sales, during the First Quarter 2001, as compared to $4.5 million, or 3.4% of
net sales, during the First Quarter 2000. The increase in depreciation and
amortization primarily was a result of increases to our store base.
Our provision for income taxes for the First Quarter 2001 was $8.2
million, as compared to a $6.0 million provision for income taxes during the
First Quarter 2000 due to our increased profitability. The effective tax rate
was 39% during both the First Quarter 2001 and the First Quarter 2000.
We recorded net income of $12.8 million and $9.4 million during the First
Quarter 2001 and the First Quarter 2000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
DEBT SERVICE/LIQUIDITY
Our primary uses of cash are financing new store openings and providing
for working capital, which principally represents the purchase of inventory. Our
working capital needs follow a seasonal pattern, peaking during the second and
third quarters when inventory is purchased for the back to school and holiday
seasons. During the First Quarter 2001, we also used cash to equip and furnish
our new West Coast distribution center and auxillary Secaucus, New Jersey
faciltity. We have been able to meet our cash needs principally by using cash
flows from operations and seasonal borrowings under our working capital
facility. As of May 5, 2001, we had no long-term debt obligations.
Our working capital facility provides for borrowings up to $75 million
(including a sublimit for letters of credit of $60 million). As of May 5, 2001,
we had no borrowings under our working capital facility and had outstanding
letters of credit of $17.3 million. Availability under our working capital
facility was $33.3 million. During the First Quarter 2001, the interest rate
charged under our working capital facility for reference rate borrowings was
8.4% per annum and LIBOR borrowings bore interest at 6.8% per annum. The maximum
borrowings and outstanding letter of credit usage under our working capital
facility during the thirteen weeks ended May 5, 2001 was $36.2 million. As of
May 5, 2001, we were in compliance with all of our covenants under our working
capital facility.
6
CASH FLOWS/CAPITAL EXPENDITURES
Cash flows provided by operating activities were $32.2 million during the
thirteen weeks ended May 5, 2001 as compared to $26.3 million during the
thirteen weeks ended April 29, 2000. During the thirteen weeks ended May 5,
2001, cash flows provided by operating activities increased primarily as a
result of improved operating earnings and a decrease in our inventory levels due
to our strong April sales and conservative inventory management, partially
offset by a decrease in our accounts payable due primarily to the timing of
merchandise payments.
Cash flows used in investing activities were $13.5 million and $15.8
million in the thirteen weeks ended May 5, 2001 and the thirteen weeks ended
April 29, 2000, respectively. During the thirteen weeks ended May 5, 2001, cash
flows used in investing activities represented approximately $11 million in
capital expenditures for new store openings and remodelings, with the majority
of the remainder of capital expenditures spent on our new West Coast
distribution center and our auxilliary Secaucus, New Jersey facility.
In the thirteen weeks ended May 5, 2001 and the thirteen weeks ended April
29, 2000, we opened 37 and 43 stores and remodeled 6 and 4 stores, respectively.
During fiscal 2001, we plan to open a total of 120 stores and remodel 14 stores.
We anticipate that total capital expenditures during fiscal 2001 will
approximate $60 million, all of which we plan to fund with cash flows from
operations.
Cash flows used by financing activities were $2.7 million during the
thirteen weeks ended May 5, 2001 as compared to $6.1 million in the thirteen
weeks ended April 29, 2000. During the thirteen weeks ended May 5, 2001 and the
thirteen weeks ended April 29, 2000, cash flows used by financing activities
reflected net repayments under our working capital facility, partially offset by
funds received from the exercise of employee stock options and employee stock
purchases.
We believe that cash generated from operations and funds available under
our working capital facility will be sufficient to fund our capital and other
cash flow requirements for at least the next 12 months. In addition, as we
continue our store expansion program we will consider additional sources of
financing to fund our long-term growth.
Our ability to meet our capital requirements will depend on our ability to
generate cash from operations and successfully implement our store expansion
plans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
(Not applicable).
7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings arising in the normal
course of its business. In the opinion of management, any ultimate liability
arising out of such proceedings will not have a material adverse effect on the
Company's financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
None.
8
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
RETAIL STORES, INC.
Date: June 15, 2001
By: /s/ Ezra Dabah
--------------------------------
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: June 15, 2001 By: /s/ Seth L. Udasin
--------------------------------
Vice President and
Chief Financial Officer
(Principal Financial Officer)
9