Claire's Stores, Inc. Reports Fiscal 2012 Third Quarter Results PR Newswire CHICAGO, Nov. 29, 2012 CHICAGO, Nov. 29, 2012 /PRNewswire/ -- Claire's Stores, Inc. (the "Company") is one of the world's leading specialty retailers of fashionable jewelry and accessories at affordable prices for young women, teens, tweens and kids. The Company today reported its financial results for the fiscal 2012 third quarter, which ended October 27, 2012. Third Quarter Results The Company reported net sales of $363.4 million for the fiscal 2012 third quarter, an increase of $7.4 million, or 2.1%, compared to the 2011 third quarter. The increase was attributable to new store sales and an increase in same store sales, partially offset by the effect of store closures and foreign currency translation effect of our non-U.S. store sales. Net sales would have increased 4.4% excluding the impact from foreign currency exchange rate changes. Consolidated same store sales increased 2.4% in the 2012 third quarter, with North America same store sales increasing 2.0%, and Europe same store sales increasing 3.2%. Our 2012 fourth quarter consolidated quarter to date same store sales performance is in the positive mid-single digits. We compute same store sales on a local currency basis, which eliminates any impact from changes in foreign currency exchange rates. Gross profit percentage decreased 90 basis points to 50.6% during the fiscal 2012 third quarter compared to 51.5% during the comparable prior year quarter. The decrease in gross profit percentage consisted of a 110 basis point decrease in merchandise margin, partially offset by a 20 basis point decrease in occupancy rate. The decrease in merchandise margin resulted primarily from an increase in markdowns and lower initial markups. The decrease in occupancy rate resulted primarily from the leveraging effect of an increase in same store sales. Selling, general and administrative expenses decreased $2.2 million, or 1.8%, compared to the fiscal 2011 third quarter. As a percentage of net sales, selling, general and administrative expenses decreased 130 basis points compared to the prior year (120 basis points decrease excluding the effect of foreign currency exchange rate changes). Selling, general and administrative expenses would have increased $0.8 million excluding the effect of foreign currency exchange rate changes. Adjusted EBITDA in the fiscal 2012 third quarter was $65.7 million compared to $62.6 million in the fiscal 2011 third quarter. Adjusted EBITDA would have been $67.4 million excluding the effect of foreign currency exchange rate changes. The Company defines Adjusted EBITDA as earnings before provision for income taxes, gain (loss) on early debt extinguishment, net interest expense, and depreciation and amortization. Adjusted EBITDA excludes severance, management fees, the impact of transaction-related costs and other non-recurring or non-cash expenses, and normalizing occupancy costs for certain rent-related adjustments. Net loss for the 2012 third quarter was $13.7 million. A reconciliation of net loss to Adjusted EBITDA is attached. At October 27, 2012, cash and cash equivalents were $62.7 million, and there were no borrowings against the Company's recently amended $115 million Revolving Credit Facility. In the 2012 third quarter, we paid in full $664.6 million of indebtedness under the Company's senior secured term loan with the net proceeds from issuing additional Senior Secured First Lien Notes together with cash on hand. In addition, the Company replaced its existing senior secured revolving credit facility with the amended and restated $115 million five-year senior secured revolving credit facility. The fiscal 2012 third quarter cash balance decrease of $67.8 million consisted of a positive impact of $65.7 million of Adjusted EBITDA and reductions for $52.0 million of cash interest, $40.5 million of repayment of indebtedness and payment of debt financing costs, $21.6 million from seasonal working capital use, $16.6 million of capital expenditures, and $2.8 million of tax payments and other cash items. Store Count as of: October 27, 2012 January 28, 2012 October 29, 2011 North America 1,939 1,953 1,959 Europe 1,149 1,118 1,088 Subtotal Company-Owned 3,088 3,071 3,047 Franchise and License 381 381 381 Total 3,469 3,452 3,428 Conference Call Information The Company will host its third quarter conference call on November 30, 2012 at 10:00 am. (EST). The call-in number is 210-839-8201 and the password is "Claires." A replay will be available through December 30, 2012. The replay number is 866-403-8762 and the password is 6582. The conference call is also being webcast and archived until December 30, 2012 on the Company's corporate website at http://www.clairestores.com, where it can be accessed by clicking on the "Events" link located under "Financial Information" for a replay or download as an MP3 file. Company Overview Claire's Stores, Inc. is one of the world's leading specialty retailers of fashionable jewelry and accessories at affordable prices for young women, teens, tweens and girls ages 3 to 27. The Company operates through its two store concepts: Claire's^® and Icing^®. As of October 27, 2012, Claire's Stores, Inc. operated 3,088 stores in North America and Europe. The Company also franchised or licensed 381 stores in Japan, the Middle East, Turkey, Greece, Guatemala, Malta, Ukraine, Mexico, India, Dominican Republic, El Salvador, Venezuela, and Panama. More information regarding Claire's Stores is available on the Company's corporate website at http://www.clairestores.com. Forward-looking Statements This press release contains "forward-looking statements" which represent the Company's expectations or beliefs with respect to future events. Statements that are not historical are considered forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. Those factors include, without limitation: changes in consumer preferences and consumer spending; competition; our level of indebtedness; general economic conditions; general political and social conditions such as war, political unrest and terrorism; natural disasters or severe weather events; currency fluctuations and exchange rate adjustments; uncertainties generally associated with the specialty retailing business, such as decreases in mall traffic due to high gasoline prices or other general economic conditions; disruptions in our supply of inventory; inability to increase same store sales; inability to renew, replace or enter into new store leases on favorable terms; increase in our cost of merchandise; significant increases in our merchandise markdowns; inability to grow our store base in Europe or expand our international franchising operations; inability to design and implement new information systems or disruptions in adapting our information systems to allow for expansion into new geographic markets or grow our e-commerce sales; delays in anticipated store openings or renovations; uncertainty that definitive financial results may differ from preliminary financial results due to, among other things, final U.S. GAAP adjustments; results from any future asset impairment analysis; changes in applicable laws, rules and regulations, including changes in federal, state or local regulations governing the sale of our merchandise, particularly regulations relating to the content in our merchandise, general employment laws, including laws relating to overtime pay and employee benefits, health care laws, tax laws and import laws; product recalls; data or security breaches of confidential information; loss of key members of management; increases in the cost of labor; labor disputes; unwillingness of vendors and service providers to supply goods or services pursuant to historical customary credit arrangements; increases in the cost of borrowings; unavailability of additional debt or equity capital; and the impact of our substantial indebtedness on our operating income and our ability to grow. These and other applicable risks, cautionary statements and factors that could cause actual results to differ from the Company's forward-looking statements are included in the Company's filings with the SEC, specifically as described in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2012 filed with the SEC on April 4, 2012. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. The historical results contained in this press release are not necessarily indicative of the future performance of the Company. Additional Information Note: Other Claire's Stores, Inc. press releases, a corporate profile and the most recent Form 10-K and Form 10-Q reports are available on Claire's business website at: http://www.clairestores.com. Contact Information J. Per Brodin, Executive Vice President and Chief Financial Officer Phone: (847) 765-1100, or E-mail, email@example.com CLAIRE'S STORES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands) THIRD FISCAL QUARTER Three Months Three Months Ended Ended October 27, 2012 October 29, 2011 Net sales $ 363,388 $ 356,000 Cost of sales, occupancy and buying expenses (exclusive of depreciation and 179,583 172,505 amortization shown separately below) Gross profit 183,805 183,495 Other expenses: Selling, general and administrative 121,211 123,378 Depreciation and amortization 16,042 17,129 Severance and transaction-related costs (29) 180 Other income, net (3,234) (1,840) 133,990 138,847 Operating income 49,815 44,648 Gain (loss) on early debt extinguishment (5,105) 3,986 Interest expense, net 54,042 43,543 Income (loss) before income tax expense (9,332) 5,091 Income tax expense 4,398 3,193 Net (loss) income $ (13,730) $ 1,898 YEAR TO DATE Nine Months Nine Months Ended Ended October 27, 2012 October 29, 2011 Net sales $ 1,063,622 $ 1,060,993 Cost of sales, occupancy and buying expenses (exclusive of depreciation and 531,452 519,246 amortization shown separately below) Gross profit 532,170 541,747 Other expenses: Selling, general and administrative 360,122 380,309 Depreciation and amortization 48,232 50,535 Severance and transaction-related costs 1,168 949 Other (income) expense, net (2,654) 2,290 406,868 434,083 Operating income 125,302 107,664 Gain (loss) on early debt extinguishment (9,707) 4,468 Interest expense, net 149,943 134,113 Loss before income tax expense (34,348) (21,981) Income tax expense 6,576 5,861 Net loss $ (40,924) $ (27,842) CLAIRE'S STORES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS October 27, 2012 January 28, 2012 (In thousands, except share and per share amounts) ASSETS Current assets: Cash and cash equivalents and restricted cash of $0 and $4,350, $ 62,673 $ 174,374 respectively Inventories 192,417 142,104 Prepaid expenses 18,880 20,010 Other current assets 30,667 25,423 Total current assets 304,637 361,911 Property and equipment: Furniture, fixtures and equipment 223,919 207,620 Leasehold improvements 302,709 281,774 526,628 489,394 Less accumulated depreciation and (317,103) (281,874) amortization 209,525 207,520 Leased property under capital lease: Land and building 18,055 18,055 Less accumulated depreciation and (2,483) (1,805) amortization 15,572 16,250 Goodwill 1,550,056 1,550,056 Intangible assets, net of accumulated amortization of $55,662 543,840 549,768 and $49,270, respectively Deferred financing costs, net of accumulated amortization of $24,922 43,249 33,025 and $55,818, respectively Other assets 46,161 44,495 2,183,306 2,177,344 Total assets $ 2,713,040 $ 2,763,025 LIABILITIES AND STOCKHOLDER'S DEFICIT Current liabilities: Trade accounts payable $ 68,716 $ 60,704 Income taxes payable 4,889 10,228 Accrued interest payable 48,149 31,859 Accrued expenses and other 94,160 104,525 current liabilities Total current liabilities 215,914 207,316 Long-term debt 2,373,906 2,386,382 Obligation under capital lease 17,249 17,290 Deferred tax liability 119,404 120,452 Deferred rent expense 29,759 28,861 Unfavorable lease obligations and 21,745 25,020 other long-term liabilities 2,562,063 2,578,005 Commitments and contingencies Stockholder's deficit: Common stock par value $0.001 per share; authorized 1,000 shares; issued and outstanding 100 shares ― ― Additional paid-in capital 618,050 619,453 Accumulated other comprehensive (4,665) (4,351) loss, net of tax Accumulated deficit (678,322) (637,398) (64,937) (22,296) Total liabilities and stockholder's $ 2,713,040 $ 2,763,025 deficit Net Income (Loss) Reconciliation to EBITDA and Adjusted EBITDA EBITDA represents net income (loss) before provision for income taxes, gain (loss) on early debt extinguishment, interest income and expense, impairment and depreciation and amortization. Adjusted EBITDA represents EBITDA further adjusted to exclude non-cash and unusual items. Management uses Adjusted EBITDA as an important tool to assess our operating performance. Management considers Adjusted EBITDA to be a useful measure in highlighting trends in our business and in analyzing the profitability of similar enterprises. Management believes that Adjusted EBITDA is effective, when used in conjunction with net income (loss), in evaluating asset performance, and differentiating efficient operators in the industry. Furthermore, management believes that Adjusted EBITDA provides useful information to potential investors and analysts because it provides insight into management's evaluation of our results of operations. Our calculation of Adjusted EBITDA may not be consistent with "EBITDA" for the purpose of the covenants in the agreements governing our indebtedness. EBITDA and Adjusted EBITDA are not measures of financial performance under U.S. GAAP, are not intended to represent cash flow from operations under U.S. GAAP and should not be used as an alternative to net income (loss) as an indicator of operating performance or to cash flow from operating, investing or financing activities as a measure of liquidity. Management compensates for the limitations of using EBITDA and Adjusted EBITDA by using it only to supplement our U.S. GAAP results to provide a more complete understanding of the factors and trends affecting our business. Each of EBITDA and Adjusted EBITDA has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are: oEBITDA and Adjusted EBITDA do not reflect our cash used for capital expenditures; oAlthough depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDA and Adjusted EBITDA do not reflect the cash requirements for such replacements; oEBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements; oEBITDA and Adjusted EBITDA do not reflect the cash necessary to make payments of interest or principal on our indebtedness; and oEBITDA and Adjusted EBITDA do not reflect extraordinary items and non-recurring expenses such as one-time write-offs to inventory and reserve accruals. While EBITDA and Adjusted EBITDA are frequently used as a measure of operations and the ability to meet indebtedness service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. While management believes that these measures provide useful information to investors, the SEC may require that EBITDA and Adjusted EBITDA be presented differently or not at all in future filings we will make with the SEC. CLAIRE'S STORES, INC. AND SUBSIDIARIES ADJUSTED EBITDA (UNAUDITED) (In Thousands) Three Months Three Nine Months Nine Months Ended Months Ended Ended October 27, Ended October 27, October 29, 2012 October 29, 2012 2011 2011 Net (loss) income (a) $ (13,730) $ $ $ 1,898 (40,924) (27,842) Income tax expense 4,398 3,193 6,576 5,861 Loss (gain) on early 5,105 (3,986) 9,707 (4,468) debt extinguishment Interest expense 54,060 43,654 150,025 134,391 Interest income (18) (111) (82) (278) Depreciation and 16,042 17,129 48,232 50,535 amortization Reported EBITDA 65,857 61,777 173,534 158,199 – stock compensation, book to cash rent, intangible 53 1,580 167 5,117 amortization (b) – management fee, 544 750 2,679 2,250 consulting (c) – other (d) (706) (1,491) 2,081 6,475 Adjusted EBITDA $ 65,748 $ $ 178,461 $ 172,041 62,616 Fiscal 2011 includes a $(0.7) million gain and $1.5 million charge for the a) three and nine months ended October 27, 2011, respectively, to remeasure the Euro Loan at the period end foreign exchange rate. Includes: non-cash stock compensation expense, net non-cash rent expense, b) amortization of rent free periods, the inclusion of cash landlord allowances, and the net accretion of favorable (unfavorable) lease obligations and non-cash amortization of lease rights. c) Includes: the management fee paid to Apollo Management and Morgan Joseph Tri-Artisan Capital Partners, and non-recurring consulting expenses. Includes: non-cash losses on property and equipment associated with remodels, relocations and closures; non-cash loss on disposition of lease rights upon exiting certain European locations; costs, including third party charges and compensation, incurred in conjunction with the relocation d) of new employees; severance and transaction related costs; non-cash foreign exchange gains/losses resulting from intercompany transactions and remeasurements of U.S. dollar denominated cash accounts and foreign currency denominated debt of our foreign entities into their functional currency; and severance and transaction related costs. A majority of the fiscal 2011 adjustments is foreign exchange related. SOURCE Claire's Stores, Inc. Website: http://www.clairestores.com
Claire's Stores, Inc. Reports Fiscal 2012 Third Quarter Results
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