FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
( X )Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended August 3, 1996
OR
( )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 1-8899
CLAIRE'S STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-0940416
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 S.W. 129th Avenue Pembroke Pines, Florida 33027
(Address of principal executive offices) (Zip Code)
(954) 433-3900
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
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 .
The number of shares of the registrant's Common Stock and Class A Common
Stock outstanding as of August 30, 1996 was 44,864,937 and 2,928,612
respectively, excluding treasury shares.
CLAIRE'S STORES, INC. AND SUBSIDIARIES
INDEX
<PAGE>
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at August 3, 1996 and
February 3, 1996 3
Consolidated Statements of Income for the Three
Months and Six Months Ended August 3, 1996
and July 29, 1995 4
Consolidated Statements of Cash Flows for the
Six Months Ended August 3, 1996 and July 29,
1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of
Operations 7-9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 10
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<TABLE>
PART I. FINANCIAL INFORMATION
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
August 3, February 3,
ASSETS 1996 1996
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 57,234,000 $ 59,323,000
Inventories 38,989,000 32,383,000
Prepaid expenses and other current assets 16,628,000 12,056,000
Total current assets 112,851,000 103,762,000
Property and equipment:
Land and building 8,648,000 8,347,000
Furniture, fixtures and equipment 70,076,000 63,957,000
Leasehold improvements 73,884,000 74,156,000
152,608,000 146,460,000
Less accumulated depreciation and
amortization ( 81,914,000) ( 77,114,000)
70,694,000 69,346,000
Other assets 17,287,000 14,674,000
$200,832,000 $187,782,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 14,151,000 10,745,000
Income taxes payable 259,000 6,800,000
Accrued expenses 13,794,000 11,991,000
Dividends payable 983,000 985,000
Total current liabilities 29,187,000 30,521,000
Deferred credits 4,895,000 4,325,000
Stockholders' equity:
Preferred stock par value $1.00 per share;
authorized 1,000,000 shares, issued and
outstanding -0- shares - -
Class A common stock par value $.05 per
share; authorized 20,000,000 shares,
issued 2,930,859 and 2,872,941 shares 98,000 96,000
Common stock par value $.05 per share;
authorized 50,000,000 shares, issued
44,857,403 and 43,998,515 shares 1,495,000 1,488,000
Additional paid-in capital 17,241,000 16,126,000
Foreign currency translation adjustments ( 26,000) ( 22,000)
Retained earnings 148,710,000 136,016,000
167,518,000 153,704,000
Treasury stock, at cost, 186,207 shares ( 768,000) ( 768,000)
166,750,000 152,936,000
Commitments and contingencies - -
$200,832,000 $187,782,000
</TABLE>
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<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED
AUGUST 3, 1996 AND JULY 29, 1995
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $100,719,000 $ 77,296,000 $193,101,000 $145,350,000
Cost of sales, occupancy
and buying expenses 48,391,000 36,949,000 92,996,000 70,117,000
Gross profit 52,328,000 40,347,000 100,105,000 75,233,000
Other expenses:
Selling, general and
administrative 36,318,000 30,308,000 70,374,000 58,695,000
Depreciation and
amortization 3,939,000 3,767,000 7,767,000 7,483,000
Interest income, net ( 657,000) ( 421,000) ( 1,490,000) ( 925,000)
39,600,000 33,654,000 76,651,000 65,253,000
Income before income
taxes 12,728,000 6,693,000 23,454,000 9,980,000
Income taxes 4,837,000 2,544,000 8,913,000 3,793,000
Net income $ 7,891,000 $ 4,149,000 $ 14,541,000 $ 6,187,000
Net income per share $ .17 $ .09 $ .31 $ .13
Dividends per common
share $ .02 $ .013 $ .04 $ .027
Dividends per Class A
common share $ .01 $ .007 $ .02 $ .013
Average number of shares
of common stock and
equivalents 47,593,000 46,889,000 47,531,000 46,854,000
</TABLE>
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<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
AUGUST 3, 1996 AND JULY 29, 1995
(Unaudited)
<CAPTION>
Six Months Ended
August 3, July 29,
1996 1995
Cash flows from operating
activities:
<S> <C> <C>
Net income $14,541,000 $ 6,187,000
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 7,767,000 7,483,000
Loss on retirement of property
and equipment 834,000 448,000
Changes in assets and
liabilities:
(Increase) in -
Inventories ( 6,606,000) ( 3,938,000)
Prepaid expenses and other
assets ( 6,958,000) ( 8,819,000)
Increase (decrease) in -
Trade accounts payable 3,406,000 ( 88,000)
Income taxes payable ( 6,541,000) ( 7,338,000)
Accrued expenses 1,803,000 1,372,000
Deferred credits 570,000 292,000
Net cash provided by (used in)
operating activities 8,816,000 ( 4,401,000)
Cash flows from investing activities:
Acquisition of property and
equipment which represents net cash
used in investing activities (10,175,000) ( 7,856,000)
Cash flows from financing activities:
Proceeds from stock options
exercised 1,124,000 981,000
Dividends paid ( 1,850,000) ( 1,210,000)
Net cash used in financing
activities ( 726,000) ( 229,000)
Effect of foreign currency exchange
rate changes on cash and cash
equivalents ( 4,000) 139,000
Net Increase (decrease) in cash and
cash equivalents ( 2,089,000) (12,347,000)
Cash and cash equivalents at beginning
of period 59,323,000 48,473,000
Cash and cash equivalents at end of
period $57,234,000 $36,126,000
</TABLE>
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<PAGE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements
reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management,
necessary to a fair statement of the results for the interim
periods. These financial statements have been prepared in
accordance with the instructions to Form 10-Q and therefore do
not include all of the information or footnotes necessary for
a complete presentation. They should be read in conjunction
with the Company's audited financial statements included as
part of the Annual Report on Form 10-K for the year ended
February 3, 1996 filed with the Securities and Exchange
Commission.
2. Due to the seasonal nature of the Company's business, the
results of operations for the first six months of the year are
not indicative of the results of operations on an annualized
basis.
3. Income per share is based on the weighted average number of
shares of common stock and equivalents outstanding during the
three and six months ended August 3, 1996 and July 29, 1995.
In August 1996, the Company's Board of Directors declared a 3-for-2 stock
split of its Common Stock and Class A Common Stock
in the form of a 50% stock dividend distribution. The
weighted average number of shares of common Stock and
equivalents outstanding have been adjusted to reflect the
stock split.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
Net sales for the three and six months ended August 3, 1996 increased
approximately 30% and 33%, respectively, compared to the comparable
periods ended July 29, 1995. The increases for the periods resulted
primarily from the addition of a net 234 stores and same-store sales
increases of 9% and 12% in the three and six month periods ended August
3, 1996, respectively. The same-store sales increases were primarily
due to the Company refocusing its merchandising strategy to its core
customer - female teenagers. In addition, inventories were increased
to offer a larger assortment of merchandise for sale and to meet the
anticipated increase in customer demand.
Cost of sales, occupancy and buying expenses increased 31% and 33%,
respectively, for the three and six months ended August 3, 1996 over
the comparable periods ended July 29, 1995. The principal reasons for
these increases were the rise in the number of stores and the volume of
merchandise sold. As a percentage of net sales, these expenses
increased to 48% for the three months ended August 3, 1996 compared to
47.8% for the three months ended July 29, 1995. The increase as a
percentage of sales was due to acquisitions made during the six month
period ending August 3, 1996. These acquisitions included 95 stores in
the United States which operate under the trade names "The Icing",
"Claire's Etc." and "Accessory Place" and 52 stores in the United Kingdom
which operate under the trade name "Bow Bangles". The merchandise
offered for sale by the stores operating in the United States includes
approximately 25% apparel compared to the typical merchandise mix of an
historical company owned store which does not offer apparel for sale.
Apparel is maintained in inventory at a lower initial markup and
therefore typically realizes a lower gross margin. Also, the cost of
rent and common area maintenance is higher in these stores. In
addition, rent paid for our stores acquired in the United Kingdom is
typically higher than rent paid per square foot in the United States.
Based on the due diligence performed at the time of the acquisition
this is representative of the market in the United Kingdom compared to
the market in the United States. The cost of merchandise has also been
higher in stores operating in the United Kingdom during the period.
This was due to the fact that at the time of acquisition, these stores
were extremely low on inventory. Management made the decision to
purchase merchandise locally which incurred a higher cost compared to
purchasing directly from vendors overseas. However, the merchandise
was available immediately for shipment compared to 60 days for
purchases overseas. The merchandise orders that were made from vendors
overseas were brought into the United Kingdom by air freight, greatly
increasing the cost of the merchandise. The increase in cost of sales
would have been more acute except for the same-store sales increase
during the period which partially offset the effect of the lower
margins realized in the acquired stores. For the six months ended
August 3, 1996 and July 29, 1995, cost of sales, occupancy and buying
expenses as a percentage of sales remained comparable, as the same-store
sales increases for this period were enough to offset the increases
discussed above.
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<PAGE>
Selling, general and administrative expense (S,G&A), as a percentage of
sales for the three and six months ended August 3, 1996 were 36.1% and
36.4%, respectively, compared to 39.2% and 40.4%, respectively, for
the comparable periods ended July 29, 1995. The decrease in SG&A as a
percentage of sales is primarily attributable to the increase in same-store
sales as previously discussed and the leverage of fixed expenses
with the addition of 234 net stores.
Depreciation and amortization as a percentage of sales was
approximately 4% for the three and six months ended August 3, 1996,
which was lower than the 5% realized during the three and six months
ended July 29, 1995. The decrease was as expected given the same-store
sales increases realized during these periods.
Due to the increase in cash levels and the reduction of long-term
debt, interest income, net of interest expense, totaled $657,000 and
$1,490,000 for the three and six month periods ended August 3, 1996,
respectively, compared to interest income, net of interest expense,
of $421,000 and $925,000 for the three and six month periods ended
July 29, 1995, respectively. The Company carried no debt balance
during the three and six months ended August 3, 1996 compared to an
average debt balance of $3,000,000 during the three and six months
ended July 29, 1995. Invested cash during the three and six months
ended August 3, 1996 averaged approximately $61,192,000 and
$61,650,000, respectively. During the three and six months ended July
29, 1995, invested cash averaged approximately $36,649,000 and
$39,997,000, respectively.
Inflation has not affected the Company as it has generally been able
to pass along inflationary increases in its costs through increased
sales prices.
Liquidity and Capital Resources
Net cash decreased $2,089,000 for the six months ended August 3, 1996
due to net cash used in the acquisition of property and equipment
totaling $10,175,000 and the payment of dividends of $1,850,000. These
cash expenditures were offset by net cash provided by operating
activities of 8,816,000 and the proceeds from stock options exercised
totalling $1,124,000.
Inventory at August 3, 1996 increased 20% compared to the inventory
balance at the end of the Company's February 3, 1996 fiscal year. The
increase is mainly attributable to the increase in the number of
stores and the inventory buildup for the back-to-school selling
season. The Company believes overall inventory levels are appropriate
given the current economic environment and the level of sales
currently being achieved.
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<PAGE>
The Company opened 47 stores in the six months ended August 3, 1996
and remodeled 37 stores. In addition, the Company opened 147 stores
which were related to various acquisitions during the period.
At August 3, 1996, the Company had available a $10 million credit line
with a bank to finance the Company's letters of credit and working
capital requirements. This credit facility matures January 31, 1997.
The Company believes that internally generated funds and borrowings
available under its credit agreements will be sufficient to meet its
current operating needs and its presently anticipated required capital
expenditures.
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<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders
On June 5, 1996, the annual meeting of stockholders of the
Company was held at which the following directors were elected to
the Board of Directors for a one-year term: Rowland Schaefer
(40,542,668 votes for, 153,176 votes withheld), Sylvia Schaefer
(40,536,531 votes for, 158,818 votes withheld), Bruce G. Miller
(40,549,656 votes for, 142,783 votes withheld), Joel J. Silver
(40,542,658 votes for, 148,483 votes withheld), Harold E. Berritt
(40,542,866 votes for, 152,605 votes withheld), Fred D. Hirt
(40,548,461 votes for, 143,513 votes withheld) and Marla L.
Schaefer (40,542,723 votes for, 152,243 votes withheld).
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<PAGE>
SIGNATURE
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.
CLAIRE'S STORES, INC.
(Registrant)
Date: September 13, 1996 /s/Ira D. Kaplan
Ira D. Kaplan
Chief Financial Officer and
Treasurer
(Mr. Kaplan is the Chief
Financial Officer and
Treasurer and has been duly
authorized to sign on behalf of the
registrant)
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<PAGE>
SIGNATURE
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.
CLAIRE'S STORES, INC.
(Registrant)
Date: September 13, 1996 Ira D. Kaplan
Chief Financial Officer and
Treasurer
(Mr. Kaplan is the Chief
Financial Officer and
Treasurer and has been duly
authorized to sign on behalf of the
registrant)
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> OTHER 6-MOS
<FISCAL-YEAR-END> FEB-01-1997 FEB-01-1997
<PERIOD-START> MAY-05-1996 FEB-04-1996
<PERIOD-END> AUG-03-1996 AUG-03-1996
<CASH> 57,234 57,234
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 38,989 38,989
<CURRENT-ASSETS> 112,851 112,851
<PP&E> 152,608 152,608
<DEPRECIATION> 81,914 81,914
<TOTAL-ASSETS> 200,832 200,832
<CURRENT-LIABILITIES> 29,187 29,187
<BONDS> 0 0
0 0
0 0
<COMMON> 1,593 1,593
<OTHER-SE> 165,057 165,057
<TOTAL-LIABILITY-AND-EQUITY> 200,832 200,832
<SALES> 100,719 193,101
<TOTAL-REVENUES> 100,719 193,101
<CGS> 0 0
<TOTAL-COSTS> 48,391 92,996
<OTHER-EXPENSES> 39,600 76,651
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 12,728 23,454
<INCOME-TAX> 4,837 8,913
<INCOME-CONTINUING> 7,891 14,541
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,891 14,541
<EPS-PRIMARY> .17 .31
<EPS-DILUTED> .17 .31
</TABLE>
