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 November 2, 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 numbe 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 November 30, 1996 was 44,918,460 and 2,899,798
respectively, excluding treasury shares.
<PAGE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at November 2, 1996 and
February 3, 1996. 3
Consolidated Statements of Income for the Three
Months and Nine Months Ended November 2, 1996
and October 28, 1995. 4
Consolidated Statements of Cash Flows for the
Nine Months Ended November 2, 1996 and
October 28, 1995. 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of
Operations 7-9
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
November 2, February 3,
ASSETS 1996 1996
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 55,419,000 $ 59,323,000
Inventories 48,083,000 32,383,000
Prepaid expenses and other current assets 17,057,000 12,056,000
Total current assets 120,559,000 103,762,000
Property and equipment:
Land and building 8,663,000 8,347,000
Furniture, fixtures and equipment 73,491,000 63,957,000
Leasehold improvements 72,289,000 74,156,000
154,443,000 146,460,000
Less accumulated depreciation and
amortization ( 82,778,000) ( 77,114,000)
71,665,000 69,346,000
Other assets 17,744,000 14,674,000
$209,968,000 $187,782,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 15,046,000 $ 10,745,000
Income taxes payable 467,000 6,800,000
Accrued expenses 14,038,000 11,991,000
Dividends payable 1,445,000 985,000
Total current liabilities 30,996,000 30,521,000
Deferred credits 5,734,000 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 2,900,834 and 2,872,941 shares 145,000 96,000
Common stock par value $.05 per share;
authorized 50,000,000 shares, issued
44,892,673 and 44,651,721 shares 2,245,000 1,488,000
Additional paid-in capital 17,256,000 16,126,000
Foreign currency translation adjustments 154,000 ( 22,000)
Retained earnings 154,092,000 136,016,000
173,892,000 153,704,000
Treasury stock, at cost, 158,644 and
186,207 shares ( 654,000) ( 768,000)
173,238,000 152,936,000
Commitments and contingencies - -
$209,968,000 $187,782,000
</TABLE>
<PAGE>
<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 1996 AND OCTOBER 28, 1995
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
November 2, October 28, November 2, October 28,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $102,645,000 $ 79,842,000 $295,746,000 $225,192,000
Cost of sales, occupancy
and buying expenses 50,326,000 37,974,000 143,322,000 108,091,000
Gross profit 52,319,000 41,868,000 152,424,000 117,101,000
Other expenses:
Selling, general and
administrative 36,709,000 30,582,000 107,083,000 89,277,000
Depreciation and
amortization 4,041,000 3,649,000 11,808,000 11,132,000
Interest income, net ( 656,000) ( 454,000)( 2,146,000) ( 1,379,000)
40,094,000 33,777,000 116,745,000 99,030,000
Income before income
taxes 12,225,000 8,091,000 35,679,000 18,071,000
Income taxes 4,647,000 3,075,000 13,559,000 6,868,000
Net income $ 7,578,000 $ 5,016,000 $ 22,120,000 $ 11,203,000
Net income per share $ .16 $ .11 $ .46 $ .24
Dividends per common
share $ .03 $ .013 $ .07 $ .04
Dividends per Class A
common share $ .015 $ .007 $ .035 $ .02
Average number of shares
of common stock and
equivalents 47,613,000 47,144,000 47,557,000 46,951,000
</TABLE>
<PAGE>
<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
NOVEMBER 2, 1996 AND OCTOBER 28, 1995
(Unaudited)
<CAPTION>
Nine Months Ended
November 2, October 28,
1996 1995
Cash flows from operating
activities:
<S> <C> <C>
Net income $22,120,000 $11,203,000
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 11,808,000 11,132,000
Loss on retirement of property
and equipment 1,371,000 693,000
Changes in assets and
liabilities:
(Increase) in -
Inventories (15,700,000) (11,847,000)
Prepaid expenses and other
assets ( 8,382,000) ( 9,187,000)
Increase (decrease) in -
Trade accounts payable 4,301,000 2,277,000
Income taxes payable ( 6,333,000) ( 6,424,000)
Accrued expenses 2,047,000 2,196,000
Deferred credits 1,409,000 532,000
Net cash provided by operating activities 12,641,000 575,000
Cash flows from investing activities:
Acquisition of property and
equipment which represents net cash
used in investing activities (15,187,000) (11,507,000)
Cash flows from financing activities:
Proceeds from stock options
exercised 1,253,000 1,875,000
Dividends paid ( 2,787,000) ( 1,818,000)
Net cash (used in) provided by
financing activities ( 1,534,000) 57,000
Effect of foreign currency exchange
rate changes on cash and cash
equivalents 176,000 157,000
Net decrease in cash and cash equivalents ( 3,904,000) (10,718,000)
Cash and cash equivalents at beginning
of period 59,323,000 48,473,000
Cash and cash equivalents at end of
period $55,419,000 $37,755,000
</TABLE>
<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 nine 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 nine months ended November 2, 1996 and October 28,
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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
Net sales for the three and nine months ended November 2, 1996
increased approximately 29% and 31%, respectively, compared to the
comparable periods ended October 28, 1995. The increases for the
periods resulted primarily from the addition of a net 221 stores and
same-store sales increases of 10% and 11% in the three and nine month
periods ended November 2, 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 33% for the
three and nine months ended November 2, 1996 over the comparable
periods ended October 28, 1995. Principal reasons for this increase
were the rise in the number of stores and the volume of merchandise
sold. As a percentage of net sales, these expenses increased to 49%
for the three months ended November 2, 1996 compared to 47.6% for the
three months ended October 28, 1995. The increase as a percentage of
sales was due to a third quarter sales promotion and acquisitions made
during the first half of the Fiscal year ending February 1, 1997.
During the third quarter of Fiscal 1997, the Company instituted a sales
promotion allowing the customer to purchase a miniature radio for $2.99
with the purchase of regular merchandise of $9.99 or more. Sales of
the miniature radio were less than expected. The Company decided to
reduce the price of the miniature radio to $1.99. This price reduction
eliminated the margin the Company realized at the previous price of
$2.99. The result was to reduce gross margin by approximately 80 basis
points. The remaining gross margin decline is attributable to store
acquisitions discussed below. 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 that 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 costs of
rent and common area maintenance are 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.
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 decided 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
nine months ended November 2, 1996 cost of sales, occupancy and buying
expenses as a percentage of sales increased to 48.5% compared to 48.0%
for the comparable period ended October 28, 1995. The reasons for the
increase are as discussed above.
Selling, general and administrative expense (S,G&A), as a percentage of
sales for the three and nine months ended November 2, 1996 were 35.8%
and 36.2%, respectively, compared to 38.3% and 39.6%, respectively,
for the comparable periods ended October 28, 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 221 net stores.
Depreciation and amortization as a percentage of sales was
approximately 4% for the three and nine months ended November 2, 1996,
which was lower than the 4.6% and 5.0% realized during the three and
nine months ended October 28, 1995, respectively. 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 $656,000 and
$2,146,000 for the three and nine month periods ended November 2,
1996, respectively, compared to interest income, net of interest
expense, of $454,000 and $1,379,000 for the three and nine month
periods ended October 28, 1995, respectively. The Company carried no
debt balance during the three and nine months ended November 2, 1996
compared to an average debt balance of $3,000,000 during the three and
nine months ended October 28, 1995. Invested cash during the three
and nine months ended November 2, 1996 averaged approximately
$60,535,000 and $60,994,000, respectively. During the three and nine
months ended October 28, 1995, invested cash averaged approximately
$39,543,000 and $40,203,000, 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.
<PAGE>
Liquidity and Capital Resources
Net cash decreased $3,904,000 for the nine months ended November 2,
1996 due to net cash used in the acquisition of property and equipment
totaling $15,187,000 and the payment of dividends of $2,787,000. These
cash expenditures were offset by net cash provided by operating
activities of 12,641,000 and the proceeds from stock options exercised
totalling $1,253,000.
Inventory at November 2, 1996 increased 48% 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 Christmas selling season.
The Company believes overall inventory levels are appropriate given
the current economic environment and the level of sales currently
being achieved.
The Company opened 101 stores in the nine months ended November 2,
1996 and remodeled 60 stores. In addition, the Company opened 147
stores which were related to various acquisitions during the period.
At November 2, 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.
<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: December 9, 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)
<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: December 9, 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)
<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> 6-MOS 9-MOS
<FISCAL-YEAR-END> FEB-01-1997 FEB-01-1997
<PERIOD-START> AUG-04-1996 FEB-04-1996
<PERIOD-END> NOV-02-1996 NOV-02-1996
<CASH> 55,419 55,419
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 48,083 48,083
<CURRENT-ASSETS> 120,559 120,559
<PP&E> 154,443 154,443
<DEPRECIATION> 82,778 82,778
<TOTAL-ASSETS> 209,968 209,968
<CURRENT-LIABILITIES> 30,996 30,996
<BONDS> 0 0
0 0
0 0
<COMMON> 2,390 2,390
<OTHER-SE> 170,848 170,848
<TOTAL-LIABILITY-AND-EQUITY> 209,968 209,968
<SALES> 102,645 295,746
<TOTAL-REVENUES> 102,645 295,746
<CGS> 0 0
<TOTAL-COSTS> 50,326 143,322
<OTHER-EXPENSES> 40,094 116,745
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 12,225 35,679
<INCOME-TAX> 4,647 13,559
<INCOME-CONTINUING> 7,578 21,120
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,578 22,120
<EPS-PRIMARY> .16 .46
<EPS-DILUTED> .16 .46
</TABLE>
