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 1, 1997
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 November 28, 1997 was 45,465,277 and 2,902,383,
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 1, 1997 and
February 1, 1997. 3
Consolidated Statements of Income for the Three
Months and Nine Months Ended November 1, 1997
and November 2, 1996. 4
Consolidated Statements of Cash Flows for the
Nine Months Ended November 1, 1997 and
November 2, 1996. 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of
Operations 7-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
Nov. 1, Feb. 1,
ASSETS 1997 1997
Current assets: (In thousands)
<S> <C> <C>
Cash and cash equivalents $ 90,823 $ 93,400
Inventories 56,854 43,149
Prepaid expenses and other current assets 16,555 14,434
Total current assets 164,232 150,983
Property and equipment:
Land and building 8,772 8,714
Furniture, fixtures and equipment 89,639 76,634
Leasehold improvements 76,491 71,993
174,902 157,341
Less accumulated depreciation and
amortization ( 92,390) ( 84,660)
82,512 72,681
Other assets 19,353 19,187
$266,097 $242,851
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 21,281 $ 16,892
Income taxes payable 1,053 9,831
Accrued expenses 15,221 14,693
Dividends payable 1,460 1,450
Total current liabilities 39,015 42,866
Deferred credits 6,687 5,473
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 2,906,188 and 2,921,068 shares 145 146
Common stock par value $.05 per share;
authorized 50,000,000 shares, issued
45,454,160 and 45,219,186 shares 2,273 2,261
Additional paid-in capital 17,771 16,786
Foreign currency translation adjustments ( 101) 61
Retained earnings 200,759 175,710
220,847 194,964
Treasury stock, at cost, 109,882 shares ( 452) ( 452)
220,395 194,512
Commitments and contingencies - -
$266,097 $242,851
</TABLE>
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<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 1, 1997 AND NOVEMBER 2, 1996
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
(In thousands, except per share amounts)
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $113,448 $102,645 $338,082 $295,746
Cost of sales, occupancy
and buying expenses 54,911 50,326 164,807 143,322
Gross profit 58,537 52,319 173,275 152,424
Other expenses:
Selling, general and
administrative 39,992 36,709 119,082 107,083
Depreciation and
amortization 4,401 4,041 12,601 11,808
Interest income, net and
other income ( 2,853) ( 656) ( 5,221) ( 2,146)
41,540 40,094 126,462 116,745
Income before income
taxes 16,997 12,225 46,813 35,679
Income taxes 6,372 4,647 17,553 13,559
Net income $ 10,625 $ 7,578 $ 29,260 $ 22,120
Net income per share $ .22 $ .16 $ .61 $ .46
Dividends per common
share $ .03 $ .03 $ .09 $ .07
Dividends per Class A
common share $ .015 $ .015 $ .045 $ .035
Average number of shares
of common stock and
equivalents 48,201 47,613 48,108 47,557
</TABLE>
<PAGE>
<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
NOVEMBER 1, 1997 AND NOVEMBER 2, 1996
(Unaudited)
<CAPTION>
Nine Months Ended
(In thousands)
Nov. 1, Nov. 2,
1997 1996
Cash flows from operating
activities:
<S> <C> <C>
Net income $29,260 $22,120
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 12,601 11,808
Loss on retirement of property
and equipment 1,101 1,371
Changes in assets and
liabilities:
(Increase) in -
Inventories (13,705) (15,700)
Prepaid expenses and other
assets ( 2,253) ( 8,382)
Increase (decrease) in -
Trade accounts payable 4,389 4,301
Income taxes payable ( 8,778) ( 6,333)
Accrued expenses 528 2,047
Deferred credits 1,214 1,409
Net cash provided by
operating activities 24,357 12,641
Cash flows from investing activities:
Acquisition of property and
equipment which represents net cash
used in investing activities (23,533) (15,187)
Cash flows from financing activities:
Proceeds from stock options
exercised 961 1,253
Dividends paid ( 4,200) ( 2,787)
Net cash used in financing
activities ( 3,239) (1,534)
Effect of foreign currency exchange
rate changes on cash and cash
equivalents and investments ( 162) 176
Net decrease in cash and cash equivalents ( 2,577) ( 3,904)
Cash and cash equivalents at beginning
of period 93,400 59,323
Cash and cash equivalents at end of period $90,823 $55,419
</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 notinclude 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 1, 1997 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 1, 1997 and November 2, 1996.
4. In February of 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" ("SFAS 128"), which became effective
for periods ending after December 15, 1997, including interim periods. This
standard requires public companies to present basic earnings per share
("EPS") and, if applicable, diluted earnings per share, instead of primary
and fully diluted EPS. For the three and nine months ended November 1, 1997
and November 2, 1996, the effect of adopting SFAS 128 has not been determined.
The Company expects the presentation of basic EPS to mirror primary EPS as
currently disclosed. The computation of diluted EPS will include dilutive
potential common shares. Potential common shares are securities such as
stock options outstanding under the Company's 1982 Plan, 1985 Plan, 1991 Plan
and 1996 Plan. The number of potential common shares included in the
computation of diluted EPS will be calculated using the treasury stock method
as required by SFAS 128. The Company will begin disclosing EPS in accordance
with Statement 128 beginning with the quarter ended January 31, 1998.
<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 1, 1997
increased approximately 11% and 14%, respectively, compared to the
comparable periods ended November 2, 1996. The increases for the
periods resulted primarily from the addition of a net 149 stores and
same-store sales increases of1% and 5% in the three and nine month
periods ended November 1, 1997, respectively. The same-store sales
increases were primarily due to the Company continuing to focus its
merchandising strategy on 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 9% and 15%,
respectively, for the three and nine months ended November 1, 1997
over the comparable periods ended November 2, 1996. 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 decreased to 48.4% for the three months ended
November 1, 1997 compared to 49.0% for the three months ended
November 2, 1996. The decrease as a percentage of sales was primarily
due to the non-recurrence of an unsuccessful sales promotion that the
Company instituted during the third quarter of the prior year. Also,
the Company has been selectively increasing retail prices of its
merchandise and has successfully negotiated lower pricing from many of
its key vendors and manufacturers.
Selling, general and administrative expense (S,G&A), as a percentage
of sales for the three and nine months ended November 1, 1997 were
35.3% and 35.2%, respectively, compared to 35.8% and 36.2%, respectively,
for the comparable periods ended November 2, 1996. The decrease in SG&A
as a percentage of sales is primarily attributable to the leverage of
fixed expenses with the addition of 149 net stores and the increase
in same-store sales previously discussed.
Depreciation and amortization as a percentage of sales was approximately
3.8% for the three and nine months ended November 1, 1997, which was
lower than the 4% realized during the three and nine months ended
November 2, 1996, respectively. The slight decrease was expected given
the same-store sales increases during these periods.
Included in interest income, net and other income is a gain realized
from the sale of investments of approximately $1,560,000. Excluding this
item, interest income, net of interest expense totaled $1,293,000 and
$3,661,000 for the three and nine month periods ended November 1, 1997,
respectively, compared to $656,000 and $2,146,000 for the comparable
three and nine month periods ended November 2, 1996, respectively.
This increase is the result of increased levels of invested cash
which approximated $99,000,000 and $96,900,000 for the three and nine
months ended November 1, 1997, respectively, compared with $60,535,000
and $60,994,000 for the comparable three and nine month periods ended
November 2, 1996, 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 $2,577,000 for the nine months ended November 1, 1997
due to net cash used for the acquisition of property and equipment totaling
$23,533,000 and the payment of dividends of $4,200,000. These cash
expenditures were offset by net cash provided by operating activities of
$24,357,000 and the proceeds from stock options exercised totalling
$961,000.
Inventory at November 1, 1997 increased 32% compared to the inventory
balance at the end of the Company's February 1, 1997 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 131 stores in the nine months ended November 1, 1997
and remodeled 94 stores.
At November 1, 1997, 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, 1999.
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 capital expenditures.
Special Note Regarding Forward-Looking Statements
The Company and its representatives may from time to time make oral
or written "forward-looking statements" within the meaning of the
Private Securities Reform Act of 1995 (the "Reform Act"), including
any statements that may be contained in the foregoing "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
in this report and in other filings with the Securities and Exchange
Commission and in its reports to stockholders, which represent the
Company's expectations or beliefs with respect to future events and future
financial performance. These forward-looking statements are subject to
certain risks and uncertainties and, in connection with the "safe-harbor"
provisions of the Reform Act, the Company is hereby identifying important
factors that could cause actual results to differ materially from those
contained in any forward-looking statements made by or on behalf of the
Company.
Factors affecting the Company, include, without limitation, changes in
consumer preferences in the women's fashion accessories industry,
competition, and economic conditions in the United States, Canada and
the United Kingdom.
Results actually achieved may differ materially from historical or
expected results included in thes statements as a result of these or
other factors. Due to such uncertainties and risks, readers are
cautioned not to place undue reliance on such forward-looking statements,
which speak only as of the date on which such statements are made.
The Company does not undertake to update any forward-looking statement
that may be made from time to time on behalf of the Company.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule (for SEC use only)
99.1 Press Release of Claire's Stores, Inc. dated October 21, 1997
b) Reports on Form 8-K
Not Applicable
<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 8, 1997 /s/ Ira D. Kaplan
Ira D. Kaplan
Senior Vice President, Chief
Financial Officer and Treasurer
(Mr. Kaplan is the Senior Vice
President, Chief Financial Officer
and Treasurer and has been duly
authorized to sign on behalf of
the registrant)
10
<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 8, 1997 Ira D. Kaplan
Senior Vice President, Chief
Financial Officer and Treasurer
(Mr. Kaplan is the Senior Vice
President, Chief Financial Officer
and Treasurer and has been duly
authorized to sign on behalf of
the registrant)
10
<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 9-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998
<PERIOD-START> AUG-03-1997 FEB-02-1997
<PERIOD-END> NOV-01-1997 NOV-01-1997
<CASH> 90,823 90,823
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 56,854 56,854
<CURRENT-ASSETS> 164,232 164,232
<PP&E> 174,902 174,902
<DEPRECIATION> 92,390 92,390
<TOTAL-ASSETS> 266,097 266,097
<CURRENT-LIABILITIES> 39,015 39,015
<BONDS> 0 0
0 0
0 0
<COMMON> 2,418 2,418
<OTHER-SE> 217,977 217,977
<TOTAL-LIABILITY-AND-EQUITY> 266,097 266,097
<SALES> 113,448 338,082
<TOTAL-REVENUES> 113,448 338,082
<CGS> 0 0
<TOTAL-COSTS> 54,911 164,807
<OTHER-EXPENSES> 41,540 126,462
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 16,997 46,813
<INCOME-TAX> 6,372 17,553
<INCOME-CONTINUING> 10,625 29,260
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,625 29,260
<EPS-PRIMARY> .22 .61
<EPS-DILUTED> .22 .61
</TABLE>
