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 2, 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 August 30, 1997 was 45,389,454 and 2,908,895
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 August 2, 1997 and
February 1, 1997 3
Consolidated Statements of Income for the Three Months and
Six Months Ended August 2, 1997 and August 3, 1996 4
Consolidated Statements of Cash Flows for the Six Months
Ended August 2, 1997 and August 3, 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 4. Submission of Matters to a Vote of
Security Holders 9
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
Aug. 2, Feb.1,
ASSETS 1997 1997
Current assets: (In thousands)
<S> <C> <C>
Cash, cash equivalents and investments $ 99,809 $ 93,400
Inventories 45,143 43,149
Prepaid expenses and other current assets 15,207 14,434
Total current assets 160,159 150,983
Property and equipment:
Land and buildings 8,752 8,714
Furniture, fixtures and equipment 82,086 76,634
Leasehold improvements 73,133 71,993
163,971 157,341
Less accumulated depreciation and
amortization ( 89,425) ( 84,660)
74,546 72,681
Other assets 19,333 19,187
$254,038 $242,851
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 16,532 $ 16,892
Income taxes payable 2,441 9,831
Accrued expenses 16,413 14,693
Dividends payable 1,458 1,450
Total current liabilities 36,844 42,866
Deferred credits 6,487 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 2,910,723 and 2,921,068 shares 146 146
Common stock par value $.05 per share;
authorized 50,000,000 shares, issued
45,357,720 and 45,219,186 shares 2,267 2,261
Additional paid-in capital 17,319 16,786
Foreign currency translation adjustments ( 112) 61
Retained earnings 191,539 175,710
211,159 194,964
Treasury stock, at cost, 109,882 shares ( 452) ( 452)
210,707 194,512
Commitments and contingencies - -
$254,038 $242,851
</TABLE>
<PAGE>
<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED
AUGUST 2, 1997 AND AUGUST 3, 1996
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
(In thousands, except per share amounts)
Aug. 2, Aug. 3, Aug. 2, Aug. 3,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $116,605 $100,719 $224,634 $193,101
Cost of sales, occupancy
and buying expenses 56,290 48,391 109,896 92,996
Gross profit 60,315 52,328 114,738 100,105
Other expenses:
Selling, general and
administrative 40,610 36,318 79,090 70,374
Depreciation and
amortization 4,169 3,939 8,200 7,767
Interest income, net ( 1,235) ( 657) ( 2,368) ( 1,490)
43,544 39,600 84,922 76,651
Income before income
taxes 16,771 12,728 29,816 23,454
Income taxes 6,289 4,837 11,181 8,913
Net income $ 10,482 $ 7,891 $ 18,635 $ 14,541
Net income per share $ .22 $ .17 $ .39 $ .31
Dividends per common
share $ .03 $ .02 $ .06 $ .04
Dividends per Class A
common share $ .015 $ .01 $ .03 $ .02
Average number of shares
of common stock and
equivalents 48,080 47,593 48,063 47,531
</TABLE>
<PAGE>
<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
AUGUST 2, 1997 AND AUGUST 3, 1996
(Unaudited)
<CAPTION>
Six Months Ended
(In thousands)
Aug. 2, Aug. 3,
1997 1996
Cash flows from operating
activities:
<S> <C> <C>
Net income $18,635 $14,541
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 8,200 7,767
Loss on retirement of property
and equipment 742 834
Changes in assets and
liabilities:
(Increase) in -
Inventories ( 1,994) ( 6,606)
Prepaid expenses and other
assets ( 883) ( 6,958)
Increase (decrease) in -
Trade accounts payable ( 360) 3,406
Income taxes payable ( 7,390) ( 6,541)
Accrued expenses 1,720 1,803
Deferred credits 1,014 570
Net cash provided by
operating activities 19,684 8,816
Cash flows from investing activities:
Acquisition of property and
equipment which represents net cash
used in investing activities (10,807) (10,175)
Cash flows from financing activities:
Proceeds from stock options
exercised 503 1,124
Dividends paid ( 2,798) ( 1,850)
Net cash used in financing
activities ( 2,295) ( 726)
Effect of foreign currency exchange
rate changes on cash and cash
equivalents ( 173) ( 4)
Net Increase (decrease) in cash, cash
equivalents and investments 6,409 ( 2,089)
Cash, cash equivalents and investments
at beginning of period 93,400 59,323
Cash, cash equivalents and investments
at end of period $99,809 $57,234
</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 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 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 2, 1997 and August 3, 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 six months ended August 2, 1997 and
August 3, 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 six months ended August 2, 1997 increased
approximately 16%, compared to the comparable periods ended August 3, 1996.
The increases for the periods resulted primarily from the addition of a net
120 stores and same-store sales increases of 7% in the three and six month
periods ended August 2, 1997. The same-store sales increases were primarily
due to the Company continuing to focus 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 16% and 18%,
respectively, for the three and six months ended August 2, 1997 over the
comparable periods ended August 3, 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 increased to 48.3% for
the three months ended August 2, 1997 compared to 48% for the three months
ended August 3, 1996. The increase as a percentage of sales was due to a
change in customer demand for product offered for sale. In the second quarter
ending August 2, 1997 "Jewelry" merchandise represented approximately 51% of
sales and "Accessory" merchandise represented approximately 49% of sales. In
the period ending August 3, 1996, Jewelry merchandise represented almost 57%
of sales compared to 43% for accessories. Historically, the Initial Mark-up
(IMU) and Maintained Mark-up (MMU) for jewelry is higher than accessories.
Therefore, the shift in customer demand for merchandise to accessories has
reduced the Company's overall IMU and MMU thus decreasing margin. To help
offset this trend the Company has been increasing retail prices of its
merchandise selectively and has successfully negotiated with its vendors and
manufacturers for lower wholesale pricing. Also, rent and rent support,
which are fixed by nature, was lower as a percentage of sales due to the
same store sales increases discussed above.
Selling, general and administrative expense (S,G&A), as a percentage of sales
for the three and six months ended August 2, 1997 were 34.8% and 35.2%,
respectively, compared to 36.1% and 36.4%, respectively, for the comparable
periods ended August 3, 1996. 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 120 net
stores.
Depreciation and amortization as a percentage of sales was approximately 3.6%
for the three and six months ended August 2, 1997, which was lower than the
approximately 4% realized during the three and six months ended August 3,
1996. The decrease was as expected given the same-store sales increases
realized during these periods.
Due to the increase in cash levels, interest income, net of interest expense,
totaled $1,235,000 and $2,368,000 for the three and six month periods ended
August 2, 1997, respectively, compared to interest income, net of interest
expense, of $657,000 and $1,490,000 for the three and six month periods
ended August 3, 1996, respectively. Invested cash during the three and six
months ended August 2, 1997 averaged approximately $97,539,000 and
$96,089,000, respectively. During the three and six months ended August 3,
1996, invested cash averaged approximately $61,192,000 and $61,650,000,
respectively.
<PAGE>
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 increased $6,409,000 for the six months ended August 2, 1997 due to
net cash provided by operating activities of $19,684,000 and the proceeds
from stock options exercised totaling $503,000. These were offset by net
cash used in the acquisition of property and equipment totaling $10,807,000
and the payment of dividends of $2,798,000.
Inventory at August 2, 1997 increased 5% 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 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.
The Company opened 86 stores in the six months ended August 2, 1997 and
remodeled 62 stores.
At August 2, 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 required capital expenditures.
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders
On June 16, 1997, the annual meeting of stockholders of the Company was
held at which seven directors were elected to the Board of Directors for a
one-year term and the Company's 1996 Stock Option Plan was approved. The
results of the voting were as follows:
<TABLE>
Election of Directors
<CAPTION>
Common Stock
No. Of Shares Voted For No. Of Shares Withheld
<S> <C> <C>
Rowland Schaefer 35,714,422 545,756
Sylvia Schaefer 35,737,167 523,001
Bruce G. Miller 35,697,763 562,415
Joel J. Silver 35,701,588 558,590
Harold E. Berritt 35,706,449 553,729
Fred D. Hirt 35,729,531 530,647
Marla L. Schaefer 35,705,924 554,254
<CAPTION>
Class A Common Stock
No. Of Shares Voted For No. Of Shares Withheld
<S> <C> <C>
Rowland Schaefer 2,347,035 343
Sylvia Schaefer 2,347,041 337
Bruce G. Miller 2,347,041 337
Joel J. Silver 2,347,041 337
Harold E. Berritt 2,347,041 337
Fred D. Hirt 2,347,041 337
Marla L. Schaefer 2,347,041 337
</TABLE>
Approval of 1996 Stock Option Plan
For 41,764,639 Against 13,185,262 Abstain 283,200
<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 5, 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)
<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 5, 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)
<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> JAN-31-1998 JAN-31-1998
<PERIOD-START> MAY-04-1997 FEB-02-1997
<PERIOD-END> AUG-02-1997 AUG-02-1997
<CASH> 99,809 99,809
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 45,143 45,143
<CURRENT-ASSETS> 160,159 160,159
<PP&E> 163,971 163,971
<DEPRECIATION> 89,425 89,425
<TOTAL-ASSETS> 254,038 254,038
<CURRENT-LIABILITIES> 36,844 36,844
<BONDS> 0 0
0 0
0 0
<COMMON> 2,413 2,413
<OTHER-SE> 208,294 208,294
<TOTAL-LIABILITY-AND-EQUITY> 254,038 254,038
<SALES> 116,605 224,634
<TOTAL-REVENUES> 116,605 224,634
<CGS> 0 0
<TOTAL-COSTS> 56,290 109,896
<OTHER-EXPENSES> 43,544 84,922
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 16,771 29,816
<INCOME-TAX> 6,289 11,181
<INCOME-CONTINUING> 10,482 18,635
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,482 18,635
<EPS-PRIMARY> .22 .39
<EPS-DILUTED> .22 .39
</TABLE>
