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 May 3, 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 May 31, 1997 was 45,247,322 and 2,916,495
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 May 3, 1997 and
February 1, 1996. 3
Consolidated Statements of Income for the Three
Months Ended May 3, 1997 and May 4, 1996. 4
Consolidated Statements of Cash Flows for the
Three Months Ended May 3, 1997 and
May 4, 1996. 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of
Operations 7-8
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<TABLE>
PART I. FINANCIAL INFORMATION
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
May 3, February 1,
ASSETS 1997 1997
Current assets
<S> <C> <C>
Cash and cash equivalents $ 97,845,000 $ 93,400,000
Inventories 40,211,000 43,149,000
Prepaid expenses and other current assets 13,592,000 14,434,000
Total current assets 151,648,000 150,983,000
Property and equipment:
Land and building 8,718,000 8,714,000
Furniture, fixtures and equipment 79,073,000 76,634,000
Leasehold improvements 71,940,000 71,993,000
159,731,000 157,341,000
Less accumulated depreciation and
amortization ( 86,260,000) ( 84,660,000)
73,471,000 72,681,000
Other assets 19,439,000 19,187,000
$244,558,000 $242,851,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 15,534,000 $ 16,892,000
Income taxes payable 6,138,000 9,831,000
Accrued expenses 14,053,000 14,693,000
Dividends payable 1,453,000 1,450,000
Total current liabilities 37,178,000 42,866,000
Deferred credits 6,093,000 5,473,000
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 2,917,925 and 2,936,840 shares 146,000 146,000
Common stock par value $.05 per share;
authorized 50,000,000 shares, issued
45,245,897 and 44,833,047 shares 2,262,000 2,261,000
Additional paid-in capital 16,957,000 16,786,000
Foreign currency translation adjustments ( 87,000) 61,000
Retained earnings 182,461,000 175,710,000
201,739,000 194,964,000
Treasury stock, at cost, 109,882 shares ( 452,000) ( 452,000)
201,287,000 194,512,000
Commitments and contingencies
$244,558,000 $242,851,000
</TABLE>
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<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
MAY 3, 1997 AND MAY 4, 1996
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
May 3, May 4,
1997 1996
<S> <C> <C>
Net sales $108,029,000 $92,382,000
Cost of sales, occupancy and
buying expenses 53,606,000 44,605,000
Gross profit 54,423,000 47,777,000
Other expenses:
Selling, general and
administrative 38,480,000 34,056,000
Depreciation and amortization 4,031,000 3,828,000
Interest (income), net ( 1,133,000) ( 833,000)
41,378,000 37,051,000
Income before income taxes 13,045,000 10,726,000
Income taxes 4,892,000 4,076,000
Net income $ 8,153,000 $ 6,650,000
Net income per share $ .17 $ .14
Dividends per common share $ .03 $ .02
Dividends per class A common
share $ .015 $ .01
Average number of shares of
common stock and equivalents 48,042,000 47,483,000
</TABLE>
<PAGE>
<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MAY 3, 1997 AND MAY 4, 1996
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
May 3, May 4,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,153,000 $ 6,650,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 4,031,000 3,828,000
Loss on retirement of property
and equipment 423,000 447,000
Changes in assets and
liabilities:
(Increase) decrease in -
Inventories 2,939,000 ( 937,000)
Prepaid expenses and other
assets 590,000 ( 1,710,000)
Increase (decrease) in -
Trade accounts payable ( 1,358,000) 4,086,000
Income taxes payable ( 3,693,000) ( 3,024,000)
Accrued expenses ( 639,000) 108,000
Deferred credits 620,000 281,000
Net cash provided by operating activities 11,066,000 9,729,000
Cash flows from investing activities:
Acquisition of property and
equipment which represents net cash
used in investing activities ( 5,246,000) ( 4,336,000)
Cash flows from financing activities:
Proceeds from stock options
exercised 171,000 1,035,000
Dividends paid ( 1,399,000) ( 926,000)
Net cash (used in) provided by
financing activities ( 1,228,000) 109,000
Effect of foreign currency exchange
rate changes on cash and cash
equivalents ( 147,000) 42,000
Net increase in cash and cash equivalents 4,445,000 5,544,000
Cash and cash equivalents at beginning
of period 93,400,000 59,323,000
Cash and cash equivalents at end of
period $97,845,000 $64,867,000
</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 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 three 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 months ended May 3, 1997 and May 4, 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 months ended May
3, 1997 and May 4, 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 months ended May 3, 1997 increased
approximately 17% over the comparable period ended May 4, 1996. The
increase for the period resulted primarily from the addition of a net
152 stores and same-store sales increases of 8%. 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 20% for the
three months ended May 3, 1997 over the comparable period ended May 4,
1996. The principal reason for this increase was the rise in the
number of stores and the volume of merchandise sold. As a percentage
of net sales, these expenses increased to 49.6% for the three months
ended May 3, 1997 compared to 48.3% for the three months ended May 4,
1996. The increase as a percentage of sales was due to a shift in
merchandise sold and acquisitions made during the twelve months ended
February 1, 1997 ("Fiscal 1997"). During Fiscal 1997, the Company
reacted to changes in customer demand for its product. These changes
included a shift in merchandise focus to accessories, which carries a
lower gross margin from jewelry. In the three months ended May 3,
1997, accessories were approximately 41% of total sales compared to 35%
in the three months ended May 4, 1996. The remaining gross margin
decline is attributable to store acquisitions made during Fiscal 1997.
These acquisitions included 95 stores in the United States which
operate under the trade names "The Icing", "Claire's Etc." and "Accessory
Place" and 55 stores in the United Kingdom which operate under the trade
name "Bow Bangles". The merchandise offered for sale by some of 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. 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.
Selling, general and administrative expense ("S,G&A"), as a percentage
of sales for the three months ended May 3, 1997 was 35.6% compared to
36.9% for the comparable period ended May 4, 1996. The decrease in
S,G&A as a percentage of net sales was primarily attributable to the
increase in same-store sales as previously discussed and the leveraging
of fixed expenses with the addition of 152 net stores.
<PAGE>
Depreciation and amortization as a percentage of sales was 3.7% for
the three months ended May 3, 1997 compared to 4.1% for the three
months ended May 4, 1996. The decrease noted as a percentage of sales
was due to the recent store acquisitions by the Company. The
favorable purchase prices paid have enabled the Company to increase
revenues significantly without incurring the level of depreciation and
amortization expense normally associated with opening new stores.
Interest income, net of interest expense, totaled $1,133,000 for the
three month period ended May 3, 1997 compared to $833,000 for the
comparable period ended May 4, 1996. This increase was primarily due
to the increase in the average cash balance to $95,079,000 during the
three months ended May 3, 1997 compared to $62,913,000 during the same
period ended May 4, 1996. Also increasing interest income was the
Federal Reserve increasing the key Federal Funds rate .25% in March
1997.
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 $4,445,000 for the three months ended May 3, 1997
due to cash provided by operations of $11,066,000 and the proceeds
from stock options exercised of $171,000, partially offset by the
acquisition of property and equipment totaling $5,246,000 and the
payment of dividends of $1,399,000.
Inventory at May 3, 1997 was lower than the inventory level at the end
of the Company's February 1, 1997 fiscal year. The Company believes
these inventory levels are appropriate given the current economic
environment and the level of sales currently being achieved.
The Company opened 42 stores in the three months ended May 3, 1997.
In addition, the Company remodeled 20 stores.
At May 3, 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 July 31, 1999.
No borrowings were outstanding under this line of credit at any time
during the three month period ended May 3, 1997. The Company believes
that its cash on hand, internally generated funds and borrowings
available under its credit agreement will be sufficient to meet its
current operating needs and its minimum 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: June 4, 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: June 4, 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)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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> 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998
<PERIOD-START> FEB-02-1997 FEB-02-1997
<PERIOD-END> MAY-03-1997 MAY-03-1997
<CASH> 97,845 97,845
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 40,211 40,211
<CURRENT-ASSETS> 151,648 151,648
<PP&E> 159,731 159,731
<DEPRECIATION> 86,260 86,260
<TOTAL-ASSETS> 244,558 244,558
<CURRENT-LIABILITIES> 37,178 37,178
<BONDS> 0 0
0 0
0 0
<COMMON> 2,408 2,408
<OTHER-SE> 198,879 198,879
<TOTAL-LIABILITY-AND-EQUITY> 244,558 244,558
<SALES> 108,029 108,029
<TOTAL-REVENUES> 108,029 108,029
<CGS> 0 0
<TOTAL-COSTS> 53,606 53,606
<OTHER-EXPENSES> 41,378 41,378
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 13,045 13,045
<INCOME-TAX> 4,892 4,892
<INCOME-CONTINUING> 8,153 8,153
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,153 8,153
<EPS-PRIMARY> .17 .17
<EPS-DILUTED> .17 .17
</TABLE>
