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 1, 1998
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 31, 1998 was 47,889,150 and 2,896,260
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 1, 1998 and
January 31, 1998. 3
Consolidated Statements of Income for the Three and Six
Months Ended August 1, 1998 and August 2, 1997. 4
Consolidated Statements of Cash Flows for the Six Months
Ended August 1, 1998 and August 2, 1997. 5
Notes to Condensed 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
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
Aug. 1, Jan.31,
ASSETS 1998 1998(1)
Current assets: (In thousands)
<S> <C> <C>
Cash and cash equivalents $107,552 $122,491
Short-term investments 16,315 10,215
Inventories 69,163 52,437
Prepaid expenses and other current
assets 20,446 19,055
Total current assets 213,476 204,198
Property and equipment:
Land and buildings 10,139 8,827
Furniture, fixtures and equipment 110,486 100,976
Leasehold improvements 85,304 80,575
205,929 190,378
Less accumulated depreciation and
amortization (105,434) (97,810)
100,495 92,568
Other assets 21,467 20,301
$335,438 $317,067
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 25,195 $ 20,065
Income taxes payable 6,663 10,691
Accrued expenses 16,113 17,442
Dividends payable 55 1,466
Total current liabilities 48,026 49,664
Long-term debt - 1,600
Deferred credits 9,698 8,545
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 2,896,951 and 2,904,745 shares 145 145
Common stock par value $.05 per share;
authorized 150,000,000 shares, issued
47,888,459 and 47,645,701 shares 2,394 2,296
Additional paid-in capital 22,396 22,139
Accumulated other comprehensive income (706) (558)
Retained earnings 253,937 233,688
278,166 257,710
Treasury stock, at cost, 109,882 shares (452) (452)
277,714 257,258
Commitments and contingencies
$335,438 $317,067
(1) Restated to reflect the merger with Lux Corporation.
</TABLE>
<PAGE>
<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED
AUGUST 1, 1998 AND AUGUST 2, 1997
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
(In thousands, except per share amounts)
Aug. 1, Aug. 2, Aug. 1, Aug. 2,
1998 1997(1) 1998 1997(1)
<S> <C> <C> <C> <C>
Net sales $151,429 $124,242 $284,391 $238,623
Cost of sales, occupancy
and buying expenses 75,442 61,393 141,550 119,368
Gross profit 75,987 62,849 142,841 119,255
Other expenses:
Selling, general and
administrative 51,920 42,444 99,688 81,977
Depreciation and
amortization 5,402 4,353 10,319 8,576
Interest income, net (1,547) (1,215) (3,157) ( 2,347)
55,775 45,582 106,850 88,206
Income before income
taxes 20,212 17,267 35,991 31,049
Income taxes 7,481 6,475 13,319 11,643
Net income 12,731 10,792 22,672 19,406
Other comprehensive income,
net of tax:
Foreign currency
translation adjustments (529) (16) (343) (109)
Unrealized gains on
securities 250 - 250 -
Comprehensive income $ 12,452 $ 10,776 $ 22,579 $ 19,297
Basic net income per
share $ .25 $ .22 $ .45 $ .39
Diluted net income per
share $ .25 $ .21 $ .44 $ .38
Dividends per common
share $ .04 $ .03 $ .08 $ .06
Dividends per Class A
common share $ .02 $ .015 $ .04 $ .03
Average common shares
outstanding - Basic 50,668 50,150 50,573 50,133
Average common shares
outstanding - Diluted 51,123 51,098 51,111 51,055
(1) Restated to reflect the merger with Lux Corporation.
</TABLE>
<PAGE>
<TABLE>
CLAIRE'S STORES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
AUGUST 1, 1998 AND AUGUST 2, 1997
(Unaudited)
<CAPTION>
Six Months Ended
(In thousands)
Aug 1, Aug 2,
1998 1997(1)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 22,672 $ 19,406
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 10,319 8,576
Tax benefit from options 102 -
Loss on retirement of property
and equipment 606 742
Changes in assets and
liabilities:
(Increase) in -
Inventories (16,726) (4,215)
Prepaid expenses and other assets (2,557) (1,376)
Increase (decrease) in -
Trade accounts payable 5,130 1,592
Income taxes payable (4,028) (8,367)
Accrued expenses (1,329) 1,743
Deferred credits 1,154 1,033
Net cash provided by
operating activities 15,343 19,134
Cash flows from investing activities:
Acquisition of property and
equipment which represents net cash
used in investing activities (18,852) (12,269)
Cash flows from financing activities:
Principal (payments) borrowings on debt (1,600) 1,300
Purchases of short-term investments, net (5,705) -
Proceeds from stock options exercised 253 503
Dividends paid (3,834) (2,798)
Net cash used in financing
activities (10,886) (995)
Effect of foreign currency exchange
rate changes on cash and cash
equivalents (544) (173)
Net increase (decrease) in cash and
cash equivalents (14,939) 5,697
Cash and cash equivalents at beginning
of period 122,491 94,335
Cash and cash equivalents at end of period $107,552 $100,032
(1) Restated to reflect the merger with Lux Corporation.
</TABLE>
<PAGE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED 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 January 31, 1998 filed with the Securities and Exchange Commission.
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.
2. The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per share", in the fiscal year ended January 31,
1998. In accordance with SFAS 128, both basic net income per share and
diluted net income per share have been presented in the financial statements.
Earnings per share for all periods have been restated to reflect the
provision of this statement. Basic net income per share is based on the
weighted average number of shares of Class A Common Stock and Common Stock
outstanding during the period ( 50,688,000 and 50,573,000 shares for the three
months and six months ended August 1, 1998, respectively and 50,150,000 and
50,133,000 shares for the three months and six months ended August 2, 1997,
respectively). Diluted net income per share includes the dilutive effect of
stock options (51,123,000 and 51,111,000 shares for the three months and six
months ended August 1, 1998, respectively and 51,098,000 and 51,055,000
shares for the three and six months ended August 2, 1997, respectively).
Options to purchase 116,667 and 72,500 shares of common stock, at prices
ranging from $21.25 to $22.88 per share and $19.73 to $21.25 per share,
respectively, were outstanding for the three months and six months ended
August 1, 1998 and August 2, 1997, respectively, but were not included in the
computation of diluted earnings per share because the options' exercise
prices were greater than the average market price of the common shares for the
respective fiscal period.
3. Effective February 1, 1998, the Company adopted the SFAS No. 130,
"Reporting Comprehensive Income". This statement requires that all items
recognized under accounting standards as components of comprehensive income
be reported with the same prominence as other financial statement items.
4. In April 1998, the Company completed its acquisition of Lux
Corporation ("Lux"), a closely held specialty apparel chain operating under
the name of "Mr. Rags," in a stock-for-stock merger. The stores specialize
in selling teen unisex clothing and accessories. In connection with the
merger, the Company issued 2,070,286 shares of common stock in exchange for
all the outstanding common stock of Lux. The merger has been accounted for
as a pooling of interests business combination. Accordingly, the
accompanying unaudited consolidated financial statements have been restated
to include the accounts of Lux as if the companies had combined at the
beginning of the first period presented. Prior to the merger, Lux's fiscal
year ended on November 30. In recording the business combination, Lux's
prior year financial statements have been restated to conform with the
company's fiscal year end.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The analysis below takes into account that prior year's balances have been
restated to reflect the pooling of interests with Lux as if the companies had
combined at the beginning of the first period presented. For a further
discussion of this transaction, see Note 4 to the Company's unaudited
consolidated financial statements herein.
Net sales for the three and six months ended August 1, 1998 increased
approximately 22% and 19%, respectively, compared to the comparable periods
ended August 2, 1997. The increases for the periods resulted primarily from
the addition of a net 225 stores, same-store sales increases of 3% and 2% in
the three and six month periods ended August 1, 1998 and sales from the
Company's Just Nikki, Inc.'s catalog operations which did not exist during
the same periods last year. The same-store sales increases were primarily
due to increases in the number of transactions per store and the average
retail price per transaction.
Cost of sales, occupancy and buying expenses increased 23% and 19%,
respectively, for the three and six months ended August 1, 1998 over the
comparable periods ended August 2, 1997. 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 49.8% for
the three months ended August 1, 1998 compared to 49.4% for the three months
ended August 2, 1997. This increase as a percentage of sales was due to a
more aggressive promotional strategy for the three and six months ended
August 1, 1998 compared to the comparable periods ended August 2, 1997 and
continuing changes in the merchandise product mix offered for sale. For the
six months ended August 1, 1998, these expenses as a percentage of sales
decreased to 49.8% compared to 50.0% for the six months ended August 2, 1997.
The decrease as a percentage of sales was due to the Company increasing the
total merchandise purchased directly from manufacturers overseas and
utilizing the Company's ever increasing buying power to negotiate lower
prices from vendors which resulted in higher maintained markups which was
partially offset by the promotional strategy and product mix changes
discussed above.
Selling, general and administrative expense (S,G&A), as a percentage of sales
for the three and six months ended August 1, 1998 were 34.3% and 35.1%,
respectively, compared to 34.2% and 34.4%, respectively, for the comparable
periods ended August 2, 1997. Although S,G&A remained comparable for the
three month period, S,G&A as a percentage of sales increased for the six
month period. This increase was primarily attributable to the costs
associated with the launch of the Company's Just Nikki, Inc.'s catalog
operations.
Depreciation and amortization as a percentage of sales was approximately 3.6%
for the three and six months ended August 1, 1998, which was comparable to
the three and six months ended August 2, 1997.
Due to the increase in cash levels, interest income, net of interest expense,
totaled $1,547,000 and $3,157,000 for the three and six month periods ended
August 1, 1998, respectively, compared to interest income, net of interest
expense, of $1,215,000 and $2,347,000 for the three and six month periods
ended August 2, 1997, respectively. Invested cash during the three and six
months ended August 1, 1998 averaged approximately $115,088,000 and
$121,582,000, respectively. During the three and six months ended August 2,
1997, invested cash averaged approximately $97,437,000 and $96,560,000,
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 $14,939,000 for the six months ended August 1, 1998 due to
net cash used in the acquisition of property and equipment totaling
$18,852,000, the payment of dividends of $3,834,000, the purchase of
short-term investments of $5,705,000 and the payment of long-term debt of
$1,600,000. These were offset by net cash provided by operating activities
of $15,343,000 and the proceeds from stock options exercised totaling
$253,000.
Inventory at August 1, 1998 increased 32% compared to the inventory balance
at the end of the Company's January 31, 1998 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 131 stores in the six months ended August 1, 1998 and
remodeled 32 stores.
At August 1, 1998, 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.
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.
Important factors currently known to management that could cause actual
results to differ materially from those in forward-looking statementsare set
forth in the safe harbor compliance statement for forward-looking statements
in the Company's Annual Report on Form 10-K for the year ended January 31,
1998, and that statement is hereby incorporated by reference in this
Form 10-Q. The Company does not undertake to update or revise any
forward-looking statement to reflect changed assumptions, the occurrence of
unanticipated events or changes to operating results over time.
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1998 Annual meeting of Stockholders (the "Annual Meeting") was
held on June 10, 1998 in New York City for the following purposes:
1. To elect seven directors to the Board of Directors of the
Company for a one-year term.
2. To approve an amendment to the Company's Restated Certificate
of Incorporation, as amended (the "Certificate of
Incorporation"), to increase the authorized common stock,
$.05 par value, of the Company to 150,000,000 shares from
50,000,000 shares.
Proxies for the Annual Meeting were solicited pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, and there was no
solicitation in opposition to the Company's solicitations.
At the Annual Meeting, every holder of record of Common Stock, $.05 par value
(the "Common Stock") and Class A Common Stock, $.05 par value (the "Class A
Common Stock"), of the Company at the close of business on May 1, 1998
(the "Record Date") was entitled to vote, in person or by proxy, one vote for
each share of Common Stock and ten votes for each share of Class A Common
Stock, as the case may be, held by such holder. As of the Record Date, the
Company had outstanding 47,861,952 shares of Common Stock and 2,900,575
shares of Class A Common Stock.
The holders of record of an aggregate 38,730,545 shares of Common Stock and
an aggregate of 2,384,299 shares of Class A Common Stock were either present
in person or represented by proxy, and constituted a quorum for the
transaction of business at the Annual Meeting.
All of the Company's nominees for directors were elected to serve a one-year
term by more than the required plurality of affirmative votes of the holders
of Common Stock (one vote per share) and Class A Common Stock (ten votes per
share), voting together as a single class:
Director Nominee Votes For Votes Withheld
Rowland Schaefer 61,879,864 1,693,671
Sylvia Schaefer 61,850,063 1,723,472
Bruce G. Miller 61,881,342 1,692,193
Harold E. Berritt 61,392,386 2,181,149
Irwin Kellner 61,392,386 0
Marla L. Schaefer 61,853,258 1,720,277
Bonnie Schaefer 61,888,871 1,684,664
<PAGE>
The amendment to the Company's Certificate of Incorporation to increase the
authorized Common Stock to 150,000,000 shares from 50,000,000 shares was
approved by more than the required affirmative vote of the holders of a
majority of the Common Stock (one vote per share) and Class A Common Stock
(ten votes per share), voting together as a single class, so entitles to vote
at the Annual Meeting.
FOR AGAINST ABSTAIN
53,853,326 9,593,661 84,548
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Amendment of the Restated Certificate of
Incorporation (incorporated by reference to Exhibit 4.2 in the Company's
Registration Statement on Form S-3 (Registration No. 333-58549)
(the "Registration Statement"))
3.2 Certificate of Amendment of the Restated Certificate of
Incorporation (incorporated by reference to Exhibit 4.3 in the Registration
Statement)
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
Inapplicable
<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 15, 1998 /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 15, 1998
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> 3-MOS 6-MOS
<FISCAL-YEAR-END> JAN-30-1999 JAN-30-1999
<PERIOD-START> MAY-03-1998 FEB-01-1998
<PERIOD-END> AUG-01-1998 AUG-01-1998
<CASH> 107,552 107,552
<SECURITIES> 16,315 16,315
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 69,163 69,163
<CURRENT-ASSETS> 213,470 213,470
<PP&E> 205,929 205,929
<DEPRECIATION> 105,434 105,434
<TOTAL-ASSETS> 335,438 335,438
<CURRENT-LIABILITIES> 48,026 48,026
<BONDS> 0 0
0 0
0 0
<COMMON> 9,843 9,843
<OTHER-SE> 267,871 267,871
<TOTAL-LIABILITY-AND-EQUITY> 335,438 335,438
<SALES> 151,429 284,391
<TOTAL-REVENUES> 151,429 284,391
<CGS> 0 0
<TOTAL-COSTS> 75,442 141,550
<OTHER-EXPENSES> 55,775 106,850
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 20,212 35,991
<INCOME-TAX> 7,481 13,319
<INCOME-CONTINUING> 0 22,672
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12,731 22,672
<EPS-PRIMARY> .25 .45
<EPS-DILUTED> .25 .44
</TABLE>
<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>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 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> 100,032 100,032
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 52,272 52,272
<CURRENT-ASSETS> 167,849 167,849
<PP&E> 171,526 171,526
<DEPRECIATION> 92,639 92,639
<TOTAL-ASSETS> 266,094 266,094
<CURRENT-LIABILITIES> 40,882 40,882
<BONDS> 0 0
0 0
0 0
<COMMON> 2,430 2,430
<OTHER-SE> 214,662 214,662
<TOTAL-LIABILITY-AND-EQUITY> 266,094 266,094
<SALES> 124,242 266,094
<TOTAL-REVENUES> 124,242 266,094
<CGS> 0 0
<TOTAL-COSTS> 61,393 119,368
<OTHER-EXPENSES> 45,582 88,206
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 17,267 31,049
<INCOME-TAX> 6,475 11,643
<INCOME-CONTINUING> 10,792 19,406
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,792 19,406
<EPS-PRIMARY> .22 .39
<EPS-DILUTED> .21<F1> .38
<FN>
<F1>Restated to reflect the adoptions of "Statement of Financial Accounting
Standards No. 128, Earnings Per Share" and the merge with Lux Corporation
accounted as a pooling of interests.
</FN>
</TABLE>
