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 2. 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 May 31, 1998 was 47,877,353 and 2,899,620,
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 2, 1998 and
January 31, 1998. 3
Consolidated Statements of Income for the Three Months
Ended May 2, 1998 and May 3, 1997. 4
Consolidated Statements of Cash Flows for the Three
Months Ended May 2, 1998 and May 3, 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 2. Changes in Securities and Use of Proceeds 9
Item 6. Exhibits and Reports on Form 8-K 9
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<TABLE>
PART I. FINANCIAL INFORMATION
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
May 2, Jan. 31,
ASSETS 1998 1998(1)
Current assets: (In thousands)
<S> <C> <C>
Cash and cash equivalents $114,019 $122,491
Short-term investments 10,142 10,215
Inventories 59,813 52,437
Prepaid expenses and other current
assets 17,906 19,055
Total current assets 201,880 204,198
Property and equipment:
Land and building 8,844 8,827
Furniture, fixtures and equipment 106,575 100,976
Leasehold improvements 83,851 80,575
199,270 190,378
Less accumulated depreciation and
amortization (101,783) (97,810)
97,487 92,568
Other assets 20,705 20,301
$320,072 $317,067
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 22,072 $ 20,065
Income taxes payable 6,542 10,691
Accrued expenses 14,886 17,442
Dividends payable 2,025 1,466
Total current liabilities 45,525 49,664
Long-term debt - 1,600
Deferred credits 9,258 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 2,900,602 shares and 2,904,745
shares 145 145
Common stock par value $.05 per
share; authorized 50,000,000 shares,
issued 47,865,121 shares and 47,645,701
shares 2,393 2,296
Additional paid-in capital 22,250 22,139
Accumulated other comprehensive income (263) (558)
Retained earnings 241,216 233,688
265,741 257,710
Treasury stock, at cost, 109,882 share (452) (452)
265,289 257,258
Commitments and contingencies
$320,072 $317,067
(1) Restated to reflect the merger with Lux Corporation.
</TABLE>
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<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
MAY 2, 1998 AND MAY 3, 1997
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
May 2, May 3,
1998 1997(1)
(In thousands, except per share amounts)
<S> <C> <C>
Net sales $132,962 $114,381
Cost of sales, occupancy and
buying expenses 66,108 57,975
Gross profit 66,854 56,406
Other expenses:
Selling, general and
administrative 47,768 39,533
Depreciation and amortization 4,917 4,223
Interest income, net and
other income (1,610) (1,132)
51,075 42,624
Income before income taxes 15,779 13,782
Income taxes 5,838 5,168
Net income 9,941 8,614
Other comprehensive income, net of tax 186 (93)
Comprehensive income $ 10,127 $ 8,521
Basic net income per share $ .20 $ .17
Diluted net income per share $ .19 $ .17
Dividends per common share $ .04 $ .03
Dividends per class A common share $ .02 $ .015
Average common shares outstanding - Basic 50,449 50,112
Average common shares outstanding - Diluted 51,361 51,008
(1) Restated to reflect the merger with Lux Corporation.
</TABLE>
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<TABLE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MAY 2, 1998 AND MAY 3, 1997
(Unaudited)
<CAPTION>
Three Months Ended
(In thousands)
May 2, May 3,
1998 1997(1)
Cash flows from operating
activities:
<S> <C> <C>
Net income $ 9,941 $ 8,614
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 4,916 4,223
Tax benefit from options 102
Loss on retirement of property
and equipment 254 423
Changes in assets and
liabilities:
(Increase) decrease in -
Inventories (7,376) 2,226
Prepaid expenses and other
assets 756 626
Increase (decrease) in -
Trade accounts payable 2,006 (602)
Income taxes payable (4,149) (4,670)
Accrued expenses (2,556) (617)
Deferred credits 713 629
Net cash provided by
operating activities 4,607 10,852
Cash flows from investing activities:
Acquisition of property and
equipment which represents net cash
used in investing activities (10,089) (6,328)
Cash flows from financing activities:
Principal (payments) borrowings on debt (1,600) 500
Sales of short-term
investments, net 73 -
Proceeds from stock options exercised 105 171
Dividends paid (1,863) (1,399)
Net cash used in financing
activities (3,285) (728)
Effect of foreign currency exchange
rate changes on cash and cash
equivalents 295 (147)
Net increase (decrease) in cash and
cash equivalents (8,472) 3,649
Cash and cash equivalents at beginning
of period 122,491 94,335
Cash and cash equivalents at end of period $114,019 $ 97,984
(1) Restated to reflect the merger with Lux Corporation.
</TABLE>
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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 three 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 (50,449,000 shares for the three
months ended May 2, 1998 and 50,112,000 shares for the three months ended
May 3, 1997). Diluted net income per share includes the dilutive effect
of stock options (51,361,000 shares for the three months ended May 2,
1998 and 51,008,000 shares for the three months ended May 3, 1997).
Options to purchase 78,000 and 562,500 shares of common stock, at prices
ranging from $21.25 to $22.88 per share and $17.92 to $21.25 per share,
respectively, were outstanding for the quarters ended May 2, 1998 and May 3,
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
quarter.
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. The Company's total comprehensive income consists of foreign
currency translation adjustments.
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 condensed 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.
Net sales and net income of the separate entities for the periods
preceding the merger are as follows:
<TABLE>
<CAPTION>
Net Sales Net Income
(In thousands)
Three months ended May 2, 1998:
<S> <C> <C>
Claire's Stores, Inc. and subsidiaries $123,775 $ 9,584
Lux Corporation 9,187 357
Combined $132,962 $ 9,941
Three months ended May 3, 1997:
Claire's Stores, Inc. and subsidiaries $108,029 $ 8,153
Lux Corporation 6,352 461
Combined $114,381 $ 8,614
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
The analysis below takes into account that prior year's balances have been
restated to reflect the merger with Lux as more fully described in note 4 to
the condensed consolidated financial statements.
Net sales for the three months ended May 2, 1998 increased approximately 17%
over the comparable period ended May 3, 1997. The increase for the period
resulted primarily from the addition of a net 221 stores and sales from the
Company's initial distribution of its Just Nikki, Inc.'s catalogue
operations. Same-store sales were flat for the quarter. Management believes
this was due to a lack of a popular fashion trend.
Cost of sales, occupancy and buying expenses increased 14% for the three
months ended May 2, 1998 over the comparable period ended May 3, 1997.
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 decreased to 49.7% for the three months ended May 2, 1998 compared
to 50.7% for the three months ended May 3, 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. These efforts resulted in a
merchandise margin gain of approximately 130 basis points. Rent, rent
support and the cost of the merchandising department, which are included
in cost of sales and are relatively fixed in nature, decreased 30 basis
points as a percentage of sales from Fiscal 1998 compared to Fiscal 1997 due
to the flat same-store sales discussed above.
Selling, general and administrative expense (S,G&A), as a percentage of sales
for the three months ended May 2, 1998 was 35.9% compared to 34.6% for the
comparable period ended May 3, 1997. The increase in SG&A as a percentage of
sales is primarily attributable to the cost associated with the launch of the
Company's Just Nikki, Inc.'s catalogue operations and one time costs
associated with the merger with Lux. During the quarter ended May 2, 1998,
Just Nikki, Inc. distributed two editions of its Just Nikki :) catalogue.
Total distribution of catalogues during the quarter was approximately
1,500,000. The revenues generated at these distribution levels do not
adequately leverage the cost of developing, printing, distributing and
merchandising the catalogue. Management's decision to distribute the
catalogue at these levels was to limit the Company's exposure if the
catalogue was not accepted by the consumer.
Depreciation and amortization as a percentage of sales was approximately 3.7%
for each of the three months ended May 2, 1998 and three months ended May 3,
1997. These expenses as a percentage of sales have been increasing. These
increases are due to higher costs of fixturing and constructing the Company's
prototype Icing and Claire's Etc. stores.
Interest income, net of interest expense, totaled $1,610,000 for the three
month period ended May 2, 1998 compared to $1,132,000 for the comparable
period ended May 3, 1997. This increase was primarily due to the increase in
the average cash and cash equivalents and short-term investments balance to
$129,200,000 during the three months ended May 2, 1998 compared to
$95,200,000 during the same period ended May 3, 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.
<PAGE>
Liquidity and Capital Resources
Net cash decreased $8,472,000 for the three months ended May 2, 1998 due to
net cash used for the acquisition of property and equipment totaling
$10,089,000, the payment of dividends of $1,863,000 and principal payments on
debt of $1,600,000. These cash expenditures were offset by net cash provided
by operating activities of $4,607,000 and the proceeds from stock options
exercised totalling $105,000.
Inventory at May 2, 1998 increased 14% compared to the inventory balance at
the end of the Company's January 31, 1998 fiscal year. The increase is
mainly attributable to management's decision to expedite merchandise receipts
into the first quarter. Merchandise receipts during the second quarter
ending August 1, 1998 are planned lower than the prior year. Management
believes that inventory will be at levels which will more closely mirror
sales expectations.
The Company opened 75 stores in the three months ended May 2, 1998 and
remodeled 21 stores.
At May 2, 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 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 statements are 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. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Recent Sales of Unregistered Securities
On April 29, 1998, the Company issued 2,070,286 shares of its common
stock in exchange for all of the outstanding common stock of Lux pursuant to
the companies' stock-for-stock merger. The issuance was made in reliance
upon the exemption from the registration provisions of the Securities Act of
1933, as amended (the "Act"), provided by Rule 506 of Regulation D
promulgated under Section 4(2) of the Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
(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: June 16, 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: June 16, 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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 114,019
<SECURITIES> 10,142
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 59,813
<CURRENT-ASSETS> 201,880
<PP&E> 199,270
<DEPRECIATION> 101,783
<TOTAL-ASSETS> 320,072
<CURRENT-LIABILITIES> 45,525
<BONDS> 0
0
0
<COMMON> 2,538
<OTHER-SE> 262,751
<TOTAL-LIABILITY-AND-EQUITY> 320,072
<SALES> 132,962
<TOTAL-REVENUES> 132,962
<CGS> 0
<TOTAL-COSTS> 66,108
<OTHER-EXPENSES> 51,075
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,779
<INCOME-TAX> 5,838
<INCOME-CONTINUING> 9,941
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,941
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
</TABLE>
