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8-K - FORM 8-K - CLAIRES STORES INCd704237d8k.htm

Exhibit 99.1

NEWS BULLETIN

RE: CLAIRE’S STORES, INC.

2400 WEST CENTRAL ROAD, HOFFMAN ESTATES, ILLINOIS 60192

CLAIRE’S STORES, INC. REPORTS FISCAL 2013

FOURTH QUARTER AND FULL YEAR RESULTS

BEATRICE LAFON NAMED CHIEF EXECUTIVE OFFICER

CHICAGO, April 1, 2014. Claire’s Stores, Inc. (the “Company”) is one of the world’s leading specialty retailers of fashionable jewelry and accessories for young women, teens, tweens, and kids. The Company today reported its financial results for the fiscal 2013 fourth quarter and fiscal year, which ended February 1, 2014. The Company also announced that James D. Fielding has resigned as Chief Executive Officer and will be replaced by Beatrice Lafon, currently the President, Claire’s Europe.

Fourth Quarter Results

The Company reported net sales of $435.5 million for the fiscal 2013 fourth quarter, a decrease of $57.9 million, or 11.7% compared to the fiscal 2012 fourth quarter. The fiscal 2013 fourth quarter included 13 weeks of operations compared to 14 weeks included in the fiscal 2012 fourth quarter. Net sales for the additional week of operations in fiscal year 2012 were $23.6 million. The 2013 decrease was attributable to lower same store sales, a decrease from the additional week of net sales in the fiscal 2012 fourth quarter, the effect of store closures and a decrease in shipments to franchisees, partially offset by new store sales and a favorable foreign currency translation effect on the Company’s non-U.S. sales. Excluding the additional week of sales in the fiscal 2012 fourth quarter, net sales would have decreased 7.3% or 8.0%, excluding the impact of foreign currency exchange rate changes.

Consolidated same store sales decreased 10.7% for the 13 weeks ended February 1, 2014 compared to the 13 weeks ended January 26, 2013, with North America same store sales decreasing 12.0% and Europe same store sales decreasing 8.5%. The Company computes same store sales on a local currency basis, which eliminates any impact from changes in foreign currency exchange rates and the additional week in the fiscal 2012 fourth quarter.

Gross profit percentage decreased 310 basis points to 51.4% during the fiscal 2013 fourth quarter versus 54.5% for the prior year quarter. Excluding the additional week of operations in the fiscal 2012 fourth quarter, the gross profit percentage decreased 270 basis points. This reduction in gross profit percentage consisted of a 280 basis point increase in occupancy costs, partially offset by a 10 basis point increase in merchandise margin. The increase in occupancy costs, as a percentage of sales, resulted primarily from the effect of a decrease in same store sales combined with normal occupancy cost increases.

Selling, general and administrative expenses decreased $7.7 million, or 5.4%, compared to the fiscal 2012 fourth quarter. Excluding the additional week of operations in the fiscal 2012 fourth quarter, an unfavorable $1.3 million foreign currency translation effect, and $1.8 million of incremental expense related to investments in the Company’s Icing ® North America and Claire’s ® Europe e-commerce platforms, selling, general and administrative expenses would have decreased $2.4 million. This decrease primarily resulted from decreases in payroll and a reduction of previously recorded non-cash stock compensation expense.

Adjusted EBITDA for the 13 weeks ended February 1, 2014 was $93.3 million compared to $129.6 million in the 14 week fiscal 2012 fourth quarter. Adjusted EBITDA for the additional week of operations in the fiscal 2012 fourth quarter was $6.2 million. The fiscal 2013 fourth quarter Adjusted EBITDA would have been $0.8 million higher without the investments in the Company’s Icing ® and Claire’s ® Europe e-commerce platforms. Foreign currency exchange rate changes provided a $0.9 million benefit. Excluding the additional week of operations for fiscal 2012, foreign currency exchange rate effects, and incremental investments in our e-commerce platforms and China operations, fiscal 2013 fourth

 

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quarter Adjusted EBITDA would have been $96.5 million compared to $126.7 million for the prior year period. The Company defines Adjusted EBITDA as earnings before income taxes, net interest expense, depreciation and amortization, loss (gain) on early debt extinguishments, and asset impairments. Adjusted EBITDA excludes management fees, severance, the impact of transaction-related costs and certain other non-cash and other items. Net income for the fiscal 2013 fourth quarter was $7.4 million. A reconciliation of net income (loss) to Adjusted EBITDA is attached.

As of February 1, 2014, cash and cash equivalents were $58.3 million. Our revolver was undrawn and we had $108.7 million of borrowing availability under our Credit Facility as of that date. The fiscal 2013 fourth quarter cash balance increase of $36.9 million consisted of positive impacts of $93.3 million of Adjusted EBITDA and $36.4 million from seasonal working capital, partially offset by reductions for $33.0 million of net repayments under the Credit Facility, $28.8 million of cash interest payments, $24.1 million of capital expenditures, and $6.9 million of tax payments and other cash items.

Fiscal 2013 Results

Fiscal 2013 net sales were $1.5 billion, a decrease of $43.8 million, or 2.8% compared to fiscal 2012. Fiscal 2013 included 52 weeks of operations compared to 53 weeks in Fiscal 2012. Excluding the extra week of net sales in fiscal 2012, net sales would have decreased 1.3% or 1.8%, excluding the impact from foreign currency exchange rate changes.

Consolidated same store sales decreased 3.9% for the 52 weeks ended February 1, 2014 compared to the 52 weeks ended January 26, 2013, with North America same stores sales decreasing 4.6% and Europe same store sales decreasing 2.8%. The Company computes same store sales on a local currency basis, which eliminates any impact from changes in foreign currency exchange rates and the additional week in Fiscal 2012.

Adjusted EBITDA for the 52 weeks ended February 1, 2014 was $260.8 million, compared to $308.0 million in Fiscal 2012, which consisted of 53 weeks. Excluding the additional week of operations for fiscal 2012, foreign currency exchange rate effects, and incremental investments in our e-commerce platforms and China operations, fiscal 2013 Adjusted EBITDA would have been $271.5 million compared to $308.6 million for the prior year period. Net loss for Fiscal 2013 was $65.3 million. A reconciliation of net income (loss) to Adjusted EBITDA is attached.

Change in Management

Claire’s today also announced that James D. Fielding, the Company’s Chief Executive Officer, has resigned. The Board of Directors has appointed Beatrice Lafon, President of Claire’s Europe, as the Company’s new Chief Executive Officer. This management change is effective tomorrow, Wednesday, April 2, 2014.

Peter P. Copses, Chairman of the Board of Directors, commented, “We thank Jim for his contributions as CEO of Claire’s over the past two years. Under Jim’s leadership, the Company has made important strides in merchandising and extending our e-commerce platform to Icing, Canada and Europe. We wish Jim well in all his future endeavors. In Beatrice, we have a strong leader with deep retail experience. She has an intimate understanding of our business, and a track record of driving sales in existing locations and successfully opening new stores. The Board of Directors is highly confident in Beatrice’s ability to lead Claire’s. We are very fortunate to have such a well-qualified successor within the Company.”

Beatrice Lafon added, “I am very grateful for the opportunity to lead Claire’s as CEO. As President of Claire’s Europe over the last three years, I have operated a multinational business across 15 countries in a challenging macro-economic environment. As CEO, I look forward to creating value by leveraging best practices, by maximizing the unique talents of both our North American and European teams as well as by harnessing the strength of our sourcing teams based in Asia. In partnership with our franchisees all over the world, we will seek to maximize Claire’s global sales and EBITDA.”

Recent Events

Recently, the Company made a decision to close its China stores, and is currently in the process of closing its Shanghai office and 17 company operated stores in that country. The Company is studying reintroduction of its brand in China using a Franchise model. In 2013 the Company generated $8.0 million of negative adjusted EBITDA in the China operation.

 

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Store Count as of:    February 1, 2014      November 2, 2013      February 2, 2013  

North America

     1,912         1,916         1,921   

Europe

     1,185         1,186         1,161   

China

     17         16         3   
  

 

 

    

 

 

    

 

 

 

Subtotal Company-operated

     3,114         3,118         3,085   
  

 

 

    

 

 

    

 

 

 

Franchise

     421         414         392   
  

 

 

    

 

 

    

 

 

 

Total global stores

     3,535         3,532         3,477   
  

 

 

    

 

 

    

 

 

 

Conference Call Information

The Company will host its fourth quarter and full year conference call on Wednesday, April 2, at 10:00 am. (Eastern Time). To connect, please dial 888-790-4233 (domestic) or 210-839-8201 (international). The password is “Claires.” An audio replay will be available through May 2, 2014, by dialing 888-458-8112 (domestic) or 402-998-1350 (international). The password is 84596. The conference call will also be webcast and archived until May 2, 2014 on the Company’s corporate website at www.clairestores.com, where it can be accessed by clicking on the “Events” link located under “Financial Information” for a replay or to download as an MP3 file.

Company Overview

Claire’s Stores, Inc. is one of the world’s leading specialty retailers of fashionable jewelry and accessories for young women, teens, tweens and girls ages 3 to 35. The Company operates through its two store concepts: Claire’s® and Icing®. As of February 1, 2014, Claire’s Stores, Inc. operated 3,114 stores in 18 countries throughout North America, Europe, and China. The Company also franchised 421 stores in 27 countries primarily located in the Middle East, Central and Southeast Asia and Central and South America. More information regarding Claire’s Stores is available on the Company’s corporate website at www.clairestores.com.

Forward-looking Statements

This press release contains “forward-looking statements” which represent the Company’s expectations or beliefs with respect to future events. Statements that are not historical are considered forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. Those factors include, without limitation: our level of indebtedness; general economic conditions; changes in consumer preferences and consumer spending; unwillingness of vendors and service providers to supply goods or services pursuant to historical customary credit arrangements; competition; general political and social conditions such as war, political unrest and terrorism; natural disasters or severe weather events; currency fluctuations and exchange rate adjustments; failure to maintain our favorable brand recognition; failure to successfully market our products through other channels, such as e-commerce; uncertainties generally associated with the specialty retailing business, such as decreases in mall traffic; disruptions in our supply of inventory; inability to increase same store sales; inability to renew, replace or enter into new store leases on favorable terms; increase in our cost of merchandise; significant increases in our merchandise markdowns; inability to grow our company-operated store base or expand our international store base through franchise or similar licensing arrangements; inability to design and implement new information systems; data security breaches of confidential information or other cyber attacks; delays in anticipated store openings or renovations; results from any future asset impairment analysis; changes in applicable laws, rules and regulations, including laws and regulations governing the sale of our products, particularly regulations relating to heavy metals and chemical content in our products; changes in anti-bribery laws; changes in employment laws, including laws relating to overtime pay, tax laws and import laws; product recalls; increases in the costs of healthcare for our employees; increases in the cost of labor;

 

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labor disputes; loss of key members of management; increases in the cost of borrowings; unavailability of additional debt or equity capital; and the impact of our substantial indebtedness on our operating income and our ability to grow. These and other applicable risks, cautionary statements and factors that could cause actual results to differ from the Company’s forward-looking statements are included in the Company’s filings with the SEC, specifically as described in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2013 filed with the SEC on April 3, 2013. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. The historical results contained in this press release are not necessarily indicative of the future performance of the Company.

Additional Information

Other Claire’s Stores, Inc. press releases, a corporate profile and the most recent Form 10-K and Form 10-Q reports are available on Claire’s business website at: www.clairestores.com.

Contact Information

Leslie Loyet, Manager of Investor Relations and Corporate Communications

Phone: (847) 765-4610, or E-mail, leslie.loyet@claires.com

 

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CLAIRE’S STORES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF OPERATIONS

(In thousands)

FOURTH FISCAL QUARTER

 

     Three Months
Ended
February 1, 2014
    Three Months
Ended
February 2, 2013
 

Net sales

   $ 435,530      $ 493,398   

Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)

     211,645        224,544   
  

 

 

   

 

 

 

Gross profit

     223,885        268,854   
  

 

 

   

 

 

 

Other expenses:

    

Selling, general and administrative

     135,451        143,132   

Depreciation and amortization

     23,815        16,647   

Severance and transaction-related costs

     2,336        1,660   

Other income, net

     (1,961     (3,451
  

 

 

   

 

 

 
     159,641        157,988   
  

 

 

   

 

 

 

Operating income

     64,244        110,866   

Interest expense, net

     54,177        60,854   
  

 

 

   

 

 

 

Income before income tax expense

     10,067        50,012   

Income tax expense

     2,652        7,806   
  

 

 

   

 

 

 

Net income

   $ 7,415      $ 42,206   
  

 

 

   

 

 

 

YEAR TO DATE

 

     Twelve Months
Ended
February 1, 2014
    Twelve Months
Ended
February 2, 2013
 

Net sales

   $ 1,513,177      $ 1,557,020   

Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)

     753,631        755,996   
  

 

 

   

 

 

 

Gross profit

     759,546        801,024   
  

 

 

   

 

 

 

Other expenses:

    

Selling, general and administrative

     513,253        503,254   

Depreciation and amortization

     73,971        64,879   

Severance and transaction-related costs

     5,118        2,828   

Other income, net

     (4,568     (6,105
  

 

 

   

 

 

 
     587,774        564,856   
  

 

 

   

 

 

 

Operating income

     171,772        236,168   

Loss on early debt extinguishment

     4,795        9,707   

Interest expense, net

     223,361        210,797   
  

 

 

   

 

 

 

Income (loss) before income tax expense

     (56,384     15,664   

Income tax expense

     8,923        14,382   
  

 

 

   

 

 

 

Net income (loss)

   $ (65,307   $ 1,282   
  

 

 

   

 

 

 

 

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CLAIRE’S STORES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

     February 1, 2014     February 2, 2013  
     (In thousands, except share and per share amounts)  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 58,343      $ 166,956   

Inventories

     178,882        157,549   

Prepaid expenses

     19,471        19,701   

Other current assets

     26,305        29,621   
  

 

 

   

 

 

 

Total current assets

     283,001        373,827   
  

 

 

   

 

 

 

Property and equipment:

    

Furniture, fixtures and equipment

     260,709        234,209   

Leasehold improvements

     335,858        312,789   
  

 

 

   

 

 

 
     596,567        546,998   

Less accumulated depreciation and amortization

     (347,408     (325,618
  

 

 

   

 

 

 
     249,159        221,380   
  

 

 

   

 

 

 

Leased property under capital lease:

    

Land and building

     18,055        18,055   

Less accumulated depreciation and amortization

     (3,611     (2,708
  

 

 

   

 

 

 
     14,444        15,347   
  

 

 

   

 

 

 

Goodwill

     1,550,056        1,550,056   

Intangible assets, net of accumulated amortization of $65,194 and $57,672, respectively

     541,095        547,433   

Deferred financing costs, net of accumulated amortization of $38,917 and $27,156, respectively

     39,481        41,381   

Other assets

     54,396        49,848   
  

 

 

   

 

 

 
     2,185,028        2,188,718   
  

 

 

   

 

 

 

Total assets

   $ 2,731,632      $ 2,799,272   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDER’S DEFICIT

    

Current liabilities:

    

Trade accounts payable

   $ 84,364      $ 73,445   

Income taxes payable

     3,729        10,508   

Accrued interest payable

     68,338        68,254   

Accrued expenses and other current liabilities

     94,727        99,529   
  

 

 

   

 

 

 

Total current liabilities

     251,158        251,736   
  

 

 

   

 

 

 

Long-term debt

     2,378,786        2,373,366   

Obligation under capital lease

     17,124        17,232   

Deferred tax liability

     119,564        120,968   

Deferred rent expense

     32,000        29,859   

Unfavorable lease obligations and other long-term liabilities

     16,033        20,551   
  

 

 

   

 

 

 
     2,563,507        2,561,976   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholder’s deficit:

    

Common stock par value $0.001 per share; authorized 1,000 shares; issued and outstanding 100 shares

     —          —     

Additional paid-in capital

     619,499        618,403   

Accumulated other comprehensive income (loss), net of tax

     (1,109     3,273   

Accumulated deficit

     (701,423     (636,116
  

 

 

   

 

 

 
     (83,033     (14,440
  

 

 

   

 

 

 

Total liabilities and stockholder’s deficit

   $ 2,731,632      $ 2,799,272   
  

 

 

   

 

 

 

 

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Net Income (Loss) Reconciliation to Adjusted EBITDA

Adjusted EBITDA represents net income (loss), adjusted to exclude income taxes, interest expense and income, depreciation and amortization, loss (gain) on early debt extinguishments, asset impairments, management fees, severance and transaction related costs, and certain non-cash and other items. We use Adjusted EBITDA as an important tool to assess our operating performance. We consider Adjusted EBITDA to be a useful measure in highlighting trends in our business. We reinforce the importance of Adjusted EBITDA with our bonus eligible associates by using this metric in our annual performance bonus program. We believe that Adjusted EBITDA is effective, when used in conjunction with net income (loss), in evaluating asset performance, and differentiating efficient operators in the industry. Furthermore, Adjusted EBITDA is defined in the covenants contained in our debt agreements and it is the metric we use to communicate our financial performance to our debt investors.

Adjusted EBITDA is not a measure of financial performance under GAAP, and is not intended to represent cash flow from operations under GAAP and should not be used as an alternative to net income (loss) as an indicator of operating performance or to represent cash flow from operating, investing or financing activities as a measure of liquidity. We compensate for the limitations of using Adjusted EBITDA by using it only to supplement our GAAP results to provide a more complete understanding of the factors and trends affecting our business. Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

Some of the limitations of Adjusted EBITDA are:

 

    Adjusted EBITDA does not reflect our cash used for capital expenditures;

 

    Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and Adjusted EBITDA does not reflect the cash requirements for such replacements;

 

    Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital requirements; and

 

    Adjusted EBITDA does not reflect the cash necessary to make payments of interest or principal on our indebtedness.

While Adjusted EBITDA is frequently used as a measure of operations and the ability to meet indebtedness service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation.

 

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CLAIRE’S STORES, INC. AND SUBSIDIARIES

ADJUSTED EBITDA

(UNAUDITED)

(In Thousands)

 

     Three Months
Ended

February 1, 2014
    Three Months
Ended

February 2, 2013
    Twelve Months
Ended

February 1, 2014
    Twelve Months
Ended

February 2, 2013
 

Net income (loss)

   $ 7,415      $ 42,206      $ (65,307   $ 1,282   

Income tax expense

     2,652        7,806        8,923        14,382   

Interest expense

     54,186        60,971        223,425        210,996   

Interest income

     (9     (117     (64     (199

Depreciation and amortization

     23,815        16,647        73,971        64,879   

Loss on early debt extinguishment

     —          —          4,795        9,707   

Stock compensation, book to cash rent, intangible amortization (a)

     944        690        4,549        857   

Management fee, consulting expense (b)

     865        839        3,115        3,518   

Other (c)

     3,427        531        7,399        2,612   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 93,295      $ 129,573      $ 260,806      $ 308,034   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

a) Includes: non-cash stock compensation expense, net non-cash rent expense, amortization of rent free periods, the inclusion of cash landlord allowances, and the net accretion of favorable (unfavorable) lease obligations and non-cash amortization of lease rights.
b) Includes: the management fee paid to Apollo Management and Morgan Joseph Tri-Artisan Capital Partners and consulting expenses.
c) Includes: non-cash losses on property and equipment primarily associated with remodels, relocations and closures; costs, including third party charges and compensation, incurred in conjunction with the relocation of new employees; non-cash foreign exchange gains/losses resulting from intercompany transactions and remeasurements of U.S. dollar denominated cash accounts of our foreign entities into their functional currency; and severance and transaction related costs.

 

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