Business context and reporting period
The filing is The Children’s Place Retail Stores, Inc.’s unaudited Form 10-Q for the 13 and 26 weeks ended August 3, 2013. This is fiscal 2013 second quarter—not 2012 Q2 as stated in the request metadata. The company operated 1,116 stores in the U.S., Puerto Rico, Canada and through international operations, alongside e-commerce.
Financial performance
| Metric | Quarter ended Aug. 3, 2013 | Quarter ended Jul. 28, 2012 | 26 weeks ended Aug. 3, 2013 | 26 weeks ended Jul. 28, 2012 |
|---|---|---|---|---|
| Net sales | $382.4m | $360.8m | $805.6m | $799.3m |
| Gross profit / margin | $126.2m / 33.0% | $114.7m / 31.8% | $289.5m / 35.9% | $293.4m / 36.7% |
| Operating income (loss) | $(35.6)m | $(26.8)m | $(7.2)m | $10.3m |
| Net income (loss) | $(23.6)m | $(17.9)m | $(4.4)m | $6.8m |
| Diluted EPS | $(1.05) | $(0.74) | $(0.19) | $0.28 |
Quarterly sales rose 6.0%, but comparable retail sales declined 0.4%; the reported increase included a $12.0m calendar timing benefit and new-store sales. Year-to-date sales rose 0.8%, while comparable sales fell 3.2%. Quarterly gross margin improved 120 basis points; year-to-date margin declined 80 basis points, primarily from fixed-cost deleverage and higher supply-chain costs.
Quarterly SG&A was $124.4m, or 32.5% of sales, versus $120.7m, or 33.4%. The quarter included $21.8m of asset impairments, principally $12.7m for 75 stores and $9.1m for obsolete systems and development costs. Excluding this exceptional charge, the reported operating loss would have been materially smaller; the filing does not provide a formal adjusted result.
Cash flow, balance sheet and liquidity
For the 26 weeks, operating cash flow was $64.2m (prior year $60.6m); investing cash outflow was $58.7m (prior year $44.3m), including a $20.0m short-term investment; and financing cash outflow was $46.5m, including $47.9m of share repurchases. Cash declined $44.5m from the fiscal-year start to $149.7m. The company also reported $35.0m of short-term investments.
At August 3, 2013, total assets were $958.0m, total liabilities $382.7m, and stockholders’ equity $575.3m. Current assets were $592.2m and current liabilities $277.1m. The $150m asset-based revolver had no borrowings outstanding; $53.4m of letters of credit were in use and $96.6m remained available. The facility expires in August 2017. Cash and investments are substantially held in foreign subsidiaries; repatriation would trigger U.S. federal and certain state taxes, and the company said it did not intend to repatriate them.
Changes, outlook, risks and contingencies
- Management plans to close about 100 underperforming stores through fiscal 2016, including about 45 in fiscal 2013; it identified about 70 additional stores for performance review.
- Fiscal 2013 capital expenditures were expected to total approximately $90m–$95m. Management expected cash on hand, operating cash flow and revolver availability to fund requirements for the next 12 months.
- Management cited unfavorable first-quarter weather and below-plan revenue, followed by stronger second-quarter performance as weather normalized. It revised the fiscal-year operating plan; the filing gives no numerical earnings or sales guidance.
- Risks include fashion and consumer-demand uncertainty, competition, economic and weather conditions, input costs, foreign exchange, and reliance on China for merchandise sourcing. The company does not hedge foreign currency exposure. Legal proceedings were described as ordinary-course and not expected to have a material effect; reported risk factors were unchanged.
- Share repurchases totaled approximately $47.8m year to date; $32.6m remained under the program at August 3. Cash dividends were restricted by the credit facility. Management reported disclosure controls were effective and no material change in internal control.
Important facts for investors to verify
- Confirm the filing period: the report covers Q2 2013, notwithstanding the request’s 2012 Q2 label.
- Track whether comparable sales and transaction counts recover, particularly in Canada, where year-to-date comparable sales fell 8.5%.
- Assess the effect of planned store closures and the $21.8m impairment charge, including whether further impairments or restructuring costs arise.
- Monitor inventory growth, seasonal working-capital demands, capital spending and cash generation; inventory was $325.7m at quarter-end.
- Review foreign cash availability and currency exposure alongside continued buybacks and planned investment in stores, ERP and e-commerce systems.