Business context and reporting period
The filing is The Children’s Place Retail Stores, Inc.’s unaudited Form 10-Q for the thirteen weeks ended May 4, 2013 (First Quarter 2013), compared with the thirteen weeks ended April 28, 2012. This differs from the request metadata identifying 2012 Q1. The retailer operated 1,111 stores at quarter-end and also sold through e-commerce and international franchisees. Results are seasonal and the company cautions that the quarter is not necessarily indicative of full-year results.
Key financial metrics
| Metric | First Quarter 2013 | First Quarter 2012 |
|---|---|---|
| Net sales | $423.2 million | $438.5 million |
| Gross profit / gross margin | $163.3 million / 38.6% | $178.6 million / 40.7% |
| Operating income / margin | $28.5 million / 6.7% | $37.1 million / 8.5% |
| Net income | $19.3 million | $24.7 million |
| Diluted EPS | $0.83 | $1.00 |
| Operating cash flow | $37.9 million | $67.9 million |
| Capital expenditures | $22.1 million | $22.0 million |
- Cash and cash equivalents were $186.3 million and short-term investments were $15.0 million at May 4, 2013. Working capital was $344.8 million.
- No revolver borrowings were outstanding; $39.2 million of letters of credit were utilized, leaving $110.8 million available under the $150 million asset-based facility, which expires in August 2017.
- Total liabilities were $283.7 million. The filing reports no outstanding borrowings under the credit facility; it does not present a separate conventional debt balance.
- Cash declined $7.9 million during the quarter, to $186.3 million. Share repurchases used $24.2 million in financing cash flow.
Material changes versus the prior comparable period
- Sales fell 3.5%; comparable retail sales declined 5.5%. Management attributed the weakness principally to unfavorable weather, which reduced transaction size and transaction count. E-commerce comparable sales increased 13.0%.
- Gross margin contracted 210 basis points, primarily from fixed-cost deleverage on lower comparable sales and higher supply-chain costs. SG&A declined in dollars but rose 20 basis points as a share of sales, to 28.1%.
- Net income declined 22.1%. Lower weighted-average shares, mainly from repurchases, partly offset the earnings decline in diluted EPS.
- Operating cash flow fell $30.1 million, reflecting less favorable working-capital movements, including payment timing for accounts payable and other current liabilities.
- U.S. sales decreased 2.9%; International sales decreased 7.8%, including a 15.1% decline in Canadian comparable store sales. International franchise revenue was $2.6 million.
- The company recorded no store impairment charge, versus $1.3 million in the prior-year quarter. Other costs were a $1.0 million net benefit, including a $1.4 million reduction in the Northeast distribution-center exit accrual due to anticipated sublease income.
Outlook, risks, contingencies, and unusual items
- The board revised the fiscal 2013 operating plan after first-quarter revenue came in well below plan. Management said the revision requires a reversal of first-quarter trends and results for the rest of the year above the comparable prior-year period; the filing gives no specific numerical earnings or sales guidance.
- Management expected fiscal 2013 capital expenditures of approximately $90–$95 million and said cash, operating cash flow, and facility availability should fund requirements for the next 12 months. The company had identified 10 stores for future closure and was reviewing its store fleet.
- Risks highlighted include fashion and consumer-preference uncertainty, competition and consumer spending, weather, raw-material and energy costs, foreign-exchange exposure, and reliance on merchandise imports from China. The company does not hedge its foreign investments or use derivatives for currency risk.
- Approximately $142.2 million of cash was held in foreign subsidiaries; management did not intend to repatriate it, and repatriation could incur U.S. federal and certain state taxes. The filing also notes that 10% currency moves could materially change foreign net-investment values and affect reported sales and expenses.
- Distribution-center exits carried a remaining accrual of $6.1 million at May 4, 2013. The Northeast facility sublease was to begin June 1, 2013 and run through the lease’s January 2021 expiration. Management stated that remaining exit costs were not expected to be material.
- During the quarter, the company repurchased about 0.5 million shares for $24.2 million. Through June 4, it repurchased a further 0.4 million shares for $18.6 million; approximately $56.2 million remained under the $100 million program at quarter-end. The credit agreement restricts cash dividends and includes limitations on buybacks.
- Management reported no material legal-proceeding developments and no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective at the reasonable-assurance level.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is for Q1 2013, not Q1 2012.
- Track whether comparable sales recover from the weather-affected quarter and whether the rest-of-year performance meets the board’s revised plan.
- Monitor gross-margin recovery, especially supply-chain costs, markdowns, and sales deleverage, alongside U.S. and Canadian comparable-sales trends.
- Assess cash generation and working-capital needs against the planned $90–$95 million capital program, ongoing repurchases, and facility availability.
- Verify the realized sublease income and remaining costs for the Northeast distribution-center exit, and the financial impact of foreign-currency exposure and cash held overseas.