UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): March 20, 2018
THE CHILDREN’S PLACE, INC.
(Exact Name of Registrants as Specified in Their Charters)
Delaware
(State or Other Jurisdiction of Incorporation)
| 0-23071 | 31-1241495 |
| (Commission File Number) | (IRS Employer Identification No.) |
| 500 Plaza Drive, Secaucus, New Jersey | 07094 |
| (Address of Principal Executive Offices) | (Zip Code) |
(201) 558-2400
(Registrant’s Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12-b-2 of this chapter).
Emerging Growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ¨
| Item 2.02 | Results of Operations and Financial Condition. |
On March 20, 2018, the Company issued a press release containing the Company's financial results for the fourth quarter of the fiscal year ended February 3, 2018 (“Fiscal 2017”) and for Fiscal 2017, and providing a preliminary estimated range of net income per diluted share for the first quarter of the fiscal year ending February 2, 2019 (“Fiscal 2018”) and for Fiscal 2018. A copy of the press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information in this Current Report is being furnished pursuant to Item 2.02 of Form 8-K, insofar as it discloses historical information regarding the Company’s results of operations and financial condition as of and for the fourth quarter of Fiscal 2017 and for Fiscal 2017. In accordance with General Instruction B.2 of Form 8-K, such information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act except as shall be expressly set forth by specific reference in such a filing.
| Item 8.01 | Other Events. |
On March 20, 2018, the Company issued a press release announcing that its Board of Directors has: (i) declared a quarterly cash dividend of $0.50 per share, with such dividend to be paid on April 27, 2018 to holders of record of the Company’s common stock on April 16, 2018; and (ii) approved a new $250 million share repurchase program, authorizing the Company to repurchase its common stock. Under the share repurchase program, the Company may repurchase shares in the open market at current market prices at the time of purchase, in privately negotiated transactions, or otherwise. The timing and actual number of shares repurchased under the program will depend on a variety of factors including price, corporate and regulatory requirements, and other market and business conditions, and the Company may suspend or discontinue the share repurchase program at any time, and may thereafter reinstate purchases, all without prior announcement. Also, the Company announced that it intends to enter into an accelerated share repurchase program with Goldman Sachs & Co. to repurchase $125 million of the Company’s common stock, par value $0.10 per share, as part of the Company’s existing share repurchase program. A copy of the press release is being furnished as Exhibit 99.2 to this Current Report on Form 8-K.
Also on March 20, 2018, the Company issued a press release announcing that it has entered into an exclusive license agreement with Zhejiang Semir Garment Co. Ltd, parent of Balabala, China’s largest specialty children’s apparel retailer, for the Greater China market, covering Mainland China, Taiwan, Hong Kong and Macau. A copy of the press release is being furnished as Exhibit 99.3 to this Current Report on Form 8-K.
| Item 9.01 | Financial Statement and Exhibits. |
| (d) | Exhibits |
Forward Looking Statements
This Current Report on Form 8-K, including Exhibit 99.1, Exhibit 99.2 and Exhibit 99.3, contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives and adjusted net income per diluted share. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company's current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially. Some of these risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission, including in the “Risk Factors” section of its annual report on Form 10-K for the fiscal year ended January 28, 2017. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by the weakness in the economy which continue to affect the Company’s target customer, the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions and disruptions in the Company’s global supply chain, including resulting from foreign sources of supply in less developed countries or more politically unstable countries, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, and the uncertainty of weather patterns. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
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 hereunto duly authorized.
| Date: March 20, 2018 | THE CHILDREN’S PLACE, INC. | |
| By: | /s/ Jane Elfers | |
| Name: Title: |
Jane Elfers President and Chief Executive Officer | |
Exhibit 99.1
THE CHILDREN’S PLACE SETS 12% OPERATING MARGIN AND
$12.00 EPS TARGETS FOR FISCAL 2020 ENABLED BY ACCELERATED STRATEGIC INVESTMENTS
REPORTS FOURTH QUARTER AND FULL YEAR 2017 RESULTS
Delivers Q4 Comparable Retail Sales Increase of 8.2%
Reports Q4 GAAP Loss per Diluted Share of ($0.57) vs Earnings per Diluted Share of $1.86 in Q4 2016 and
Q4 Adjusted Earnings per Diluted Share of $2.52 vs $1.88 in Q4 2016, a 34% Increase
Repurchases $33 Million in Stock and Pays $7 Million in Dividends in Q4
Issues EPS Guidance of $7.95 to $8.20 for FY 2018 Compared to Adjusted EPS of $7.91 in FY 2017
Secaucus, New Jersey – March 20, 2018 – The Children’s Place, Inc. (Nasdaq: PLCE), the largest pure-play children’s specialty apparel retailer in North America, today announced financial results for the fourteen weeks and fiscal year ended February 3, 2018.
Jane Elfers, President and Chief Executive Officer announced, “We have delivered consistent, industry-leading results for several years, with 2017 being our 4th consecutive year of positive comps. A large part of our success comes from our ability to grow market share through our unique and compelling product offering. In addition, the successful execution of our strategic growth plan, which relies predominately on self-help initiatives, has enabled us to consistently deliver best in class returns for our shareholders.”
Ms. Elfers continued, “We delivered outstanding fourth quarter and full year 2017 results. Comparable retail sales increased 8.2% in the fourth quarter on top of a positive 6.9% comp in the fourth quarter of 2016. We achieved positive comparable retail sales in all channels and geographies. Gross margin, merchandise margin, adjusted operating margin, adjusted earnings per diluted share, AUR, ADS, UPT, transactions and conversion all exceeded last year for the quarter and for the full year. The fourth quarter was our 9th consecutive quarter of positive comps and our 12th consecutive quarter of merchandise margin expansion. Importantly, our store traffic has experienced sequential improvement for each of the past seven quarters. For FY 2017, comparable retail sales increased 5.8%.”
Ms. Elfers continued, “We are uniquely positioned to grow market share and we are focusing our accelerated investments in four key areas: digital technologies, supply chain optimization, our four-wall customer experience and our new China partnership that we announced today in a separate release. In addition, we expect to return significant capital to our shareholders this year through a three-pronged approach: a $125 million accelerated share repurchase program, a new $250 million share repurchase authorization, and a 25% increase in our dividend. Based upon the significant investments we are making to accelerate our transformation, our unique and consistently compelling product offering, our proven ability to grow market share, our strong operating fundamentals, our best-in-class management team, and most importantly, our long and consistent track record of delivering results, we now expect to achieve a 12% operating margin milestone by the end of 2020 with EPS of $12.00.”
Ms. Elfers concluded, “The Children’s Place is exceedingly well-positioned to deliver the next phase of our strategic growth plan and we look forward to continuing to reward our shareholders.”
| 1 |
Financial Results
The Company’s results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. A reconciliation of non-GAAP to GAAP financial information is provided at the end of this press release.
Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was enacted into law. This resulted in significant changes to the U.S. tax code, including decreasing the overall U.S. corporate income tax rate from 35% to 21%. As a result of the Tax Act, the Company recorded a one-time tax charge of $51.8 million in the fourth quarter consisting of a deemed repatriation transition tax of $37.6 million, payable over 8 years, and $8.5 million of related foreign and state withholding taxes on our previously undistributed foreign earnings, as well as $5.7 million from the revaluation of deferred tax assets and liabilities. Based on guidance provided by the Securities and Exchange Commission, the deemed repatriation transition tax, related withholding taxes and the revaluation of deferred tax assets and liabilities are provisional amounts, which may be subject to adjustment during a measurement period not to exceed one year. These charges are not included in our adjusted results.
Fourth Quarter 2017 Results
Net sales increased 9.4% to $570.0 million in the fourth quarter of 2017. Comparable retail sales increased 8.2% in the fourth quarter of 2017.
Net loss was ($9.9) million, or ($0.57) per diluted share, in the fourth quarter of 2017, compared to net income of $34.2 million, or $1.86 per diluted share, the previous year. Adjusted net income was $45.3 million, or $2.52 per diluted share, compared to adjusted net income of $34.6 million, or $1.88 per diluted share, in the fourth quarter last year.
Gross profit was $209.9 million in the fourth quarter, compared to $187.9 million in the fourth quarter of 2016. Adjusted gross profit was $211.1 million in the fourth quarter, compared to $187.9 million last year, and leveraged 90 basis points to 37.0% of sales, driven by the leverage of fixed expenses resulting from the strong comparable retail sales and our twelfth consecutive quarter of merchandise margin expansion. This was partially offset by the increased penetration of our ecommerce business which operates at a lower gross margin rate due to higher fulfillment costs.
Selling, general and administrative expenses were $137.8 million compared to $121.6 million in the fourth quarter of 2016. Adjusted SG&A was $134.4 million compared to $121.1 million in the fourth quarter last year and deleveraged 30 basis points as a percentage of net sales primarily as a result of the investment in our transformation initiatives, partially offset by the impact of the positive comparable retail sales and lower credit card fees.
Operating income was $51.9 million, compared to operating income of $48.7 million in the fourth quarter of 2016. Adjusted operating income in the fourth quarter of 2017 was $57.0 million, or 10.0% of net sales, compared to adjusted operating income of $50.0 million in the fourth quarter last year, leveraging 40 basis points compared to last year.
For the fourth quarter, the Company’s adjusted net income excludes net expenses of approximately $55.2 million, compared to excluded net expenses of approximately $0.4 million in the fourth quarter of 2016, in each case comprising certain items which the Company believes are not reflective of the performance of its core business. For the fourth quarter of 2017, these excluded items are primarily related to expenses associated with the new tax legislation as outlined above, in addition to restructuring costs, a provision for a legal settlement and asset impairment charges. For the fourth quarter of 2016, these excluded items are primarily related to charges due to a provision for foreign exchange control penalties, asset impairment charges and restructuring costs, offset by income due to a legal settlement and the release of reserves for prior year uncertain tax positions.
| 2 |
Fiscal Year to Date
Net sales increased 4.8% to $1,870.3 million in fiscal 2017. Comparable retail sales increased 5.8% in fiscal 2017.
Net income was $84.7 million, or $4.67 per diluted share, in fiscal 2017, compared to net income of $102.3 million, or $5.40 per diluted share, the previous year. Adjusted net income was $143.5 million, or $7.91 per diluted share, compared to $103.0 million, or $5.43 per diluted share. The $2.48, or 46%, increase in adjusted net income per diluted share includes a $0.93 benefit resulting from the accounting rules for the income tax impact on share-based compensation. Excluding this $0.93 benefit from the new accounting rules, adjusted net income per diluted share increased 29%.
Gross profit was $711.4 million in fiscal 2017, compared to $671.6 million in fiscal 2016. Adjusted gross profit was $713.2 million, or 38.1% of net sales, leveraging 50 basis points compared to last year.
Selling, general and administrative expenses in fiscal 2017 were $476.5 million, compared to $454.1 million in fiscal 2016. Adjusted SG&A was $466.1 million, compared to $454.1 million last year, leveraging 50 basis points compared to fiscal 2016.
Operating income was $161.5 million, compared to operating income of $147.4 million in fiscal 2016. Adjusted operating income was $178.9 million, or 9.6% of net sales, compared to $151.7 million, or 8.5% of net sales last year, leveraging 110 basis points.
During fiscal 2017, the Company’s adjusted net income excludes net expenses of approximately $58.8 million, compared to excluded net expenses of approximately $0.7 million in fiscal 2016, in each case comprising certain items which the Company believes are not reflective of the performance of its core business. For fiscal 2017, these excluded items are primarily related to expenses associated with the new tax legislation as outlined above, in addition to a provision for a legal settlement, asset impairment charges and restructuring costs, partially offset by income associated with the release of reserves for prior year uncertain tax positions. For fiscal 2016, these excluded items primarily related to asset impairment charges, a provision for foreign exchange control penalties and restructuring costs, offset by income due to a legal settlement and the release of reserves for prior year uncertain tax positions.
Store Openings and Closures
Consistent with the Company’s store fleet optimization initiative, we closed 13 stores and did not open any stores during the fourth quarter of 2017. The Company ended fiscal 2017 with 1,014 stores and square footage of 4.7 million, a decrease of 2.5% compared to the prior year. Since our fleet optimization initiative was announced in 2013, we have closed 169 stores.
The Company’s international franchise partners opened 24 points of distribution and closed 2 in the fourth quarter, and the Company ended the quarter with 190 international points of distribution open and operated by its 7 franchise partners in 19 countries.
Capital Return Program
During the fourth quarter of 2017, the Company repurchased 244,269 shares for approximately $33 million, inclusive of shares repurchased and surrendered to cover tax withholdings associated with the vesting of equity awards held by management. The Company also paid a quarterly dividend of approximately $7 million, or $0.40 per share, in the quarter.
For fiscal 2017, the Company repurchased 1.01 million shares for approximately $119 million, inclusive of shares repurchased and surrendered to cover tax withholdings associated with the vesting of equity awards held by management. The Company also paid dividends totaling approximately $28 million in fiscal 2017.
Since 2009, the Company has repurchased approximately $870 million of its common stock and, since 2014, paid over $66 million in dividends. At the end of the fourth quarter of 2017, approximately $245 million remained available for future share repurchases under the Company’s existing share repurchase program.
Additionally, in March 2018, the Company’s Board of Directors authorized a new $250 million share repurchase program and increased the quarterly dividend by 25% from $0.40 per share to $0.50 per share. The dividend for the first quarter is payable on April 27, 2018 to shareholders of record at the close of business on April 16, 2018.
| 3 |
Conference Call Information
The Children’s Place will host a conference call today at 8:00 a.m. Eastern Time to discuss its fourth quarter and fiscal 2017 results and the Company’s outlook. The call will be broadcast live at http://investor.childrensplace.com. An audio archive will be available on the Company’s website approximately one hour after the conclusion of the call. A conference call transcript will also be posted on our website.
Outlook
We are targeting an operating margin of 12% and EPS of $12.00 by the end of 2020. During the 2018 to 2020 period, we expect to invest approximately $50 million in incremental SG&A compared to 2017 levels on our transformation initiatives, consisting of $30 million in 2018, $15 million in 2019 and the remaining $5 million in 2020. We expect capex to be in the $75 million to $85 million range annually over this period, with the majority of this attributed to our transformation initiatives.
The Company is providing initial guidance for the first quarter and full year 2018.
For fiscal 2018, the Company expects net income per diluted share will be in the range of $7.95 to $8.20. This compares to adjusted net income per diluted share of $7.91 in fiscal 2017. This guidance assumes a comparable retail sales increase of approximately 2.5% to 3.5%.
The Company expects net income per diluted share in the first quarter of 2018 will be in the range of $2.12 to $2.22. This compares to adjusted net income per diluted share of $1.95 in the first quarter of 2017. This guidance assumes a low single digit comparable retail sales increase.
Additional details underlying the Company’s outlook for the first quarter and full year 2018 will be provided on the conference call and will also be available in the conference call transcript which will be posted on our website. An audio archive will also be available on the Company’s website.
Financial Results
The Company’s results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. Adjusted net income, adjusted net income per diluted share, adjusted gross profit, adjusted SG&A, and adjusted operating income are non-GAAP measures, and are not intended to replace GAAP financial information and may be different from non-GAAP measures reported by other companies. The Company believes the income and expense items excluded as non-GAAP adjustments are not reflective of the performance of its core business and that providing this supplemental disclosure to investors will facilitate comparisons of the past and present performance of its core business. The Company uses non-GAAP measures to evaluate and measure operating performance, including, to measure performance for purposes of the Company’s annual bonus and long-term incentive compensation plans. A reconciliation of non-GAAP to GAAP financial information is provided at the end of this press release.
About The Children’s Place, Inc.
The Children’s Place is the largest pure-play children’s specialty apparel retailer in North America. The Company designs, contracts to manufacture, sells at retail and wholesale, and licenses to sell fashionable, high-quality merchandise at value prices, primarily under the proprietary “The Children’s Place,” “Place” and “Baby Place” brand names. As of February 3, 2018, the Company operated 1,014 stores in the United States, Canada and Puerto Rico, an online store at www.childrensplace.com, and had 190 international points of distribution open and operated by its 7 franchise partners in 19 countries.
| 4 |
Forward Looking Statement
This press release, and the above referenced conference call, contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives and adjusted net income per diluted share. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company's current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially. Some of these risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission, including in the “Risk Factors” section of its annual report on Form 10-K for the fiscal year ended January 28, 2017. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by the weakness in the economy which continue to affect the Company’s target customer, the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions and disruptions in the Company’s global supply chain, including resulting from foreign sources of supply in less developed countries or more politically unstable countries, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, and the uncertainty of weather patterns. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Contact: Robert Vill, Group Vice President, Finance, (201) 453-6693
(Tables Follow)
| 5 |
THE CHILDREN’S PLACE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Fourth Quarter Ended | Year-to-Date Ended | |||||||||||||||
| 14 Weeks | 13 Weeks | 53 Weeks | 52 Weeks | |||||||||||||
| February 3, | January 28, | February 3, | January 28, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net sales | $ | 569,972 | $ | 520,772 | $ | 1,870,275 | $ | 1,785,316 | ||||||||
| Cost of sales | 360,046 | 332,918 | 1,158,920 | 1,113,723 | ||||||||||||
| Gross profit | 209,926 | 187,854 | 711,355 | 671,593 | ||||||||||||
| Selling, general and administrative expenses | 137,844 | 121,586 | 476,486 | 454,143 | ||||||||||||
| Asset impairment charges | 529 | 808 | 5,190 | 4,026 | ||||||||||||
| Other costs | (4 | ) | 6 | 10 | 282 | |||||||||||
| Depreciation and amortization | 19,699 | 16,796 | 68,159 | 65,734 | ||||||||||||
| Operating income | 51,858 | 48,658 | 161,510 | 147,408 | ||||||||||||
| Interest expense | 122 | 13 | (307 | ) | (395 | ) | ||||||||||
| Income before taxes | 51,980 | 48,671 | 161,203 | 147,013 | ||||||||||||
| Provision for income taxes | 61,878 | 14,475 | 76,505 | 44,677 | ||||||||||||
| Net income (loss) | $ | (9,898 | ) | $ | 34,196 | $ | 84,698 | $ | 102,336 | |||||||
| Earnings (loss) per common share | ||||||||||||||||
| Basic | $ | (0.57 | ) | $ | 1.90 | $ | 4.82 | $ | 5.51 | |||||||
| Diluted | $ | (0.57 | ) | $ | 1.86 | $ | 4.67 | $ | 5.40 | |||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic | 17,359 | 17,982 | 17,569 | 18,584 | ||||||||||||
| Diluted | 17,359 | 18,419 | 18,151 | 18,959 | ||||||||||||
| 6 |
THE CHILDREN’S PLACE, INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(In thousands, except per share amounts)
(Unaudited)
| Fourth Quarter Ended | Year-to-Date Ended | |||||||||||||||
| 14 Weeks | 13 Weeks | 53 Weeks | 52 Weeks | |||||||||||||
| February 3, | January 28, | February 3, | January 28, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net income (loss) | $ | (9,898 | ) | $ | 34,196 | $ | 84,698 | $ | 102,336 | |||||||
| Non-GAAP adjustments: | ||||||||||||||||
| Provision for legal settlement | 785 | (1,627 | ) | 5,785 | (1,627 | ) | ||||||||||
| Restructuring costs | 3,471 | 208 | 5,049 | (319 | ) | |||||||||||
| Asset impairment charges | 529 | 808 | 5,190 | 4,026 | ||||||||||||
| Sales tax audit | 373 | - | 791 | - | ||||||||||||
| Foreign exchange penalties | - | 1,900 | 300 | 1,900 | ||||||||||||
| Insurance claim deductible | - | - | 250 | - | ||||||||||||
| Proxy costs | - | - | - | 12 | ||||||||||||
| DC exit costs | - | 6 | - | 282 | ||||||||||||
| Aggregate impact of Non-GAAP adjustments | 5,158 | 1,295 | 17,365 | 4,274 | ||||||||||||
| Income tax effect (1) | (1,747 | ) | 237 | (6,250 | ) | (915 | ) | |||||||||
| Prior year uncertain tax positions (2) | - | (1,100 | ) | (4,048 | ) | (2,680 | ) | |||||||||
| Impact of Tax Act | 51,776 | - | 51,776 | - | ||||||||||||
| Net impact of Non-GAAP adjustments | 55,187 | 432 | 58,843 | 679 | ||||||||||||
| Adjusted net income | $ | 45,289 | $ | 34,628 | $ | 143,541 | $ | 103,015 | ||||||||
| GAAP net income (loss) per diluted share | ($ | 0.57 | ) | $ | 1.86 | $ | 4.67 | $ | 5.40 | |||||||
| Adjusted net income per diluted share | $ | 2.52 | $ | 1.88 | $ | 7.91 | $ | 5.43 | ||||||||
| (1) | The tax effects of the non-GAAP items are calculated based on the statutory rate of the jurisdiction in which the discrete item resides. |
| (2) | Prior year tax related to uncertain tax positions. |
| Fourth Quarter Ended | Year-to-Date Ended | |||||||||||||||
| 14 Weeks | 13 Weeks | 53 Weeks | 52 Weeks | |||||||||||||
| February 3, | January 28, | February 3, | January 28, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Operating income | $ | 51,858 | $ | 48,658 | $ | 161,510 | $ | 147,408 | ||||||||
| Non-GAAP adjustments: | ||||||||||||||||
| Provision for legal settlement | 785 | (1,627 | ) | 5,785 | (1,627 | ) | ||||||||||
| Restructuring costs | 3,471 | 208 | 5,049 | (319 | ) | |||||||||||
| Asset impairment charges | 529 | 808 | 5,190 | 4,026 | ||||||||||||
| Sales tax audit | 373 | - | 791 | - | ||||||||||||
| Foreign exchange penalties | - | 1,900 | 300 | 1,900 | ||||||||||||
| Insurance claim deductible | - | - | 250 | - | ||||||||||||
| Proxy costs | - | - | - | 12 | ||||||||||||
| DC exit costs (income) | - | 6 | - | 282 | ||||||||||||
| Aggregate impact of Non-GAAP adjustments | 5,158 | 1,295 | 17,365 | 4,274 | ||||||||||||
| Adjusted operating income | $ | 57,016 | $ | 49,953 | $ | 178,875 | $ | 151,682 | ||||||||
| 7 |
THE CHILDREN’S PLACE, INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(In thousands, except per share amounts)
(Unaudited)
| Fourth Quarter Ended | Year-to-Date Ended | |||||||||||||||
| 14 Weeks | 13 Weeks | 53 Weeks | 52 Weeks | |||||||||||||
| February 3, | January 28, | February 3, | January 28, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Gross Profit | $ | 209,926 | $ | 187,854 | $ | 711,355 | $ | 671,593 | ||||||||
| Non-GAAP adjustments: | ||||||||||||||||
| Restructuring costs | 1,177 | - | 1,554 | (125 | ) | |||||||||||
| Insurance claim deductible | - | - | 250 | - | ||||||||||||
| Aggregate impact of Non-GAAP adjustments | 1,177 | - | 1,804 | (125 | ) | |||||||||||
| Adjusted Gross Profit | $ | 211,103 | $ | 187,854 | $ | 713,159 | $ | 671,468 | ||||||||
| Fourth Quarter Ended | Year-to-Date Ended | |||||||||||||||
| 14 Weeks | 13 Weeks | 53 Weeks | 52 Weeks | |||||||||||||
| February 3, | January 28, | February 3, | January 28, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Selling, general and administrative expenses | $ | 137,844 | $ | 121,586 | $ | 476,486 | $ | 454,143 | ||||||||
| Non-GAAP adjustments: | ||||||||||||||||
| Provision for legal settlement | (785 | ) | 1,627 | (5,785 | ) | 1,627 | ||||||||||
| Restructuring costs | (2,294 | ) | (208 | ) | (3,495 | ) | 194 | |||||||||
| Sales tax audit | (373 | ) | - | (791 | ) | - | ||||||||||
| Foreign exchange penalties | - | (1,900 | ) | (300 | ) | (1,900 | ) | |||||||||
| Proxy costs | - | - | - | (12 | ) | |||||||||||
| Aggregate impact of Non-GAAP adjustments | (3,452 | ) | (481 | ) | (10,371 | ) | (91 | ) | ||||||||
| Adjusted Selling, general and administrative expenses | $ | 134,392 | $ | 121,105 | $ | 466,115 | $ | 454,052 | ||||||||
| 8 |
THE CHILDREN’S PLACE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| February 3, | January 28, | |||||||
| 2018 | 2017* | |||||||
| Assets: | ||||||||
| Cash and cash equivalents | $ | 244,519 | $ | 193,709 | ||||
| Short-term investments | 15,000 | 49,300 | ||||||
| Accounts receivable | 26,094 | 31,413 | ||||||
| Inventories | 324,435 | 286,343 | ||||||
| Other current assets | 46,456 | 50,398 | ||||||
| Total current assets | 656,504 | 611,163 | ||||||
| Property and equipment, net | 258,537 | 264,280 | ||||||
| Other assets, net | 25,187 | 35,056 | ||||||
| Total assets | $ | 940,228 | $ | 910,499 | ||||
| Liabilities and Stockholders' Equity: | ||||||||
| Revolving loan | $ | 21,460 | $ | 15,380 | ||||
| Accounts payable | 210,300 | 178,208 | ||||||
| Accrued expenses and other current liabilities | 128,764 | 135,609 | ||||||
| Total current liabilities | 360,524 | 329,197 | ||||||
| Other liabilities | 106,005 | 85,015 | ||||||
| Total liabilities | 466,529 | 414,212 | ||||||
| Stockholders' equity | 473,699 | 496,287 | ||||||
| Total liabilities and stockholders' equity | $ | 940,228 | $ | 910,499 | ||||
| * | Derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2017. |
| 9 |
THE CHILDREN’S PLACE, INC.
CONDENSED CONSOLIDATED CASH FLOWS
(In thousands)
(Unaudited)
| 53 Weeks Ended | 52 Weeks Ended | |||||||
| February 3, | January 28, | |||||||
| 2018 | 2017 | |||||||
| Net income | $ | 84,698 | $ | 102,336 | ||||
| Non-cash adjustments | 139,122 | 87,512 | ||||||
| Working Capital | (9,437 | ) | 9,444 | |||||
| Net cash provided by operating activities | 214,383 | 199,292 | ||||||
| Net cash used in investing activities | (25,145 | ) | (44,252 | ) | ||||
| Net cash used in financing activities | (140,600 | ) | (155,048 | ) | ||||
| Effect of exchange rate changes on cash | 2,172 | 6,183 | ||||||
| Net increase in cash and cash equivalents | 50,810 | 6,175 | ||||||
| Cash and cash equivalents, beginning of period | 193,709 | 187,534 | ||||||
| Cash and cash equivalents, end of period | $ | 244,519 | $ | 193,709 | ||||
###
| 10 |
Exhibit 99.2
THE CHILDREN’S PLACE EXPANDS CAPITAL RETURN PROGRAM
ANNOUNCES $125 MILLION ACCELERATED SHARE REPURCHASE PROGRAM
INCREASES AUTHORIZED STOCK REPURCHASES BY $250 MILLION
ANNOUNCES A 25% INCREASE IN ITS QUARTERLY DIVIDEND
Secaucus, New Jersey – March 20, 2018 – The Children’s Place, Inc. (Nasdaq: PLCE), the largest pure-play children’s specialty apparel retailer in North America, today announced it intends to enter into an Accelerated Share Repurchase (“ASR”) program with Goldman Sachs & Co. LLC (“Goldman”) to repurchase an aggregate of $125 million of the Company's common stock under its current authorization using cash repatriated from its foreign subsidiaries. The Company also announced that its Board of Directors has approved a new $250 million share repurchase program and has increased the Company’s quarterly dividend to $0.50 per share from $0.40 per share.
Jane Elfers, President and Chief Executive Officer, commented, “In today’s earnings release, we announced that we expect to achieve a 12% operating margin and EPS of $12.00 by the end of 2020. This accelerated share repurchase program, new share repurchase authorization and dividend increase reflect our confidence in our ability to achieve these targets while continuing our commitment to return excess capital to shareholders. Since 2009, we have repurchased approximately $870 million of our common stock and since 2014, paid over $66 million in dividends.”
This ASR program is part of the Company’s existing share repurchase program previously authorized by the Board of Directors. Under the terms of the ASR program, the Company will repurchase an aggregate of $125 million of its common stock with an initial delivery of approximately 80% of the shares expected to be repurchased (calculated on then current market prices). The Company intends to retire these initial shares as soon as practical after receipt. The final number of shares to be repurchased under the ASR will be based on a discount to the volume-weighted average stock price and will be determined at the completion of the ASR program. Purchases under the ASR are expected to be completed no later than June 2018, although the completion date may be accelerated at Goldman’s option.
The new share repurchase authorization announced today is in addition to the ASR program and permits the Company to repurchase shares in the open market at current market prices at the time of purchase, in privately negotiated transactions, or otherwise. The timing and actual number of shares repurchased under the new authorization will depend on a variety of factors including price, corporate and regulatory requirements, and other market and business conditions, and the Company may suspend or discontinue the new authorization at any time, and may thereafter reinstitute purchases, all without prior announcement.
The Board declared a quarterly cash dividend of $0.50 per share to be paid April 27, 2018 to shareholders of record at the close of business on April 16, 2018. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to approval by the Company’s Board of Directors based on a number of factors, including business and market conditions, the Company’s future financial performance and other investment priorities.
About The Children’s Place, Inc.
The Children’s Place is the largest pure-play children’s specialty apparel retailer in North America. The Company designs, contracts to manufacture, sells at retail and wholesale, and licenses to sell fashionable, high-quality merchandise at value prices, primarily under the proprietary “The Children’s Place,” “Place” and “Baby Place” brand names. As of February 3, 2018, the Company operated 1,014 stores in the United States, Canada and Puerto Rico, an online store at www.childrensplace.com, and had 190 international points of distribution open and operated by its 7 franchise partners in 19 countries.
Forward Looking Statement
This press release contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives and adjusted net income per diluted share. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company's current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially. Some of these risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission, including in the “Risk Factors” section of its annual report on Form 10-K for the fiscal year ended January 28, 2017. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by the weakness in the economy which continue to affect the Company’s target customer, the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions and disruptions in the Company’s global supply chain, including resulting from foreign sources of supply in less developed countries or more politically unstable countries, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, and the uncertainty of weather patterns. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Contact: Robert Vill, Group Vice President, Finance, (201) 453-6693
Exhibit 99.3
THE CHILDREN’S PLACE ANNOUNCES LICENSE AGREEMENT WITH CHINA’S LARGEST CHILDREN’S APPAREL RETAILER, ZHEJIANG SEMIR GARMENT CO. LTD.
SIGNIFICANT MULTI-CHANNEL OPPORTUNITY WITH PLANS TO OPEN AT LEAST 300 POINTS OF DISTRIBUTION BY 2022
Secaucus, New Jersey – March 20, 2018 – The Children’s Place, Inc. (Nasdaq: PLCE), the largest pure-play children’s specialty apparel retailer in North America, today announced that it has signed an exclusive license agreement for the Greater China market, covering Mainland China, Taiwan, Hong Kong and Macau, with Zhejiang Semir Garment Co. Ltd (“Semir”), parent of Balabala, China’s largest specialty children’s apparel retailer.
Jane Elfers, President and Chief Executive Officer said, “Today’s announcement unites two of the world’s largest children’s apparel retailers, both with long and outstanding track records of success. Entering the China market through this strategic partnership is a game-changer for our international business and is clearly a case where one plus one equals three.”
Ms. Elfers continued, “The young children’s apparel market is already one of the fastest growing categories in China. It is currently estimated at $24 billion and, with China’s two child policy firmly in place, is forecasted to double by 2025. Semir, through their Balabala brand, currently operates and franchises approximately 4,400 children’s apparel stores as well as having the largest children’s apparel ecommerce business in China through their partnership with third party platforms, such as Tmall, JD and VIP.com. Over the first five years of this agreement, Semir will execute an omni-channel strategy by opening at least 300 Children’s Place locations in Greater China and operating The Children’s Place ecommerce business. This partnership is projected to generate $125 million to $150 million in retail sales in year five.”
Ms. Elfers concluded, “This partnership provides an entrée for The Children’s Place into the China market that would not otherwise be possible with any other partner. Semir’s number one position in children’s retailing in China, their strong retail, digital and operational capabilities and their extensive knowledge of the Greater China market provides The Children’s Place with instant access to prime retail locations, established relationships with a large number of franchisees, and significant local sourcing and logistics capabilities. This partnership enables us to grow in China and takes us one step closer to our goal of becoming the leading global omni-channel children’s apparel brand.”
David Xu, President of Balabala, said, “The Children’s Place will bring unique quality, fashion and value to our customers in China. The combination of our deep knowledge of the market, our strong retail experience and local sourcing capabilities with the innovative design and appeal of The Children’s Place apparel, accessories and footwear will result in unsurpassed market reach creating significant value for shareholders of both companies.”
About The Children’s Place, Inc.
The Children’s Place is the largest pure-play children’s specialty apparel retailer in North America. The Company designs, contracts to manufacture, sells at retail and wholesale, and licenses to sell fashionable, high-quality merchandise at value prices, primarily under the proprietary “The Children’s Place,” “Place” and “Baby Place” brand names. As of February 3, 2018, the Company operated 1,014 stores in the United States, Canada and Puerto Rico, an online store at www.childrensplace.com, and had 190 international points of distribution open and operated by its 7 franchise partners in 19 countries.
About Zhejiang Semir Garment Co. Ltd
Semir is a leading multi-brand fashion apparel company which was founded 21 years ago and went public in 2011 on the Shenzhen Stock Exchange. They own two major brands: Semir, a leading brand in the adult casual category and Balabala, the number one children’s apparel brand in China. They operate and franchise approximately 8,400 stores in China, with revenue of $1.9 billion. The company distributes its products through company-owned stores, franchise stores and ecommerce.
Forward Looking Statement
This press release contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives and adjusted net income per diluted share. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company's current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially. Some of these risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission, including in the “Risk Factors” section of its annual report on Form 10-K for the fiscal year ended January 28, 2017. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by the weakness in the economy which continue to affect the Company’s target customer, the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions and disruptions in the Company’s global supply chain, including resulting from foreign sources of supply in less developed countries or more politically unstable countries, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, and the uncertainty of weather patterns. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Contact: Robert Vill, Group Vice President, Finance, (201) 453-6693