Core Insights - The Children's Place, Inc. announced the departure of Jane Elfers as President and CEO, with Muhammad Umair appointed as the new President and Interim CEO effective May 20, 2024 [1][2] - The Board is committed to ensuring a seamless transition while searching for a permanent CEO [3] - Muhammad Umair expressed his excitement for the role and emphasized a focus on growth through innovation and delivering value to customers and shareholders [4] Company Overview - The Children's Place operates as an omni-channel children's specialty retailer with a digital-first model, featuring over 500 stores in North America and a presence in 16 countries through international franchise partners [6] - The company designs and sells high-quality apparel, accessories, and footwear primarily under its proprietary brands, including "The Children's Place," "Gymboree," "Sugar & Jade," and "PJ Place" [6] Leadership Background - Muhammad Umair joined the Board in February 2024 and has over 17 years of experience in financial and investment management, including roles at Origin Funding Partners, Armacom, and Ernst & Young [5] - Umair is a Chartered Accountant and has expertise in corporate advisory, operational and financial due diligence, and audit [5]

Financial Performance - Fiscal 2023 net sales distribution: Q1 20.0%, Q2 21.6%, Q3 30.0%, Q4 28.4%[61] - Fiscal 2023 operating income: Q1 $(30,067) thousand, Q2 $(36,941) thousand, Q3 $44,967 thousand, Q4 $(61,757) thousand[61] - The company experienced operational losses in Fiscal 2023, impacting its ability to generate sufficient cash flows for ongoing operations[77] - In Fiscal 2023, the company recorded an impairment charge of $29.0 million on the Gymboree tradename due to increased discount rates and reduced sales forecasts[85] - The company anticipates fluctuations in sales, margins, and earnings due to competitive pressures and changing consumer behaviors, which could adversely affect stock price[122] - Actual operating results may not meet or exceed guidance, which could lead to a decline in stock price[132] Customer and Market Dynamics - At the end of Fiscal 2023, approximately 82% of sales were attributed to members of the MyPLACE Rewards loyalty program and private label credit card program[63] - The company has experienced a decrease in customer traffic in North America, particularly in shopping malls, which has negatively impacted revenues and operating margins[87] - The apparel industry is cyclical and has been affected by high inflation and unemployment levels, leading to a decline in consumer spending on discretionary items[87] - Unseasonable weather conditions can significantly affect sales, particularly for the company's target demographic of value-conscious, lower to middle-income mothers[121] Competition and Industry Challenges - The company faces significant competition in the children's apparel retail market, competing with major players like Target, Old Navy, and Amazon, which could negatively impact its business and financial position[116] - The company faces significant pricing pressure due to intense competition and a highly promotional retail environment, which could lead to reduced profitability[89] - Increased costs of raw materials, labor, and shipping have resulted in higher operating costs, which may adversely affect profitability if not offset by price increases[90] Operational Changes and Strategies - The company closed 90 stores in Fiscal 2023 as part of its store fleet optimization program, totaling 676 stores closed since the program's announcement in 2013[82] - The company is focused on digital transformation and inventory management to increase sales and profitability[81] - The company has expanded its brand portfolio by relaunching Gymboree and launching new brands such as Sugar & Jade and PJ Place, which are critical for business growth[84] - The company has partnered with Afterpay to offer a "buy-now-pay-later" program to enhance customer reach[63] Supply Chain and Operational Risks - The company relies on independent manufacturers for product sourcing, and disruptions in these relationships could materially affect operations and financial performance[94] - The company imports a majority of its merchandise from countries including Vietnam, Bangladesh, and China, making it susceptible to changes in political and economic conditions in these regions[289] - The company has moved its Canadian distribution operations to the U.S. due to the expiration of a lease, which may affect logistics and operational efficiency[92] - The company is exposed to various geopolitical risks that could disrupt supply chains and affect business operations[98] Regulatory and Compliance Issues - The company is subject to extensive regulations affecting product safety, consumer protection, and e-commerce operations[68] - Compliance with consumer product safety laws and regulations may incur significant costs and risks, including potential recalls and reputational damage[114] - The company is subject to various legal risks and liabilities that could adversely affect its operations and reputation[151] - Legal and regulatory actions could have a material adverse effect on the company's business, financial position, and cash flows[152] Financial Structure and Risks - The company has a controlling shareholder, Mithaq Capital SPC, which owns approximately 56.1% of outstanding shares, potentially limiting other shareholders' influence on corporate actions[124] - The company is subject to income taxes in multiple jurisdictions, and changes in tax laws could negatively affect its financial position[148] - The company regularly assesses the likelihood of adverse outcomes from tax examinations, which could have a material adverse effect on its financial position[149] - Changes in tax laws or accounting rules could significantly impact the company's financial statements and market value[156] Technology and Cybersecurity - The successful operation of the e-commerce business is critical, with risks including operational disruptions and changing consumer habits[140] - The company relies heavily on information technology systems, and failures in these systems could adversely impact operations and financial results[142] - The company faces risks related to cybersecurity and data privacy, which could materially affect its business and financial position[136] Financial Obligations and Borrowings - As of February 3, 2024, the company had $226.7 million in borrowings under its ABL Credit Facility, with a 10% change in the prime rate or SOFR not materially impacting interest expense[283] - The outstanding balance of the Term Loan was $50.0 million as of February 3, 2024, with a 10% change in SOFR not materially impacting interest expense[284] - The company entered into the New Mithaq Term Loan, requiring monthly payments at SOFR plus 4.000%, with payments deferred until April 30, 2025[285] Currency and Exchange Rate Risks - Currency exchange rate fluctuations could impact the competitiveness of the company's products and lead to significant transaction gains or losses[105] - Net assets in Canada and Hong Kong amounted to $5.5 million as of February 3, 2024, with a 10% change in foreign currency exchange rates impacting net investment by $0.6 million[286] - A 10% change in foreign currency exchange rates would have resulted in a potential $13.1 million increase or decrease in Fiscal 2023 net sales and a $15.9 million change in total costs and expenses[288]

PART I — FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures [Item 1. Financial Statements.](index=4&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited consolidated financial statements of The Children's Place, Inc. and its subsidiaries, including the balance sheets, statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows for the periods ended October 28, 2023, and October 29, 2022, along with accompanying notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (in thousands) | Metric | Oct 28, 2023 | Jan 28, 2023 | Oct 29, 2022 | | :-------------------------- | :----------- | :----------- | :----------- | | Cash and cash equivalents | $13,522 | $16,689 | $19,244 | | Inventories | $462,411 | $447,795 | $548,719 | | Total current assets | $597,355 | $561,943 | $664,795 | | Total assets | $973,381 | $986,281 | $1,084,617 | | Revolving loan | $358,679 | $286,990 | $265,000 | | Total current liabilities | $705,742 | $648,385 | $683,668 | | Total liabilities | $855,310 | $827,803 | $872,441 | | Total stockholders' equity | $118,071 | $158,478 | $212,176 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's financial performance over specific periods, including net sales, gross profit, operating income, and net income Consolidated Statements of Operations Highlights (in thousands, except EPS) | Metric (Q3) | Oct 28, 2023 | Oct 29, 2022 | YoY Change (%) | | :------------------------------------ | :----------- | :----------- | :------------- | | Net sales | $480,234 | $509,120 | -5.7% | | Gross profit | $162,052 | $176,931 | -8.4% | | Operating income (loss) | $44,967 | $57,837 | -22.2% | | Net income (loss) | $38,482 | $42,855 | -10.3% | | Diluted EPS | $3.05 | $3.26 | -6.4% | | **Metric (YTD)** | **Oct 28, 2023** | **Oct 29, 2022** | **YoY Change (%)** | | Net sales | $1,147,474 | $1,252,355 | -8.4% | | Gross profit | $346,363 | $434,440 | -20.2% | | Operating income (loss) | $(22,042) | $63,261 | **N/A (swing to loss)** | | Net income (loss) | $(25,705) | $49,387 | **N/A (swing to loss)** | | Diluted EPS | $(2.06) | $3.68 | **N/A (swing to loss)** | [Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) This section presents the company's net income or loss and other comprehensive income or loss components for the reporting periods Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric (Q3) | Oct 28, 2023 | Oct 29, 2022 | YoY Change (%) | | :------------------------------------ | :----------- | :----------- | :------------- | | Net income (loss) | $38,482 | $42,855 | -10.3% | | Foreign currency translation adjustment | $(1,535) | $(2,397) | -35.9% | | Total comprehensive income (loss) | $36,947 | $40,458 | -8.7% | | **Metric (YTD)** | **Oct 28, 2023** | **Oct 29, 2022** | **YoY Change (%)** | | Net income (loss) | $(25,705) | $49,387 | **N/A (swing to loss)** | | Foreign currency translation adjustment | $(1,252) | $(2,825) | -55.7% | | Total comprehensive income (loss) | $(26,957) | $46,562 | **N/A (swing to loss)** | [Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This section outlines the changes in the company's stockholders' equity, including retained earnings and stock transactions Stockholders' Equity Changes (in thousands) | Metric | Oct 28, 2023 | Jan 28, 2023 | Oct 29, 2022 | | :-------------------------- | :----------- | :----------- | :----------- | | Total Stockholders' Equity | $118,071 | $158,478 | $212,176 | | Retained Earnings (Deficit) | $(6,015) | $22,540 | $79,375 | | Net income (loss) (YTD) | $(25,705) | N/A | $49,387 | | Purchase and retirement of common stock (YTD) | $(7,026) | N/A | $(78,913) | [Consolidated Statements of Cash Flows](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (YTD, in thousands) | Metric | Oct 28, 2023 | Oct 29, 2022 | YoY Change | | :------------------------------------ | :----------- | :----------- | :--------- | | Net cash used in operating activities | $(42,632) | $(16,965) | $(25,667) | | Net cash used in investing activities | $(24,542) | $(31,614) | $7,072 | | Net cash provided by financing activities | $64,042 | $14,010 | $50,032 | | Net decrease in cash and cash equivalents | $(3,167) | $(35,543) | $32,376 | | Cash and cash equivalents, end of period | $13,522 | $19,244 | $(5,722) | [Notes to Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the consolidated financial statements, covering accounting policies, revenue recognition, restructuring activities, intangible assets, property and equipment, leases, debt, commitments, stockholders' equity, stock-based compensation, earnings per share, income taxes, and segment information [Note 1. BASIS OF PRESENTATION](index=13&type=section&id=Note%201.%20BASIS%20OF%20PRESENTATION) This note describes the company's business model, proprietary brands, and segment classification - The Company is an omni-channel children's specialty portfolio of brands with an industry-leading digital-first operating model[29](index=29&type=chunk) - Proprietary brands include "The Children's Place", "Gymboree", "Sugar & Jade", and "PJ Place"[29](index=29&type=chunk) - Business is classified into two segments: The Children's Place U.S. and The Children's Place International[30](index=30&type=chunk) [Note 2. REVENUES](index=14&type=section&id=Note%202.%20REVENUES) This note explains the company's revenue recognition policies and disaggregates net sales by geographic region - Revenue is recognized when control of promised goods or services is transferred to customers[40](index=40&type=chunk) Net Sales Disaggregated by Geography (in thousands) | Geography | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :---------- | :------ | :------ | :------- | :------- | | South | $168,623 | $183,536 | $416,249 | $466,276 | | Northeast | $96,052 | $108,404 | $220,519 | $255,913 | | West | $55,567 | $61,101 | $144,920 | $163,644 | | Midwest | $58,331 | $62,337 | $131,235 | $145,168 | | International and other | $101,661 | $93,742 | $234,551 | $221,354 | | Total net sales | $480,234 | $509,120 | $1,147,474 | $1,252,355 | - Gift card liability balance decreased from **$11.2 million** as of October 29, 2022, to **$6.3 million** as of October 28, 2023[49](index=49&type=chunk) [Note 3. RESTRUCTURING](index=16&type=section&id=Note%203.%20RESTRUCTURING) This note details the company's structural transformation initiatives, including lease terminations and workforce reductions, and associated costs - The Company is undergoing a structural transformation to a digital-first retailer, including early termination of its corporate office lease (now expiring May 2024) and a workforce reduction of **over 20%** of salaried employees[51](index=51&type=chunk) - Operations from the Toronto distribution center (TODC) are expected to move to the U.S. by the end of Q1 2024, leading to further headcount reduction[51](index=51&type=chunk) Restructuring Costs (in thousands) | Cost Type | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :------------------ | :------ | :------ | :------- | :------- | | Employee-related costs | $674 | $— | $6,107 | $— | | Lease termination costs | $454 | $— | $5,401 | $— | | Professional fees | $82 | $— | $268 | $— | | Total restructuring costs | $1,210 | $— | $11,776 | $— | - Remaining restructuring liability as of October 28, 2023, is **$853 thousand**, primarily for employee-related costs[55](index=55&type=chunk) [Note 4. INTANGIBLE ASSETS](index=17&type=section&id=Note%204.%20INTANGIBLE%20ASSETS) This note provides information on the company's intangible assets, including tradenames and their useful lives Intangible Assets (in thousands) | Asset | Useful Life | Net Amount (Oct 28, 2023) | Net Amount (Jan 28, 2023) | Net Amount (Oct 29, 2022) | | :------------------ | :---------- | :------------------------ | :------------------------ | :------------------------ | | Gymboree tradename | Indefinite | $69,953 | $69,953 | $69,953 | | Crazy 8 tradename | 5 years | $338 | $938 | $1,138 | | Customer databases | 3 years | $— | $— | $— | | Total intangible assets | | $70,291 | $70,891 | $71,091 | [Note 5. PROPERTY AND EQUIPMENT, NET](index=18&type=section&id=Note%205.%20PROPERTY%20AND%20EQUIPMENT%2C%20NET) This note presents the net value of the company's property and equipment and discusses asset impairment charges Property and Equipment, Net (in thousands) | Metric | Oct 28, 2023 | Jan 28, 2023 | Oct 29, 2022 | | :-------------------------- | :----------- | :----------- | :----------- | | Property and equipment, net | $134,639 | $149,874 | $154,975 | - Asset impairment charges were **$0.6 million** in Q3 2023 and **$3.1 million** in YTD 2023, compared to no charge in Q3 2022 and **$1.4 million** in YTD 2022, primarily due to underperforming stores[59](index=59&type=chunk) [Note 6. LEASES](index=18&type=section&id=Note%206.%20LEASES) This note provides details on the company's operating lease terms, discount rates, and lease liabilities - As of October 28, 2023, the weighted-average remaining operating lease term was **3.1 years**, and the weighted-average discount rate was **5.3%**[61](index=61&type=chunk) Total Operating Lease Cost (in thousands) | Period | Oct 28, 2023 | Oct 29, 2022 | | :------------------ | :----------- | :----------- | | Thirteen Weeks Ended | $32,487 | $38,914 | | Thirty-nine Weeks Ended | $103,959 | $113,645 | - The present value of operating lease liabilities was **$142.9 million** as of October 28, 2023[63](index=63&type=chunk) [Note 7. DEBT](index=19&type=section&id=Note%207.%20DEBT) This note describes the company's ABL Credit Facility, including borrowing availability, outstanding amounts, interest rates, and related expenses - The ABL Credit Facility was increased to **$445.0 million** on June 5, 2023, and the interest rate benchmark transitioned from LIBOR to SOFR[65](index=65&type=chunk) - The Company entered a Waiver Agreement on October 24, 2023, with lenders to waive technical defaults resulting from a borrowing base calculation error[66](index=66&type=chunk) ABL Credit Facility Components (in millions) | Metric | Oct 28, 2023 | Jan 28, 2023 | Oct 29, 2022 | | :------------------------------------ | :----------- | :----------- | :----------- | | Maximum borrowing availability | $394.7 | $315.0 | $350.0 | | Outstanding borrowings | $358.7 | $287.0 | $265.0 | | Availability | $28.6 | $20.6 | $77.6 | | Interest rate at end of period | 8.0% | 5.9% | 4.8% | Interest Expense Related to ABL Credit Facility (in millions) | Period | Oct 28, 2023 | Oct 29, 2022 | | :------------------ | :----------- | :----------- | | Third Quarter Ended | $7.2 | $3.0 | | Thirty-nine Weeks Ended | $18.0 | $6.9 | [Note 8. COMMITMENTS AND CONTINGENCIES](index=22&type=section&id=Note%208.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's legal proceedings, including class action lawsuits and management's assessment of potential liabilities - The Company is a defendant in the Rael v. The Children's Place, Inc. class action lawsuit, which was settled in November 2017, with final court approval granted in March 2021[81](index=81&type=chunk)[82](index=82&type=chunk) - A reserve of **$5.0 million** was recorded in Q1 2017 for the settlement, which provides merchandise vouchers to qualified class members[82](index=82&type=chunk) - Management believes any ultimate liability from other legal proceedings will not materially adversely affect the Company's financial position, results of operations, or cash flows[83](index=83&type=chunk) [Note 9. STOCKHOLDERS' EQUITY](index=22&type=section&id=Note%209.%20STOCKHOLDERS%27%20EQUITY) This note details the company's share repurchase program, remaining availability, and temporary restrictions on share repurchases and dividends - A **$250.0 million** share repurchase program was authorized in November 2021, with **$157.3 million** remaining availability as of October 28, 2023[84](index=84&type=chunk) - The Company is temporarily restricted from repurchasing shares and issuing cash dividends due to the Waiver Agreement[84](index=84&type=chunk)[89](index=89&type=chunk) Share Repurchases (Thirty-nine Weeks Ended, in thousands) | Metric | Oct 28, 2023 | Oct 29, 2022 | | :-------------------------- | :----------- | :----------- | | Shares repurchased | 205 | 1,581 | | Amount | $7,026 | $78,913 | [Note 10. STOCK-BASED COMPENSATION](index=23&type=section&id=Note%2010.%20STOCK-BASED%20COMPENSATION) This note provides information on the company's stock-based compensation expense or benefit, including performance awards Stock-Based Compensation Expense (Benefit) (in thousands) | Period | Oct 28, 2023 | Oct 29, 2022 | | :-------------------------- | :----------- | :----------- | | Thirteen Weeks Ended | $(4,746) | $5,221 | | Thirty-nine Weeks Ended | $(6,424) | $19,055 | - The Performance Awards benefit for YTD 2023 includes **$12.9 million** of credits due to revised expectations of performance metric attainment levels and reversal of unvested expense for forfeited awards[91](index=91&type=chunk) [Note 11. EARNINGS (LOSS) PER COMMON SHARE](index=24&type=section&id=Note%2011.%20EARNINGS%20%28LOSS%29%20PER%20COMMON%20SHARE) This note presents the calculation of basic and diluted earnings per common share for the reporting periods Earnings (Loss) Per Common Share (in thousands, except EPS) | Metric (Q3) | Oct 28, 2023 | Oct 29, 2022 | | :------------------------------------ | :----------- | :----------- | | Net income (loss) | $38,482 | $42,855 | | Basic weighted average common shares outstanding | 12,548 | 13,064 | | Diluted weighted average common shares outstanding | 12,619 | 13,162 | | Basic EPS | $3.07 | $3.28 | | Diluted EPS | $3.05 | $3.26 | | **Metric (YTD)** | **Oct 28, 2023** | **Oct 29, 2022** | | Net income (loss) | $(25,705) | $49,387 | | Basic weighted average common shares outstanding | 12,481 | 13,277 | | Diluted weighted average common shares outstanding | 12,481 | 13,409 | | Basic EPS | $(2.06) | $3.72 | | Diluted EPS | $(2.06) | $3.68 | [Note 12. INCOME TAXES](index=24&type=section&id=Note%2012.%20INCOME%20TAXES) This note explains the company's effective income tax rate, the impact of various tax items, and unrecognized tax benefits Effective Income Tax Rate | Period | Oct 28, 2023 | Oct 29, 2022 | | :-------------------------- | :----------- | :----------- | | Third Quarter Ended | (3.9)% | 20.7% | | Thirty-nine Weeks Ended | (40.9)% | 10.5% | - The change in effective tax rate is primarily due to the utilization of the discrete tax provision methodology, the YTD 2023 pretax loss, jurisdictional earnings mix, non-deductible executive compensation, and a nonrecurring reserve release in Fiscal 2022[96](index=96&type=chunk)[97](index=97&type=chunk) - The Company has a remaining CARES Act income tax refund balance of **$19.1 million** as of October 28, 2023[99](index=99&type=chunk) - Total unrecognized tax benefits increased to **$4.8 million** as of October 28, 2023, from **$2.3 million** as of October 29, 2022[100](index=100&type=chunk) [Note 13. SEGMENT INFORMATION](index=25&type=section&id=Note%2013.%20SEGMENT%20INFORMATION) This note provides disaggregated financial information for the company's operating segments, including net sales and operating income Segment Net Sales (in thousands) | Segment | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :-------------------------- | :------ | :------ | :------- | :------- | | The Children's Place U.S. | $441,865 | $457,508 | $1,048,568 | $1,126,692 | | The Children's Place International | $38,369 | $51,612 | $98,906 | $125,663 | | Total net sales | $480,234 | $509,120 | $1,147,474 | $1,252,355 | Segment Operating Income (Loss) (in thousands) | Segment | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :-------------------------- | :------ | :------ | :------- | :------- | | The Children's Place U.S. | $38,551 | $51,460 | $(26,216) | $54,385 | | The Children's Place International | $6,416 | $6,377 | $4,174 | $8,876 | | Total operating income (loss) | $44,967 | $57,837 | $(22,042) | $63,261 | - As of October 28, 2023, the Company had **591 stores** (**520 U.S.**, **71 International**), down from **658 stores** (**577 U.S.**, **81 International**) as of October 29, 2022[103](index=103&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section provides management's perspective on the Company's financial condition and results of operations, highlighting key business developments, operating performance for the third quarter and year-to-date periods, and an analysis of liquidity and capital resources [OVERVIEW](index=28&type=section&id=OVERVIEW) This section provides a general summary of the company's operations, macroeconomic impacts, and key strategic initiatives - The Company operates as an omni-channel children's specialty retailer with a digital-first model, managing **591 stores** in North America and **226 international points of distribution**[110](index=110&type=chunk) - Macroeconomic conditions, including inflation and increased costs, have adversely affected core customers, leading to decreased discretionary apparel purchases in Year-To-Date 2023[113](index=113&type=chunk) - The Company obtained a Waiver and Amendment Agreement on October 24, 2023, from its lenders, waiving technical defaults related to an inadvertent calculation error in borrowing base certificates[114](index=114&type=chunk) - The Toronto distribution center (TODC) operations are expected to move to the U.S. by the end of the first quarter of 2024, resulting in further headcount reduction[115](index=115&type=chunk) [Operating Highlights](index=29&type=section&id=Operating%20Highlights) This section summarizes key financial performance metrics for the quarter, including sales, gross profit, operating income, and net income - Net sales decreased by **$28.9 million**, or **5.7%**, to **$480.2 million** in Q3 2023, primarily due to a slowdown in consumer demand, increased promotional activity, and permanent store closures[116](index=116&type=chunk) - Comparable retail sales decreased by **7.3%** for Q3 2023[116](index=116&type=chunk) - Gross profit decreased by **$14.8 million** to **$162.1 million** (**33.7%** of net sales) in Q3 2023, reflecting higher distribution and fulfillment expenses, partially offset by lower supply chain and cotton costs[117](index=117&type=chunk) - Operating income decreased by **$12.8 million** to **$45.0 million** (**9.4%** of net sales) in Q3 2023[118](index=118&type=chunk) - Net income decreased by **$4.4 million** to **$38.5 million**, or **$3.05 per diluted share**, in Q3 2023[118](index=118&type=chunk) - The Company continues to focus on key strategic growth initiatives: superior product, digital transformation, alternative channels of distribution, and fleet optimization[119](index=119&type=chunk) - **608 stores** have been closed since 2013, with plans for an additional **64 closures** in Q4 2023, bringing the total for Fiscal 2023 to **86 stores** and leaving approximately **530 stores** entering fiscal 2024[121](index=121&type=chunk) [SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES](index=30&type=section&id=SIGNIFICANT%20ACCOUNTING%20POLICIES%20AND%20CRITICAL%20ACCOUNTING%20ESTIMATES) This section confirms no significant changes to accounting policies and lists critical accounting estimates - There have been no significant changes in accounting policies or critical accounting estimates from those described in the Company's most recent Annual Report on Form 10-K[124](index=124&type=chunk)[126](index=126&type=chunk) - Critical accounting estimates include impairment of long-lived assets, indefinite-lived intangible assets, income taxes, stock-based compensation, and inventory valuation[126](index=126&type=chunk) [RESULTS OF OPERATIONS](index=31&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's financial performance, including sales, margins, and profitability trends Selected Statements of Operations Data as a Percentage of Net Sales | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :------------------------------------ | :------ | :------ | :------- | :------- | | Net sales | 100.0 % | 100.0 % | 100.0 % | 100.0 % | | Cost of sales (exclusive of depreciation and amortization) | 66.3 | 65.2 | 69.8 | 65.3 | | Gross profit | 33.7 | 34.8 | 30.2 | 34.7 | | Selling, general, and administrative expenses | 21.8 | 20.9 | 28.7 | 26.4 | | Depreciation and amortization | 2.4 | 2.4 | 3.1 | 3.1 | | Asset impairment charges | 0.1 | — | 0.3 | 0.1 | | Operating income (loss) | 9.4 | 11.4 | (1.9) | 5.1 | | Interest expense, net | (1.7) | (0.8) | (1.9) | (0.7) | | Income (loss) before provision (benefit) for income taxes | 7.7 | 10.6 | (3.8) | 4.4 | | Provision (benefit) for income taxes | (0.3) | 2.2 | (1.6) | 0.5 | | Net income (loss) | 8.0 % | 8.4 % | (2.2)% | 3.9 % | - Year-To-Date 2023 net sales decreased by **$104.9 million**, or **8.4%**, to **$1.147 billion**, with comparable retail sales decreasing by **8.1%**[145](index=145&type=chunk) - Total e-commerce sales were **46.2%** of net sales for Year-To-Date 2023, up from **44.0%** in Year-To-Date 2022[148](index=148&type=chunk) - Gross margin deleveraged **450 basis points** to **30.2%** of net sales for Year-To-Date 2023, primarily due to lower merchandise margins from accelerated inventory liquidation, growth of the lower-margin wholesale business, and higher input/supply chain costs[149](index=149&type=chunk) - Operating income (loss) decreased by **$85.3 million** to a **loss of** **$(22.0) million** for Year-To-Date 2023, with operating margin deleveraging **700 basis points** to **(1.9)%**[154](index=154&type=chunk) - Net income (loss) decreased by **$75.1 million** to a **loss of** **$(25.7) million**, or **$(2.06) per diluted share**, for Year-To-Date 2023[157](index=157&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=35&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's working capital, total liquidity, cash flow activities, and anticipated capital expenditures - Working capital deficit increased to **$108.4 million** at October 28, 2023, from **$18.9 million** at October 29, 2022, reflecting decreased inventory and cash, and increased ABL borrowings[161](index=161&type=chunk) - Total liquidity as of October 28, 2023, was **$42.1 million**, comprising **$28.6 million** of availability under the ABL Credit Facility and **$13.5 million** of cash on hand[162](index=162&type=chunk) - Net cash used in operating activities was **$42.6 million** for Year-To-Date 2023, primarily due to lower inventory and losses incurred[175](index=175&type=chunk) - Net cash provided by financing activities was **$64.0 million** for Year-To-Date 2023, primarily driven by net borrowings under the ABL Credit Facility[177](index=177&type=chunk) - Anticipated capital expenditures for Fiscal 2023 are in the range of **$25 million to $30 million**, focused on distribution center expansion, digital initiatives, and fulfillment capabilities[178](index=178&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section discusses the Company's exposure to market risks, primarily related to interest rate fluctuations on borrowings and currency rate movements on non-U.S. dollar denominated assets, liabilities, income, and expenses [Cash and Cash Equivalents](index=39&type=section&id=Cash%20and%20Cash%20Equivalents) This section addresses the impact of interest rate changes on the fair values of cash and cash equivalents - Cash and cash equivalents are invested in short-term financial instruments, so changes in interest rates would not materially affect their fair values[181](index=181&type=chunk) [Interest Rates](index=39&type=section&id=Interest%20Rates) This section discusses the company's exposure to floating interest rates on its debt facilities and the potential impact of rate changes - The ABL Credit Facility and Term Loan bear floating interest rates (prime or SOFR plus a spread)[182](index=182&type=chunk)[183](index=183&type=chunk) - A **10%** change in the prime rate or SOFR would not have a material impact on the Company's interest expense[182](index=182&type=chunk)[183](index=183&type=chunk) [Assets and Liabilities of Foreign Subsidiaries](index=39&type=section&id=Assets%20and%20Liabilities%20of%20Foreign%20Subsidiaries) This section details the net assets held in foreign subsidiaries and the sensitivity to foreign currency exchange rate fluctuations - Net assets in Canada and Hong Kong amounted to **$26.6 million** as of October 28, 2023[184](index=184&type=chunk) - A **10%** increase or decrease in Canadian and Hong Kong foreign currency exchange rates would increase or decrease the corresponding net investment by **$2.7 million**[184](index=184&type=chunk) - The Company held **$6.1 million** of cash and cash equivalents in foreign subsidiaries as of October 28, 2023[185](index=185&type=chunk) [Foreign Operations](index=39&type=section&id=Foreign%20Operations) This section describes the company's exposure to foreign currency exchange rate risks related to international revenues, expenses, and merchandise imports - The Company has exchange rate exposure primarily with respect to Canadian dollars for certain revenues and expenses[186](index=186&type=chunk) - A **10%** change in foreign currency exchange rates would impact Q3 2023 net sales by approximately **$8.9 million** and total costs and expenses by approximately **$11.1 million**[186](index=186&type=chunk) - The Company imports a vast majority of merchandise from foreign countries, primarily Bangladesh, Ethiopia, Cambodia, Vietnam, India, Indonesia, and China, exposing it to political, trade, financial, banking, or currency policy risks[187](index=187&type=chunk) [Item 4. Controls and Procedures.](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures.) This section details the evaluation of the Company's disclosure controls and procedures, identifying a material weakness in internal control over financial reporting related to the borrowing base calculation, and outlining the remediation plan [Evaluation of Disclosure Controls and Procedures](index=40&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section presents management's conclusion on the effectiveness of disclosure controls and procedures - Management concluded that the Company's disclosure controls and procedures were not effective as of October 28, 2023, due to a material weakness in internal control over financial reporting[191](index=191&type=chunk) [Material Weakness in Internal Control](index=40&type=section&id=Material%20Weakness%20in%20Internal%20Control) This section identifies and describes a material weakness in internal control over financial reporting related to borrowing base calculations - A material weakness was identified in the operation of internal control related to the review of the borrowing base calculation for the ABL Credit Facility, leading to technical defaults that were subsequently waived[193](index=193&type=chunk) - This material weakness did not result in any material misstatements in financial statements or disclosures, nor changes to previously issued financial results[193](index=193&type=chunk) [Remediation Plan](index=40&type=section&id=Remediation%20Plan) This section outlines management's plan to address and remediate the identified material weakness in internal control - Management is implementing additional review procedures over the accuracy of the borrowing base calculation and expects to fully remediate the material weakness during the fourth quarter[194](index=194&type=chunk) [Changes in Internal Control over Financial Reporting](index=40&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any changes in internal control over financial reporting that materially affected or are reasonably likely to materially affect controls during the quarter - Except for the identified material weakness, there were no other changes in internal control over financial reporting that materially affected or are reasonably likely to materially affect controls during the quarter ended October 28, 2023[195](index=195&type=chunk) PART II — OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and a list of exhibits [Item 1. Legal Proceedings.](index=41&type=section&id=Item%201.%20Legal%20Proceedings.) This section refers to the legal proceedings discussed in the notes to the consolidated financial statements and the annual report - Legal proceedings are discussed in "Note 8. Commitments and Contingencies" to the accompanying consolidated financial statements and Part I, Item 3 of the Annual Report on Form 10-K[197](index=197&type=chunk) [Item 1A. Risk Factors.](index=41&type=section&id=Item%201A.%20Risk%20Factors.) This section states that there were no material changes to the risk factors previously disclosed in the company's annual report - There were no material changes to the risk factors disclosed in Item 1A of Part I in the Annual Report on Form 10-K for the fiscal year ended January 28, 2023[198](index=198&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) This section provides an update on the company's share repurchase program and related restrictions - A **$250.0 million** share repurchase program was authorized in November 2021, with **$157.3 million** remaining availability as of October 28, 2023[199](index=199&type=chunk) - The Company is temporarily restricted from repurchasing any shares pursuant to the Waiver Agreement[199](index=199&type=chunk) Share Repurchase Activity (Third Quarter 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value (in thousands) of Shares that May Yet Be Purchased Under the Plans or Programs | | :---------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------- | | 7/30/23-8/26/23 | 3,597 | $28.61 | 2,064 | $157,333 | | 8/27/23-9/30/23 | — | — | — | $157,333 | | 10/1/23-10/28/23 | — | — | — | $157,333 | | Total | 3,597 | $28.61 | 2,064 | $157,333 | [Item 6. Exhibits.](index=42&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed with the quarterly report, including key agreements and certifications - Exhibits filed include the Seventh Amended and Restated Bylaws, the Waiver and Amendment Agreement to the Credit Agreement, and officer certifications (pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002)[202](index=202&type=chunk) - The filing also includes Inline XBRL Instance Document and other XBRL taxonomy extensions[202](index=202&type=chunk)

The Children's Place, Inc. (NASDAQ:PLCE) Q3 2023 Earnings Conference Call November 16, 2023 8:00 AM ET Company Participants Jane Elfers - President and CEO Maegan Markee - Brand President Sheamus Toal - COO and CFO Conference Call Participants Jeff Lick - B. Riley Financial Jim Chartier - Monness, Crespi and Hardt Jay Sole - UBS Marni Shapiro - The Retail Tracker Dana Telsey - Telsey Group Operator Good morning, and welcome to The Children's Place Third Quarter 2023 Earnings Conference Call. On the call to ...

INVESTMENT HIGHLIGHTS Strong Portfolio of Brands Serving Newborn to Tween 591 Stores in the U.S. and Canada Accelerated Amazon Opportunity | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |---------------------|---------|-------|-------|---------|-------|---------|-------|-------|-------------------------|-------|-----------------------| | | | | % of | | % of | | % of | | 23 vs. 22 \nInc/(Dec) | | 23 vs. 19 \nInc/(Dec) | | | Q3 2023 | | Sales | Q3 2022 | Sales | Q3 2019 | Sales | % ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 29, 2023 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 0-23071 THE CHILDREN'S PLACE, INC. (Exact name of registrant as specified in its charter) ...

The Children's Place, Inc. (NASDAQ:PLCE) Q2 2023 Results Conference Call August 17, 2023 8:00 AM ET Company Participants Jane Elfers - President, CEO Maegan Markee - Brand President Sheamus Toal - COO, CFO Josh Truppo - VP, Financial Planning and Analysis Conference Call Participants Jim Chartier - Monness, Crespi and Hardt Jeff Lick - B. Riley Financial Dana Telsey - Telsey Group Jay Sole - UBS Operator Good morning, and welcome to The Children's Place Second Quarter 2023 Earnings Conference Call. On the ...

THE CHILDREN'S PLACE BT Sugar &jade GYMBORee COMPANY OVERVIEW SECOND QUARTER FISCAL 2023 RESULTS INTENV YOHY INVESTMENT HIGHLIGHTS | --- | --- | --- | --- | --- | |-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------|-------|-------| | | | | | | | | • Omni-channel children's specialty portfolio of brands with an | | | | | | industry-leading digital-f ...

[PART I — FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements.](index=3&type=section&id=Item%201.%20Financial%20Statements.) The financial statements for the thirteen weeks ended April 29, 2023, reveal a significant decline in performance, shifting from net income to a substantial net loss due to reduced sales, lower margins, and increased expenses [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (in thousands) | Metric | April 29, 2023 | January 28, 2023 | April 30, 2022 | | :-------------------------------- | :------------- | :--------------- | :------------- | | Cash and cash equivalents | $18,242 | $16,689 | $58,494 | | Inventories | $504,194 | $447,795 | $549,167 | | Total current assets | $606,599 | $561,943 | $687,463 | | Total assets | $1,014,870 | $986,281 | $1,145,026 | | Revolving loan | $300,835 | $286,990 | $249,544 | | Total current liabilities | $719,287 | $648,385 | $717,671 | | Total liabilities | $889,049 | $827,803 | $931,342 | | Total stockholders' equity | $125,821 | $158,478 | $213,684 | - Cash and cash equivalents decreased significantly from **$58.494 million** in April 2022 to **$18.242 million** in April 2023, indicating reduced liquidity[10](index=10&type=chunk) - Inventories decreased from **$549.167 million** in April 2022 to **$504.194 million** in April 2023, potentially reflecting efforts to manage stock levels[10](index=10&type=chunk) - Total stockholders' equity declined from **$213.684 million** in April 2022 to **$125.821 million** in April 2023, reflecting the net loss and share repurchases[10](index=10&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations Highlights (Thirteen Weeks Ended, in thousands, except EPS) | Metric | April 29, 2023 | April 30, 2022 | Change (YoY) | | :-------------------------------------- | :------------- | :------------- | :----------- | | Net sales | $321,640 | $362,350 | -11.2% | | Gross profit | $96,462 | $141,905 | -32.0% | | Gross profit margin | 30.0% | 39.2% | -9.2 pp | | Selling, general, and administrative expenses | $112,931 | $109,036 | +3.6% | | Operating income (loss) | $(30,067) | $19,254 | N/A (loss) | | Net income (loss) | $(28,834) | $19,831 | N/A (loss) | | Basic EPS | $(2.33) | $1.46 | N/A (loss) | | Diluted EPS | $(2.33) | $1.43 | N/A (loss) | - Net sales decreased by **11.2%** year-over-year, from **$362.350 million** to **$321.640 million**[12](index=12&type=chunk) - The company reported an operating loss of **$30.067 million** and a net loss of **$28.834 million** in Q1 2023, a significant reversal from operating income of **$19.254 million** and net income of **$19.831 million** in Q1 2022[12](index=12&type=chunk) - Diluted EPS shifted from a positive **$1.43** in Q1 2022 to a negative **$(2.33)** in Q1 2023[12](index=12&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Consolidated Statements of Comprehensive Income (Loss) Highlights (Thirteen Weeks Ended, in thousands) | Metric | April 29, 2023 | April 30, 2022 | | :-------------------------------- | :------------- | :------------- | | Net income (loss) | $(28,834) | $19,831 | | Foreign currency translation adjustment | $(818) | $(482) | | Total comprehensive income (loss) | $(29,652) | $19,349 | - Total comprehensive income shifted from a gain of **$19.349 million** in Q1 2022 to a loss of **$29.652 million** in Q1 2023, primarily driven by the net loss[15](index=15&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Changes in Stockholders' Equity (Thirteen Weeks Ended, in thousands) | Metric | April 29, 2023 | April 30, 2022 | | :-------------------------------- | :------------- | :------------- | | Balance, beginning of period | $158,478 | $225,472 | | Net income (loss) | $(28,834) | $19,831 | | Purchase and retirement of common stock | $(6,088) | $(38,699) | | Balance, end of period | $125,821 | $213,684 | - Stockholders' equity decreased from **$158.478 million** at January 28, 2023, to **$125.821 million** at April 29, 2023, primarily due to the net loss and share repurchases[19](index=19&type=chunk) - Common stock repurchases amounted to **$6.088 million** in Q1 2023, significantly lower than **$38.699 million** in Q1 2022[19](index=19&type=chunk)[21](index=21&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows Highlights (Thirteen Weeks Ended, in thousands) | Metric | April 29, 2023 | April 30, 2022 | | :-------------------------------- | :------------- | :------------- | | Net cash provided by (used in) operating activities | $5,134 | $(18,837) | | Net cash used in investing activities | $(11,037) | $(10,983) | | Net cash provided by financing activities | $7,757 | $33,856 | | Net increase in cash and cash equivalents | $1,553 | $3,707 | | Cash and cash equivalents, end of period | $18,242 | $58,494 | - Operating activities generated **$5.134 million** in cash in Q1 2023, a positive shift from **$18.837 million** cash used in Q1 2022, primarily due to lower inventory balance[24](index=24&type=chunk) - Cash provided by financing activities decreased significantly from **$33.856 million** in Q1 2022 to **$7.757 million** in Q1 2023, mainly due to lower net borrowings and reduced share repurchases[24](index=24&type=chunk) - Ending cash and cash equivalents decreased to **$18.242 million** in Q1 2023 from **$58.494 million** in Q1 2022[24](index=24&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. BASIS OF PRESENTATION](index=9&type=section&id=1.%20BASIS%20OF%20PRESENTATION) - The Children's Place, Inc. is the largest pure-play children's specialty apparel retailer in North America, operating under proprietary brands like 'The Children's Place', 'Place', 'Baby Place', 'Gymboree', 'Sugar & Jade', and 'PJ Place'[25](index=25&type=chunk) - The company operates in two segments: The Children's Place U.S. (U.S. and Puerto Rico stores, U.S. wholesale) and The Children's Place International (Canadian stores, Canadian wholesale, international franchisees), both including e-commerce[26](index=26&type=chunk) - Interim financial statements are unaudited and prepared in accordance with U.S. GAAP and SEC regulations, with certain information condensed or omitted compared to annual statements[27](index=27&type=chunk) - Management notes that due to the seasonal nature of the business, Q1 results are not necessarily indicative of a full fiscal year's operating results[29](index=29&type=chunk) [2. REVENUES](index=10&type=section&id=2.%20REVENUES) Net Sales Disaggregated by Geography (Thirteen Weeks Ended, in thousands) | Geography | April 29, 2023 | April 30, 2022 | | :---------- | :------------- | :------------- | | South | $119,918 | $136,372 | | Northeast | $64,532 | $75,396 | | West | $42,603 | $50,132 | | Midwest | $38,809 | $43,613 | | International and other | $55,778 | $56,837 | | Total net sales | $321,640 | $362,350 | - Revenue is recognized upon purchase at retail stores or customer receipt for e-commerce, net of coupons and estimated returns[36](index=36&type=chunk) - The company operates a private label credit card program and a points-based customer loyalty program, with associated revenues and liabilities recognized based on specific criteria[40](index=40&type=chunk)[42](index=42&type=chunk) - Gift card liability decreased from **$13.3 million** in April 2022 to **$10.5 million** in April 2023, with **$2.0 million** recognized as net sales in Q1 2023 from prior balances[43](index=43&type=chunk) [3. INTANGIBLE ASSETS](index=12&type=section&id=3.%20INTANGIBLE%20ASSETS) Intangible Assets (in thousands) | Intangible Asset | Useful Life | Net Amount (April 29, 2023) | Net Amount (January 28, 2023) | Net Amount (April 30, 2022) | | :----------------- | :---------- | :-------------------------- | :---------------------------- | :-------------------------- | | Gymboree tradename | Indefinite | $69,953 | $69,953 | $69,953 | | Crazy 8 tradename | 5 years | $738 | $938 | $1,539 | | Customer databases | 3 years | — | — | — | | Total intangible assets | | $70,691 | $70,891 | $71,492 | - The Gymboree tradename, with an indefinite useful life, remains the largest intangible asset at **$69.953 million**[46](index=46&type=chunk) - The net amount of Crazy 8 tradename decreased due to amortization[46](index=46&type=chunk) [4. PROPERTY AND EQUIPMENT, NET](index=13&type=section&id=4.%20PROPERTY%20AND%20EQUIPMENT,%20NET) Property and Equipment, Net (in thousands) | Category | April 29, 2023 | January 28, 2023 | April 30, 2022 | | :-------------------------- | :------------- | :--------------- | :------------- | | Total gross property and equipment | $858,260 | $878,004 | $854,226 | | Less accumulated depreciation and amortization | $(711,945) | $(728,130) | $(697,193) | | Property and equipment, net | $146,315 | $149,874 | $157,033 | - Net property and equipment decreased to **$146.315 million** as of April 29, 2023, from **$157.033 million** as of April 30, 2022[50](index=50&type=chunk) - The company recorded **$1.8 million** in asset impairment charges in Q1 2023, including right-of-use (ROU) assets, related to underperforming stores[50](index=50&type=chunk) [5. LEASES](index=13&type=section&id=5.%20LEASES) Operating Lease Costs (Thirteen Weeks Ended, in thousands) | Lease Cost Type | April 29, 2023 | April 30, 2022 | | :---------------- | :------------- | :------------- | | Fixed operating lease cost | $20,906 | $22,970 | | Variable operating lease cost | $14,697 | $15,118 | | Total operating lease cost | $35,603 | $38,088 | - Total operating lease costs decreased to **$35.603 million** in Q1 2023 from **$38.088 million** in Q1 2022[52](index=52&type=chunk) - The weighted-average remaining operating lease term was **3.6 years**, and the weighted-average discount rate was **5.1%** as of April 29, 2023[52](index=52&type=chunk) - Cash paid for operating lease liabilities was **$20.9 million** in Q1 2023, and ROU assets obtained for new operating lease liabilities were **$10.6 million**[52](index=52&type=chunk) [6. DEBT](index=14&type=section&id=6.%20DEBT) - The company maintains a **$350.0 million** asset-based revolving credit facility (ABL Credit Facility) and a **$50.0 million** term loan (Term Loan), both maturing in November 2026[56](index=56&type=chunk) ABL Credit Facility Components (in millions) | Metric | April 29, 2023 | January 28, 2023 | April 30, 2022 | | :-------------------------------- | :------------- | :--------------- | :------------- | | Maximum borrowing availability | $350.0 | $350.0 | $350.0 | | Outstanding borrowings | $300.8 | $287.0 | $249.5 | | Availability | $41.8 | $55.6 | $93.1 | | Interest rate at end of period | 6.5% | 5.9% | 2.0% | - Interest expense related to the ABL Credit Facility increased to **$4.7 million** in Q1 2023 from **$1.6 million** in Q1 2022, driven by higher borrowings and interest rates[57](index=57&type=chunk) - Interest expense related to the Term Loan increased to **$0.9 million** in Q1 2023 from **$0.4 million** in Q1 2022[61](index=61&type=chunk) - On June 5, 2023, the ABL Credit Facility was increased to **$445.0 million**, LIBOR was replaced by SOFR, and pricing grids were updated, increasing liquidity by approximately **$85 million**[64](index=64&type=chunk) [7. COMMITMENTS AND CONTINGENCIES](index=16&type=section&id=7.%20COMMITMENTS%20AND%20CONTINGENCIES) - The company is a defendant in a class action lawsuit (Rael v. The Children's Place, Inc.) regarding alleged false advertising, which was granted final settlement approval in March 2021[65](index=65&type=chunk)[66](index=66&type=chunk) - The settlement provides merchandise vouchers for qualified class members and covers legal/administration expenses; a **$5.0 million** reserve was recorded in Q1 2017[66](index=66&type=chunk) - Management believes that any ultimate liability from this and other legal proceedings will not materially adversely affect the company's financial position, results of operations, or cash flows[67](index=67&type=chunk) [8. STOCKHOLDERS' EQUITY](index=16&type=section&id=8.%20STOCKHOLDERS'%20EQUITY) - A **$250.0 million** share repurchase program was authorized in November 2021, with **$158.3 million** remaining availability as of April 29, 2023[68](index=68&type=chunk) Share Repurchases (Thirteen Weeks Ended, in thousands) | Category | April 29, 2023 (Shares) | April 29, 2023 (Amount) | April 30, 2022 (Shares) | April 30, 2022 (Amount) | | :-------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Share repurchase program | 155 | $6,088 | 665 | $38,699 | | Shares acquired and held in treasury | 1 | $74 | 1 | $69 | - Share repurchases in Q1 2023 totaled **$6.088 million**, significantly less than **$38.699 million** in Q1 2022[71](index=71&type=chunk) - Future dividend declarations are subject to Board approval based on business conditions, financial performance, and investment priorities[72](index=72&type=chunk) [9. STOCK-BASED COMPENSATION](index=17&type=section&id=9.%20STOCK-BASED%20COMPENSATION) Stock-Based Compensation Expense (Thirteen Weeks Ended, in thousands) | Award Type | April 29, 2023 | April 30, 2022 | | :----------- | :------------- | :------------- | | Deferred Awards | $2,500 | $3,425 | | Performance Awards | $583 | $4,137 | | Total stock-based compensation expense | $3,083 | $7,562 | - Total stock-based compensation expense decreased to **$3.083 million** in Q1 2023 from **$7.562 million** in Q1 2022[73](index=73&type=chunk) [10. EARNINGS (LOSS) PER COMMON SHARE](index=18&type=section&id=10.%20EARNINGS%20(LOSS)%20PER%20COMMON%20SHARE) Earnings (Loss) Per Common Share Reconciliation (Thirteen Weeks Ended, in thousands) | Metric | April 29, 2023 | April 30, 2022 | | :-------------------------------- | :------------- | :------------- | | Net income (loss) | $(28,834) | $19,831 | | Basic weighted average common shares outstanding | 12,374 | 13,621 | | Diluted weighted average common shares outstanding | 12,374 | 13,841 | | Basic EPS | $(2.33) | $1.46 | | Diluted EPS | $(2.33) | $1.43 | - The company reported a diluted loss per share of **$(2.33)** in Q1 2023, compared to diluted earnings per share of **$1.43** in Q1 2022[76](index=76&type=chunk) - Anti-dilutive shares excluded from diluted EPS calculation were **228 thousand** in Q1 2023, compared to none in Q1 2022, reflecting the net loss[76](index=76&type=chunk) [11. INCOME TAXES](index=18&type=section&id=11.%20INCOME%20TAXES) - The effective income tax rate was a benefit of **19.8%** (**$7.1 million**) in Q1 2023, compared to **13.0%** (**$2.3 million**) in Q1 2022[78](index=78&type=chunk) - The increase in the effective tax rate was primarily due to the release of a nonrecurring reserve for unrecognized tax benefits in Q1 2022 and the pretax loss in Q1 2023[78](index=78&type=chunk) - Unrecognized tax benefits totaled **$3.8 million** as of April 29, 2023, an increase from **$2.3 million** in April 2022[80](index=80&type=chunk) [12. SEGMENT INFORMATION](index=19&type=section&id=12.%20SEGMENT%20INFORMATION) - The company reports segment data based on geography: The Children's Place U.S. and The Children's Place International, both including e-commerce[84](index=84&type=chunk) Segment Net Sales and Operating Income (Loss) (Thirteen Weeks Ended, in thousands) | Segment | Net Sales (April 29, 2023) | Net Sales (April 30, 2022) | Operating Income (Loss) (April 29, 2023) | Operating Income (Loss) (April 30, 2022) | | :-------------------------- | :------------------------- | :------------------------- | :--------------------------------------- | :--------------------------------------- | | The Children's Place U.S. | $293,486 | $327,961 | $(28,027) | $16,869 | | The Children's Place International | $28,154 | $34,389 | $(2,040) | $2,385 | | Total | $321,640 | $362,350 | $(30,067) | $19,254 | - Both U.S. and International segments experienced declines in net sales and shifted from operating income to operating losses in Q1 2023[85](index=85&type=chunk) - The Children's Place U.S. had **528 stores** and International had **71 stores** as of April 29, 2023, a decrease from **583** and **82 stores** respectively in April 2022[84](index=84&type=chunk) [13. SUBSEQUENT EVENTS](index=20&type=section&id=13.%20SUBSEQUENT%20EVENTS) - On May 26, 2023, the company issued a voluntary termination notice for its corporate office building lease, accelerating the termination to June 1, 2024, and paying a **$4 million** fee, expected to reduce ROU assets and operating lease liabilities by approximately **$17 million**[86](index=86&type=chunk)[99](index=99&type=chunk) - On June 5, 2023, the ABL Credit Facility was increased to **$445.0 million**, LIBOR was replaced by SOFR, and pricing grids were updated, enhancing liquidity by approximately **$85 million**[87](index=87&type=chunk)[100](index=100&type=chunk)[135](index=135&type=chunk) - Under the amended ABL Credit Facility, interest rates are now based on the SOFR rate plus a margin of **2.00%** or **2.25%**, or the prime rate plus **1.25%** or **1.50%**[88](index=88&type=chunk)[91](index=91&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management's discussion highlights a challenging Q1 2023 with decreased net sales and an operating loss, driven by macroeconomic pressures, while the company implements strategic initiatives and liquidity enhancements [OVERVIEW](index=22&type=section&id=OVERVIEW) - The company is the largest pure-play children's specialty apparel retailer in North America, operating **599 stores** and **212 international points of distribution** as of April 29, 2023[95](index=95&type=chunk) - Recent macroeconomic conditions, including increased costs for goods, labor, transportation, and fuel, coupled with inflationary pressures, have adversely affected consumer discretionary apparel purchases, leading to a decrease in Q1 2023 net sales[98](index=98&type=chunk) - Net sales decreased by **$40.8 million** (**11.2%**) to **$321.6 million** in Q1 2023, with comparable retail sales down **8.2%**[101](index=101&type=chunk) - Gross profit decreased by **$45.4 million** to **$96.5 million** (**30.0%** of net sales) in Q1 2023, a **920 basis point** decrease in gross margin due to higher input costs and deleverage of fixed expenses[102](index=102&type=chunk) - The company reported an operating loss of **$30.1 million** and a net loss of **$28.8 million** (or **$(2.33)** per diluted share) in Q1 2023, a significant decline from Q1 2022[103](index=103&type=chunk) - Strategic initiatives include digital transformation, alternative distribution channels, and fleet optimization, with **600 stores** closed since 2013 and a target of **80-100 additional closures** in Fiscal 2023[104](index=104&type=chunk)[106](index=106&type=chunk) [SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES](index=24&type=section&id=SIGNIFICANT%20ACCOUNTING%20POLICIES%20AND%20CRITICAL%20ACCOUNTING%20ESTIMATES) - No significant changes in accounting policies from the most recent Annual Report on Form 10-K[110](index=110&type=chunk) - Critical accounting estimates include impairment of long-lived assets, indefinite-lived intangible assets, income taxes, stock-based compensation, and inventory valuation, with no material changes from the prior annual report[112](index=112&type=chunk) - No pending accounting standards updates are expected to have a material impact on the consolidated financial statements[113](index=113&type=chunk) [RESULTS OF OPERATIONS](index=24&type=section&id=RESULTS%20OF%20OPERATIONS) Selected Statements of Operations Data as Percentage of Net Sales | Metric | April 29, 2023 | April 30, 2022 | | :-------------------------------------- | :------------- | :------------- | | Net sales | 100.0% | 100.0% | | Cost of sales (exclusive of depreciation and amortization) | 70.0% | 60.8% | | Gross profit | 30.0% | 39.2% | | Selling, general, and administrative expenses | 35.1% | 30.1% | | Operating income (loss) | (9.3)% | 5.3% | | Net income (loss) | (9.0)% | 5.5% | - Net sales decreased by **11.2%** to **$321.6 million** in Q1 2023, driven by macroeconomic conditions and pressure on consumers[118](index=118&type=chunk) - Gross profit margin decreased by **920 basis points** to **30.0%** due to higher input costs (cotton, supply chain) and deleverage from lower sales[122](index=122&type=chunk) - SG&A expenses increased by **$3.9 million** to **$112.9 million**, deleveraging **500 basis points** to **35.1%** of net sales, partly due to incremental operating expenses (**$2.4 million** contract termination, **$1.1 million** fleet optimization, **$0.3 million** restructuring)[124](index=124&type=chunk) - Operating income shifted to a loss of **$30.1 million** in Q1 2023, a **$49.4 million** decrease from Q1 2022, with operating loss deleveraging **1,460 basis points** to **(9.3)%** of net sales[127](index=127&type=chunk) - Net interest expense increased to **$5.9 million** from **$1.7 million**, driven by higher borrowings and increased average interest rates[128](index=128&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=26&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) - Working capital deficit increased by **$82.5 million** to **$112.7 million** at April 29, 2023, compared to **$30.2 million** at April 30, 2022, reflecting decreased inventory and cash, and increased ABL borrowings[133](index=133&type=chunk) - As of April 29, 2023, the company had **$300.8 million** outstanding under its **$350.0 million** ABL Credit Facility, with total liquidity of **$25.0 million** (including **$6.8 million** ABL availability and **$18.2 million** cash on hand)[134](index=134&type=chunk) - The Fifth Amendment to the Credit Agreement on June 5, 2023, increased the ABL Credit Facility to **$445.0 million**, boosting liquidity by approximately **$85 million**[135](index=135&type=chunk)[149](index=149&type=chunk) - Cash provided by operating activities was **$5.1 million** in Q1 2023, a positive change from **$18.8 million** cash used in Q1 2022, primarily due to a lower inventory balance[154](index=154&type=chunk) - Cash provided by financing activities decreased to **$7.8 million** in Q1 2023 from **$33.9 million** in Q1 2022, due to lower net borrowings and reduced common stock repurchases[156](index=156&type=chunk) - Anticipated capital expenditures for Fiscal 2023 are **$20 million** to **$25 million**, primarily for distribution center expansion, digital initiatives, and fulfillment capabilities[157](index=157&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company faces market risks from interest rate fluctuations on floating-rate debt and foreign currency movements, particularly impacting Canadian dollar assets and liabilities, alongside geopolitical risks from international sourcing - The company's financial position is subject to market risk from interest rate movements on borrowings and currency rate movements on non-U.S. dollar denominated assets, liabilities, income, and expenses[158](index=158&type=chunk) - As of April 29, 2023, the company had **$300.8 million** in borrowings under its ABL Credit Facility and **$50.0 million** outstanding on its Term Loan, both bearing floating interest rates[160](index=160&type=chunk)[161](index=161&type=chunk) - The ABL Credit Facility and Term Loan interest rate benchmark transitioned from LIBOR to SOFR on June 5, 2023, with updated pricing grids[162](index=162&type=chunk) - Net assets in Canada and Hong Kong amounted to **$22.5 million** as of April 29, 2023, making them susceptible to foreign currency exchange rate fluctuations[163](index=163&type=chunk) - A **10%** change in Canadian and Hong Kong foreign currency exchange rates would increase or decrease the corresponding net investment by **$2.3 million**[163](index=163&type=chunk) - The company imports most merchandise from countries like Bangladesh, Ethiopia, Cambodia, Vietnam, India, Indonesia, and China, exposing it to political, trade, financial, and labor risks in these regions[166](index=166&type=chunk) [Item 4. Controls and Procedures.](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and procedures were effective as of April 29, 2023, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed is recorded, processed, summarized, and reported timely[167](index=167&type=chunk) - The Chief Executive Officer and President and Chief Financial Officer concluded that disclosure controls and procedures were effective at the reasonable assurance level as of April 29, 2023[168](index=168&type=chunk) - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[169](index=169&type=chunk) [PART II — OTHER INFORMATION](index=31&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Item 1. Legal Proceedings.](index=31&type=section&id=Item%201.%20Legal%20Proceedings.) The company's legal proceedings are consistent with those disclosed in the notes to the consolidated financial statements and the prior annual report, with no new material developments - Legal proceedings are discussed in Note 7 to the consolidated financial statements and Part I, Item 3 of the Annual Report on Form 10-K[171](index=171&type=chunk) [Item 1A. Risk Factors.](index=31&type=section&id=Item%201A.%20Risk%20Factors.) There were no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes to the risk factors disclosed in Item 1A of Part I in the Annual Report on Form 10-K for the year ended January 28, 2023[172](index=172&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) The company continued its **$250.0 million** share repurchase program, with **$158.3 million** remaining, primarily for tax withholdings on equity awards in Q1 2023 - A **$250.0 million** share repurchase program was authorized in November 2021, with **$158.3 million** remaining availability as of April 29, 2023[173](index=173&type=chunk) - The company repurchases shares of vesting stock awards to satisfy tax withholding requirements and acquires shares for its deferred compensation plan[174](index=174&type=chunk) Share Repurchase Activity (First Quarter 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value (in thousands) of Shares that May Yet Be Purchased Under the Plans or Programs | | :---------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------- | | 1/29/23-2/25/23 | 1,550 | $47.98 | — | $164,352 | | 2/26/23-4/1/23 | 149,647 | $39.28 | 149,647 | $158,474 | | 4/2/23-4/29/23 | 5,418 | $38.25 | 5,418 | $158,267 | | Total | 156,615 | $39.33 | 155,065 | $158,267 | [Item 6. Exhibits.](index=32&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including the Fifth Amendment to the Credit Agreement, CEO and CFO certifications, and various Inline XBRL taxonomy documents - Key exhibits include the Joinder and Fifth Amendment to the Amended and Restated Credit Agreement (dated June 5, 2023), and certifications from the Principal Executive Officer and Principal Financial Officer[177](index=177&type=chunk) - The report also includes various Inline XBRL (eXtensible Business Reporting Language) taxonomy extension documents for data formatting[177](index=177&type=chunk) [SIGNATURES](index=33&type=section&id=SIGNATURES) - The report was signed on June 7, 2023, by Jane T. Elfers, Chief Executive Officer and President, and Sheamus Toal, Chief Financial Officer[180](index=180&type=chunk)

The Children's Place, Inc. (NASDAQ:PLCE) Q1 2023 Earnings Conference Call May 24, 2023 8:00 AM ET Company Participants Jane Elfers - President and Chief Executive Officer Maegan Markee - Senior Vice President, Digital Marketing Sheamus Toal - Chief Financial Officer Conference Call Participants Jim Chartier - Monness, Crespi, Hardt Jeff Lick - B. Riley Financial Jay Sole - UBS Operator Good morning and welcome to The Children's Place First Quarter 2023 Earnings Conference Call. On the call today are Jane El ...