The Children's Place(PLCE) - 2026 Q1 - Quarterly Report

PART I Financial Statements In Q1 2025, net sales decreased 9.6% to $242.1 million, net loss improved to $34.0 million, and a rights offering shifted equity to a positive $1.4 million, with cash flow from operations significantly improving Consolidated Balance Sheets As of May 3, 2025, total assets were $779.6 million, with a significant shift from a stockholders' deficit of $59.4 million to a positive equity of $1.4 million, primarily due to a rights offering | Balance Sheet Highlights (in thousands) | May 3, 2025 | February 1, 2025 | May 4, 2024 | | :--- | :--- | :--- | :--- | | Total Assets | $779,602 | $747,552 | $848,335 | | Cash and cash equivalents | $5,694 | $5,347 | $12,960 | | Inventories | $422,204 | $399,602 | $425,156 | | Total Liabilities | $778,187 | $806,963 | $883,185 | | Revolving loan | $258,623 | $245,659 | $226,100 | | Related party long-term debt | $107,010 | $165,974 | $166,635 | | Total Stockholders' Equity (Deficit) | $1,415 | ($59,411) | ($34,850) | - Stockholders' equity turned positive to $1.4 million from a deficit of $59.4 million at the end of the previous quarter, largely due to a $90 million rights offering completed in Q1 2025[10][17] Consolidated Statements of Operations In Q1 2025, net sales decreased 9.6% to $242.1 million, while the net loss improved to $34.0 million, and the operating loss narrowed to $24.1 million | Operating Results (in thousands, except EPS) | Thirteen Weeks Ended May 3, 2025 | Thirteen Weeks Ended May 4, 2024 | | :--- | :--- | :--- | | Net sales | $242,125 | $267,878 | | Gross profit | $70,783 | $92,741 | | Operating loss | ($24,117) | ($27,988) | | Net loss | ($34,023) | ($37,795) | | Loss per common share (Diluted) | ($1.57) | ($2.98) | - The diluted loss per share improved to ($1.57) from ($2.98) year-over-year, partly due to a higher number of weighted average shares outstanding following a rights offering[12][94] Consolidated Statements of Cash Flows In Q1 2025, net cash used in operating activities significantly improved to $43.0 million, while financing activities provided $42.3 million, primarily from a $90 million rights offering | Cash Flow Summary (in thousands) | Thirteen Weeks Ended May 3, 2025 | Thirteen Weeks Ended May 4, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($42,958) | ($110,756) | | Net cash used in investing activities | ($3,413) | ($4,694) | | Net cash provided by financing activities | $42,298 | $114,889 | - Financing activities included $90.0 million in proceeds from a rights offering and a net $12.96 million from the revolving credit facility, offset by a $60.2 million repayment of a related party term loan[23] Notes to Consolidated Financial Statements Key notes detail business segments, revenue recognition, debt structure, and equity changes, including a $90 million rights offering that made Mithaq Capital SPC a controlling stockholder with 62% ownership, and the closure of the Rael lawsuit - The company operates two segments: The Children's Place U.S. (including U.S./Puerto Rico stores and U.S. wholesale) and The Children's Place International (including Canadian stores and international franchisees)[26][113] - In February 2025, the company completed a $90 million rights offering, with Mithaq Capital SPC purchasing 6.7 million shares for $5.1 million in cash and $60.2 million in debt forgiveness, gaining 62% control of outstanding common stock[85][86] - The company maintains a $433 million ABL Credit Facility and two term loans from Mithaq: an initial $78.6 million loan (now $18.4 million outstanding) and a new $90.0 million loan[56][67][68] - The Rael v. The Children's Place class action lawsuit is now closed, with the company releasing $0.8 million from its reserve in Q1 2025[80] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the 9.6% net sales decline to macroeconomic pressures, resulting in a 540 basis point gross margin contraction, while operating loss narrowed due to reduced one-time costs, and total liquidity of $84.4 million is deemed sufficient Results of Operations Net sales decreased 9.6% to $242.1 million in Q1 2025, with gross margin contracting 540 basis points to 29.2%, while SG&A expenses decreased due to reduced one-time costs - Net sales decreased by $25.8 million (9.6%) year-over-year, driven by lower e-commerce sales due to increased shipping minimums and reduced traffic/conversion, as well as lower brick-and-mortar revenue from fewer stores[138] - Gross margin decreased by 540 basis points to 29.2%, caused by a higher penetration of lower-margin wholesale sales and increased markdown activity[139] - SG&A expenses decreased significantly due to a reduction in one-time costs from Q1 2024 related to a change of control, with adjusted SG&A at $86.5 million, representing the lowest Q1 level in over 15 years[141] - The Children's Place U.S. segment net sales decreased 9.9% to $221.8 million, while The Children's Place International segment net sales decreased 6.1% to $20.4 million[148][149] Liquidity and Capital Resources As of May 3, 2025, total liquidity was $84.4 million, comprising $38.7 million from the ABL Credit Facility, $40.0 million from the Mithaq Credit Facility, and $5.7 million in cash, with management expecting sufficient funds for the next twelve months - Total liquidity was $84.4 million as of May 3, 2025, including availability under the ABL and Mithaq credit facilities and cash on hand[157] - Cash used in operating activities improved to $43.0 million in Q1 2025 from $110.8 million in Q1 2024, mainly due to a smaller increase in inventory and the paydown of past-due accounts payable in the prior year[160] - The company has a $250.0 million share repurchase program with $156.5 million remaining, but its use is currently restricted by covenants in its credit agreement[159] | ABL Credit Facility Status (in millions) | May 3, 2025 | February 1, 2025 | May 4, 2024 | | :--- | :--- | :--- | :--- | | Maximum borrowing availability | $315.5 | $301.9 | $286.0 | | Outstanding borrowings | $258.6 | $245.7 | $226.1 | | Availability | $38.7 | $40.2 | $47.7 | Quantitative and Qualitative Disclosures About Market Risk The company faces primary market risks from interest rate fluctuations on its variable-rate ABL Credit Facility and New Mithaq Term Loan, foreign currency exchange movements in Canada and Hong Kong, and significant supply chain dependencies on foreign imports - The company is exposed to interest rate risk on its $258.6 million of borrowings under the ABL Credit Facility and its $90.0 million New Mithaq Term Loan, as both bear interest at variable rates based on SOFR[195][196] - Foreign currency exchange risk exists for operations in Canada and Hong Kong, where a hypothetical 10% change in exchange rates would impact Q1 2025 net sales by approximately $1.8 million and total costs by $2.2 million[202] - The company is exposed to geopolitical and supply chain risks by importing the majority of its merchandise from countries including Bangladesh, Vietnam, India, Kenya, Ethiopia, China, and Indonesia[203] Controls and Procedures As of May 3, 2025, management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective as of May 3, 2025[206] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[207] PART II Legal Proceedings The Rael v. The Children's Place class action lawsuit is closed, while the Gabriela Gonzalez v. The Children's Place case and related arbitration claims remain ongoing, with no expected material adverse effect - The Rael v. The Children's Place, Inc. class action lawsuit is considered closed following the final distribution of merchandise vouchers in March 2025[80] - The company is defending against the Gabriela Gonzalez v. The Children's Place, Inc. class action and a related mass arbitration claim concerning its advertising practices, with management not currently expecting a material adverse effect on its financial position[81][82] Issuer Purchases of Equity Securities The company has a $156.5 million share repurchase program, currently restricted by credit agreement covenants, and repurchased 14,725 shares at $5.76 per share in Q1 2025 for tax withholding obligations - There is $156.5 million remaining under the company's authorized share repurchase program, but its execution is currently restricted by heightened payment conditions in the ABL Credit Facility agreement[212] | Share Repurchase Activity (Q1 2025) | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | February 2025 | 0 | N/A | | March 2025 | 14,725 | $5.76 | | April 2025 | 0 | N/A | | Total | 14,725 | $5.76 |