The Children's Place(PLCE) - 2026 Q2 - Quarterly Report

FORM 10-Q Filing Details This section details the company's quarterly report filing, including registrant, trading symbol, and filing classifications - The report is a Quarterly Report on Form 10-Q for the period ended August 2, 2025[3] - The registrant is THE CHILDREN'S PLACE, INC., with trading symbol PLCE on Nasdaq Global Select Market[3] - The company is classified as a Non-accelerated filer and a Smaller reporting company[4] - As of September 2, 2025, 22,167,889 shares of Common Stock, par value $0.10 per share, were outstanding[4] Table of Contents This section outlines the report's structure, dividing it into financial and other information parts - The report is structured into two main parts: Part I – Financial Information and Part II – Other Information[7][8] - Part I includes Financial Statements, Management's Discussion and Analysis, Market Risk disclosures, and Controls and Procedures[7] - Part II covers Legal Proceedings, Risk Factors, Unregistered Sales of Equity Securities, Other Information, and Exhibits[8] Part I - Financial Information This part presents the company's unaudited financial statements and management's analysis of financial condition and results Item 1. Financial Statements This item presents the unaudited consolidated financial statements of The Children's Place, Inc. and its subsidiaries, including balance sheets, statements of operations, comprehensive loss, changes in stockholders' deficit, cash flows, and extensive notes to these financial statements, providing a detailed view of the company's financial position and performance Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' deficit at specific dates Consolidated Balance Sheet Highlights (in thousands) | Metric | Aug 2, 2025 (in thousands) | Feb 1, 2025 (in thousands) | Aug 3, 2024 (in thousands) | | :--------------------------------- | :------------------------- | :------------------------- | :------------------------- | | Total Assets | $805,097 | $747,552 | $921,414 | | Total Liabilities | $809,964 | $806,963 | $990,286 | | Total Stockholders' Deficit | $(4,867) | $(59,411) | $(68,872) | | Cash and Cash Equivalents | $7,798 | $5,347 | $9,573 | | Inventories | $442,705 | $399,602 | $520,593 | | Revolving Loan | $294,417 | $245,659 | $316,655 | | Related Party Long-Term Debt | $107,193 | $165,974 | $165,354 | - Total assets decreased by $116.3 million (12.6%) from August 3, 2024, to August 2, 2025[11] - Total liabilities decreased by $80.3 million (8.1%) from August 3, 2024, to August 2, 2025[11] - Stockholders' deficit significantly improved from $(68.9) million as of August 3, 2024, to $(4.9) million as of August 2, 2025[11] Consolidated Statements of Operations This section presents the company's financial performance, detailing net sales, gross profit, operating income, and net loss over specific periods Key Operating Results (in thousands, except loss per common share) | Metric | 13 Weeks Ended Aug 2, 2025 (in thousands) | 13 Weeks Ended Aug 3, 2024 (in thousands) | 26 Weeks Ended Aug 2, 2025 (in thousands) | 26 Weeks Ended Aug 3, 2024 (in thousands) | | :----------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net sales | $298,006 | $319,655 | $540,131 | $587,533 | | Gross profit | $101,272 | $111,794 | $172,055 | $204,535 | | Operating income (loss) | $4,106 | $(21,776) | $(20,011) | $(49,764) | | Net loss | $(5,365) | $(32,114) | $(39,388) | $(69,909) | | Basic Loss per common share | $(0.24) | $(2.51) | $(1.80) | $(5.49) | | Diluted Loss per common share | $(0.24) | $(2.51) | $(1.80) | $(5.49) | - Net sales decreased by 6.8% for the 13 weeks and 8.1% for the 26 weeks ended August 2, 2025, compared to the prior year[13] - Operating income improved significantly from a loss of $(21.8) million to an income of $4.1 million for the 13 weeks ended August 2, 2025[13] - Net loss decreased by 83.3% for the 13 weeks and 43.7% for the 26 weeks ended August 2, 2025, compared to the prior year[13] Consolidated Statements of Comprehensive Loss This section presents the company's comprehensive loss, including net loss and other comprehensive income items like foreign currency adjustments Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 13 Weeks Ended Aug 2, 2025 (in thousands) | 13 Weeks Ended Aug 3, 2024 (in thousands) | 26 Weeks Ended Aug 2, 2025 (in thousands) | 26 Weeks Ended Aug 3, 2024 (in thousands) | | :--------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net loss | $(5,365) | $(32,114) | $(39,388) | $(69,909) | | Foreign currency translation adjustment | $(1,510) | $(413) | $2,072 | $(739) | | Total comprehensive loss | $(6,875) | $(32,527) | $(37,316) | $(70,648) | - Total comprehensive loss significantly reduced from $(32.5) million to $(6.9) million for the 13 weeks ended August 2, 2025, compared to the prior year[16] Consolidated Statements of Changes in Stockholders' Deficit This section details the changes in the company's stockholders' deficit, including net loss, stock issuances, and other equity transactions Changes in Stockholders' Deficit (in thousands) | Metric | Balance, May 3, 2025 (in thousands) | Balance, August 2, 2025 (in thousands) | Balance, February 1, 2025 (in thousands) | | :--------------------------------- | :---------------------------------- | :----------------------------------- | :----------------------------------- | | Total Stockholders' Deficit | $1,415 | $(4,867) | $(59,411) | | Net loss (13 weeks) | N/A | $(5,365) | N/A | | Net loss (26 weeks) | N/A | $(39,388) | N/A | | Rights offering stock issuance (26 weeks) | N/A | $90,000 | N/A | - The company completed a Rights Offering on February 6, 2025, issuing 9.2 million shares of Common stock for a total purchase price of $90.0 million[21][91] - Mithaq, a controlling stockholder, purchased 6.7 million shares, paying $5.1 million in cash and converting $60.2 million of the Initial Mithaq Term Loan[92] Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows (in thousands) | Activity | 26 Weeks Ended Aug 2, 2025 (in thousands) | 26 Weeks Ended Aug 3, 2024 (in thousands) | | :--------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net cash used in operating activities | $(73,436) | $(194,687) | | Net cash used in investing activities | $(4,843) | $(12,478) | | Net cash provided by financing activities | $77,754 | $203,652 | | Net increase (decrease) in cash and cash equivalents | $2,451 | $(4,066) | | Cash and cash equivalents, end of period | $7,798 | $9,573 | - Cash used in operating activities decreased significantly by $121.2 million (62.2%) year-over-year, primarily due to a smaller increase in inventory[28][181] - Cash used in investing activities decreased by $7.6 million (61.2%) year-over-year, driven by lower capital expenditures[28][182] - Net cash provided by financing activities decreased by $125.9 million (61.8%) year-over-year, influenced by prior year Mithaq Term Loan proceeds and current year Rights Offering[28][183] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements Note 1. Basis of Presentation This note describes the company's business as a specialty children's retailer, its omni-channel model, proprietary brands, and global network. It also outlines the basis for preparing the unaudited consolidated financial statements, key definitions, fiscal year, use of estimates, and recent accounting standard updates - The Children's Place, Inc. is the largest pure-play children's specialty retailer in North America, operating an omni-channel, digital-first model under proprietary brands like 'The Children's Place', 'Gymboree', 'Sugar & Jade', and 'PJ Place'[30][136] - The company's global network includes two digital storefronts, 494 stores in North America, wholesale marketplaces, and 229 international points of distribution in 12 countries[30][136] - The business is classified into 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, international franchisees)[31][137] - The company adopted ASU 2023-07 retrospectively, expanding disclosures without a material impact on financial statements, and is evaluating ASU 2023-09 and ASU 2024-03 for future impacts[39][40][41] Note 2. Revenues This note details the company's revenue recognition policies, including disaggregation of net sales by geography, and explains how revenue is recognized for retail, e-commerce, wholesale, private label credit card programs, loyalty programs, gift cards, and international franchisee sales Net Sales Disaggregated by Geography (in thousands) | Geography | 13 Weeks Ended Aug 2, 2025 (in thousands) | 13 Weeks Ended Aug 3, 2024 (in thousands) | 26 Weeks Ended Aug 2, 2025 (in thousands) | 26 Weeks Ended Aug 3, 2024 (in thousands) | | :------------------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | South | $116,383 | $125,639 | $202,040 | $228,895 | | Northeast | $47,156 | $50,453 | $93,010 | $104,680 | | West | $34,954 | $38,837 | $62,695 | $72,753 | | Midwest | $25,905 | $27,953 | $51,825 | $60,491 | | International and other | $73,608 | $76,773 | $130,561 | $120,714 | | Total Net Sales | $298,006 | $319,655 | $540,131 | $587,533 | - Revenue is recognized when control of promised goods or services is transferred to customers, net of coupon redemptions and anticipated sales returns[44][45] - Contract liabilities related to the points-based customer loyalty program were $6.0 million as of August 2, 2025, up from $3.6 million as of August 3, 2024[52] - The gift card liability balance was $4.3 million as of August 2, 2025, down from $6.4 million as of August 3, 2024[53] Note 3. Intangible Assets This note details the company's intangible assets, primarily the Gymboree tradename, and discusses impairment assessments, noting no impairment in the current period but a significant charge in the prior year Intangible Assets (in thousands) | Asset | Useful Life | Gross Amount (Aug 2, 2025, in thousands) | Accumulated Amortization (Aug 2, 2025, in thousands) | Net Amount (Aug 2, 2025, in thousands) | | :---------------- | :---------- | :--------------------------------------- | :--------------------------------------------- | :------------------------------------- | | Gymboree tradename | Indefinite | $13,000 | $— | $13,000 | - No indicators of impairment were identified for intangible assets in the Second Quarter 2025 and Year-To-Date 2025[56][110] - A $28.0 million impairment charge on the Gymboree tradename was recorded during the Second Quarter 2024, reducing its carrying value to $13.0 million[56][110] Note 4. Property and Equipment, Net This note provides a breakdown of the company's property and equipment, net of accumulated depreciation and amortization, and confirms no asset impairment charges were recorded in the current periods Property and Equipment, Net (in thousands) | Asset Category | Aug 2, 2025 (in thousands) | Feb 1, 2025 (in thousands) | Aug 3, 2024 (in thousands) | | :----------------------------- | :------------------------- | :------------------------- | :------------------------- | | Land and land improvements | $3,403 | $3,403 | $3,403 | | Building and improvements | $36,209 | $36,527 | $36,309 | | Material handling equipment | $84,761 | $88,092 | $89,427 | | Leasehold improvements | $162,599 | $159,992 | $164,054 | | Store fixtures and equipment | $151,551 | $151,810 | $164,795 | | Capitalized software | $229,404 | $228,227 | $335,762 | | Construction in progress | $4,850 | $1,647 | $5,992 | | Total Property and equipment, net | $89,445 | $97,487 | $111,296 | - Property and equipment, net, decreased by $21.8 million (19.6%) from August 3, 2024, to August 2, 2025[57] - The company did not record asset impairment charges in the Second Quarter 2025 and Year-To-Date 2025[58][108] Note 5. Leases This note describes the company's operating leases for retail stores, offices, and equipment, providing details on lease terms, expense components, weighted-average remaining lease term, discount rate, and maturities of lease liabilities Operating Lease Expense Components (in thousands) | Lease Cost Type | 13 Weeks Ended Aug 2, 2025 (in thousands) | 13 Weeks Ended Aug 3, 2024 (in thousands) | 26 Weeks Ended Aug 2, 2025 (in thousands) | 26 Weeks Ended Aug 3, 2024 (in thousands) | | :------------------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Fixed operating lease cost | $21,343 | $23,139 | $42,542 | $45,641 | | Variable operating lease cost | $4,322 | $6,098 | $10,081 | $13,944 | | Total operating lease cost | $25,665 | $29,237 | $52,623 | $59,585 | - The weighted-average remaining lease term for operating leases was 4.4 years as of August 2, 2025[60] - The weighted-average discount rate used to calculate operating lease liabilities was 8.6% as of August 2, 2025[60] - The present value of operating lease liabilities was $164.5 million as of August 2, 2025[60] Note 6. Debt This note provides comprehensive details on the company's debt, including the $433.0 million ABL Credit Facility and the Mithaq Term Loans ($78.6 million Initial and $90.0 million New), outlining their terms, interest rates, covenants, and maturity schedules. It also mentions the $40.0 million Mithaq Credit Facility, which has not yet been drawn - The company maintains a $433.0 million ABL Credit Facility maturing in November 2026, with $294.4 million outstanding borrowings and $43.8 million availability as of August 2, 2025[62][74] - ABL Credit Facility interest expense was $5.4 million for Q2 2025 (down from $6.3 million in Q2 2024) and $10.2 million for YTD 2025 (down from $12.0 million in YTD 2024)[67] - Mithaq Term Loans include an Initial $78.6 million (interest-free, $18.4 million outstanding after $60.2 million repayment) and a New $90.0 million (SOFR + 4.000% per annum), both maturing in 2027[76][77][78][85] - Related party interest expense was $1.9 million for Q2 2025 (down from $2.1 million in Q2 2024) and $3.7 million for YTD 2025 (up from $2.5 million in YTD 2024)[78] - A $40.0 million Mithaq Credit Facility is available, with the deadline for advances extended to July 1, 2027; no debt has been incurred under this facility as of August 2, 2025[86][87] Note 7. Commitments and Contingencies This note discusses legal proceedings, specifically a purported class action lawsuit (Gabriela Gonzalez v. The Children's Place, Inc.) regarding false advertising, and states that any ultimate liability from this or other normal course legal proceedings is not expected to have a material adverse effect on the company's financial position - The company is a defendant in a purported class action lawsuit, Gabriela Gonzalez v. The Children's Place, Inc., alleging false advertising[89] - The case has involved motions to compel arbitration, mass arbitration demands, and a denied motion to dismiss in November 2024[89] - Management believes any ultimate liability from these proceedings is not expected to have a material adverse effect on the company's financial position, results of operations, or cash flows[89][90] Note 8. Stockholders' Deficit This note details changes in stockholders' deficit, including the completion of a Rights Offering that significantly increased common stock and paid down debt, and provides an update on the share repurchase program and dividend policy - A Rights Offering was completed on February 6, 2025, resulting in the issuance of 9.2 million shares of Common stock for $90.0 million[91] - Mithaq, a controlling stockholder, purchased 6.7 million shares through the Rights Offering, now owning 62% of outstanding common stock, and used $60.2 million of the Initial Mithaq Term Loan for payment[92] - The $250.0 million Share Repurchase Program, authorized in November 2021, has $156.1 million remaining availability as of August 2, 2025, but repurchases are restricted by credit agreement covenants, except for tax withholding related repurchases[94] - The company has no current plans to pay regular cash dividends in Fiscal 2025 due to terms of its Credit Agreement[97] Note 9. Stock-Based Compensation This note summarizes the company's stock-based compensation expense for Deferred Awards and Performance Awards, noting a significant decrease in total expense for the current periods compared to the prior year, partly due to a change of control in Fiscal 2024 Stock-Based Compensation Expense (in thousands) | Award Type | 13 Weeks Ended Aug 2, 2025 (in thousands) | 13 Weeks Ended Aug 3, 2024 (in thousands) | 26 Weeks Ended Aug 2, 2025 (in thousands) | 26 Weeks Ended Aug 3, 2024 (in thousands) | | :----------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Deferred Awards | $467 | $(589) | $1,706 | $1,829 | | Performance Awards | $464 | $(659) | $971 | $9,532 | | Total | $931 | $(1,248) | $2,677 | $11,361 | - A change of control in Fiscal 2024 triggered the conversion of outstanding Performance Awards, resulting in $9.9 million incremental expense in Year-To-Date 2024[100] Note 10. Loss Per Common Share This note provides the calculation of basic and diluted loss per common share, including the retroactive adjustment due to the Rights Offering's bonus element Loss Per Common Share (in thousands, except EPS) | Metric | 13 Weeks Ended Aug 2, 2025 (in thousands) | 13 Weeks Ended Aug 3, 2024 (in thousands) | 26 Weeks Ended Aug 2, 2025 (in thousands) | 26 Weeks Ended Aug 3, 2024 (in thousands) | | :----------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net loss | $(5,365) | $(32,114) | $(39,388) | $(69,909) | | Basic weighted average common shares outstanding | 22,142 | 12,793 | 21,885 | 12,729 | | Diluted weighted average common shares outstanding | 22,142 | 12,793 | 21,885 | 12,729 | | Basic Loss per common share | $(0.24) | $(2.51) | $(1.80) | $(5.49) | | Diluted Loss per common share | $(0.24) | $(2.51) | $(1.80) | $(5.49) | - Weighted average common shares outstanding and basic/diluted loss per share were retroactively adjusted for all prior periods due to the Rights Offering's bonus element[101] Note 11. Fair Value Measurement This note discusses the fair value measurement of financial and non-financial assets, categorizing them into Level 1, 2, or 3 of the fair value hierarchy, and details impairment assessments for long-lived and indefinite-lived intangible assets - Cash and cash equivalents are classified as Level 1 in the fair value hierarchy[104] - The Mithaq Term Loans are classified as Level 2, with fair values of approximately $15.1 million for the Initial Term Loan (carrying value $18.4 million) and $82.8 million for the New Term Loan (carrying value $90.0 million) as of August 2, 2025[105] - No impairment charges were recorded for long-lived assets in Q2 2025 or YTD 2025, and no impairment indicators were identified for the Gymboree tradename in these periods, following a $28.0 million charge in Q2 2024[108][110] Note 12. Income Taxes This note explains the company's accounting for income taxes using the asset and liability method, details the provision for income taxes and effective tax rates, and discusses the impact of the CARES Act, unrecognized tax benefits, and recent tax legislation Provision for Income Taxes and Effective Tax Rate (in thousands) | Metric | 13 Weeks Ended Aug 2, 2025 (in thousands) | 13 Weeks Ended Aug 3, 2024 (in thousands) | 26 Weeks Ended Aug 2, 2025 (in thousands) | 26 Weeks Ended Aug 3, 2024 (in thousands) | | :------------------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Provision for income taxes | $1,453 | $1,107 | $2,797 | $3,193 | | Effective tax rate | (37.1)% | (3.6)% | (7.6)% | (4.8)% | - The change in the effective tax rate is primarily due to the absence of the Gymboree tradename impairment charge in Fiscal 2024[112][113] - A remaining income tax receivable of $19.1 million as of August 2, 2025, is included in Prepaid expenses and other current assets, resulting from the CARES Act's NOL carryback[115] - Total unrecognized tax benefits amounted to $6.7 million as of August 2, 2025[116] - The One Big Beautiful Bill Act (July 4, 2025) is not expected to materially impact the estimated annual effective tax rate or financial statements for Q2 2025, with effects for fiscal year 2026 being evaluated[119] Note 13. Segment Information This note provides financial information disaggregated by the company's two reportable segments: The Children's Place U.S. and The Children's Place International, including net sales, operating income/loss, store counts, depreciation, and capital expenditures. It also identifies a major U.S. wholesale customer - The company reports segment data based on geography: The Children's Place U.S. and The Children's Place International[121][137] - As of August 2, 2025, The Children's Place U.S. had 437 stores (down from 452 YoY) and The Children's Place International had 57 stores (down from 63 YoY)[124] Segment Net Sales (in thousands) | Segment | 13 Weeks Ended Aug 2, 2025 (in thousands) | 13 Weeks Ended Aug 3, 2024 (in thousands) | 26 Weeks Ended Aug 2, 2025 (in thousands) | 26 Weeks Ended Aug 3, 2024 (in thousands) | | :--------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | The Children's Place U.S. | $273,187 | $292,393 | $494,954 | $538,581 | | The Children's Place International | $24,819 | $27,262 | $45,177 | $48,952 | | Total Net Sales | $298,006 | $319,655 | $540,131 | $587,533 | Segment Operating Income (Loss) (in thousands) | Segment | 13 Weeks Ended Aug 2, 2025 (in thousands) | 13 Weeks Ended Aug 3, 2024 (in thousands) | 26 Weeks Ended Aug 2, 2025 (in thousands) | 26 Weeks Ended Aug 3, 2024 (in thousands) | | :--------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | The Children's Place U.S. | $6,284 | $(19,673) | $(13,431) | $(43,652) | | The Children's Place International | $(2,178) | $(2,103) | $(6,580) | $(6,112) | | Total Segment Operating Income (Loss) | $4,106 | $(21,776) | $(20,011) | $(49,764) | - One U.S. wholesale customer accounted for more than 10% of net sales ($42.3 million in Q2 2025, $74.5 million YTD 2025) and a majority of accounts receivable ($31.8 million as of Aug 2, 2025)[122] - Total capital expenditures were $4.8 million YTD 2025, down from $12.5 million YTD 2024[129] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, discussing business overview, recent developments, and detailed analysis of results of operations, liquidity, capital resources, and critical accounting estimates Overview This section provides an overview of the company's business, recent developments, and the macroeconomic environment impacting its operations - Macroeconomic conditions, including inflationary pressures, higher interest rates, and tariffs, adversely affected consumer discretionary apparel purchases in Q2 2025[138] - The company is implementing a long-range plan to streamline operations, aiming for over $40 million in benefits over three years by reducing corporate office costs, optimizing distribution, and right-sizing non-merchandise and third-party spend[141] - The company is monitoring tariffs and benefiting from diversified sourcing strategies, with no single country representing more than 20% of total sourcing capacity and limited exposure to China[139] - The implementation of OECD Pillar Two global minimum corporate tax rules in Hong Kong and Canada is not expected to have a material impact on the effective tax rate[142] Results of Operations This section analyzes the company's financial performance, detailing changes in net sales, gross profit, operating income, and net loss Second Quarter 2025 vs. Second Quarter 2024 Financial Highlights (in thousands, except percentages) | Metric | Aug 2, 2025 (in thousands) | Aug 3, 2024 (in thousands) | Change ($ in thousands) | Change (%) | Change (bps) | | :----------------------------------------- | :------------------------- | :------------------------- | :---------------------- | :--------- | :----------- | | Net sales | $298,006 | $319,655 | $(21,649) | (6.8)% | — | | Gross profit | $101,272 | $111,794 | $(10,522) | (9.4)% | (100) | | Gross margin | 34.0% | 35.0% | N/A | N/A | (100) | | SG&A expenses | $89,596 | $96,065 | $6,469 | 6.7% | — | | Operating income (loss) | $4,106 | $(21,776) | $25,882 | 118.9% | 820 | | Net loss | $(5,365) | $(32,114) | $26,749 | 83.3% | 820 | | Basic Loss per common share | $(0.24) | $(2.51) | N/A | N/A | N/A | - Net sales decreased by 6.8% in Q2 2025, driven by lower brick-and-mortar and e-commerce traffic and conversion, with comparable retail sales down 4.7%[146] - Operating income improved significantly to $4.1 million in Q2 2025 from a loss of $(21.8) million in Q2 2024, primarily due to the absence of a $28.0 million asset impairment charge on the Gymboree tradename[151][152] Year-To-Date 2025 vs. Year-To-Date 2024 Financial Highlights (in thousands, except percentages) | Metric | Aug 2, 2025 (in thousands) | Aug 3, 2024 (in thousands) | Change ($ in thousands) | Change (%) | Change (bps) | | :----------------------------------------- | :------------------------- | :------------------------- | :---------------------- | :--------- | :----------- | | Net sales | $540,131 | $587,533 | $(47,402) | (8.1)% | — | | Gross profit | $172,055 | $204,535 | $(32,480) | (15.9)% | (290) | | Gross margin | 31.9% | 34.8% | N/A | N/A | (290) | | SG&A expenses | $176,266 | $205,159 | $28,893 | 14.1% | 230 | | Operating loss | $(20,011) | $(49,764) | $29,753 | 59.8% | 480 | | Net loss | $(39,388) | $(69,909) | $30,521 | 43.7% | 460 | | Basic Loss per common share | $(1.80) | $(5.49) | N/A | N/A | N/A | - Year-To-Date net sales decreased by 8.1%, with comparable retail sales down 8.9%, partially offset by an increase in wholesale revenue[161] - Year-To-Date operating loss improved to $(20.0) million from $(49.8) million, largely due to reduced one-time costs and the absence of the Gymboree tradename impairment charge from the prior year[163][164][165] Liquidity and Capital Resources This section discusses the company's ability to generate and manage cash, including working capital, debt, and future capital requirements - Working capital deficit decreased by $31.1 million to $40.0 million as of August 2, 2025, compared to August 3, 2024, reflecting reduced accounts payable and inventory[177] - Total liquidity as of August 2, 2025, was $91.6 million, including $43.8 million ABL availability, $40.0 million Mithaq Credit Facility availability (undrawn), and $7.8 million cash on hand[178] - Cash used in operating activities decreased significantly to $73.4 million in YTD 2025 from $194.7 million in YTD 2024, primarily due to improved inventory management[181] - Inventories decreased by $77.9 million (15.0%) year-over-year to $442.7 million as of August 2, 2025, due to improved inventory management and alignment with growth strategy[186] - Accounts payable decreased by $83.4 million (38.6%) year-over-year to $132.4 million as of August 2, 2025, primarily due to lower inventory purchases and paying down past due vendors[187] - The company expects to meet its working capital and capital expenditure requirements for at least the next twelve months using cash on hand, cash flows from operations, and available borrowings under its ABL Credit Facility and Mithaq Credit Facility[179][184] Significant Accounting Policies and Critical Accounting Estimates This section outlines the company's key accounting policies and critical estimates used in preparing its financial statements - There have been no significant changes in the company's accounting policies from those described in its most recent Annual Report on Form 10-K[210] - Critical accounting estimates, including impairment of long-lived assets, indefinite-lived intangible assets, income taxes, stock-based compensation, and inventory valuation, have not materially changed from the most recent Annual Report on Form 10-K[212] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item discusses the company's exposure to market risks, primarily related to interest rate movements on borrowings and investments, and currency rate movements on non-U.S. dollar denominated assets and liabilities, concluding that a 10% change in interest or exchange rates would not have a material impact on interest expense or transaction gains/losses - The company is routinely subject to market risk from interest rate movements on borrowings (ABL Credit Facility, Mithaq Term Loans) and currency rate movements on non-U.S. dollar denominated assets and liabilities (Canadian and Hong Kong dollars)[215][220][224] - A 10% change in the prime rate or SOFR would not have a material impact on the company's interest expense for its ABL Credit Facility or Mithaq Term Loans[217][218] - A 10% increase or decrease in Canadian and Hong Kong foreign currency exchange rates would increase or decrease the corresponding net investment by $1.6 million, but would not result in a significant transaction gain or loss in earnings[220][224] - As of August 2, 2025, $3.5 million of cash and cash equivalents were held in foreign subsidiaries, primarily in India, China, Canada, Mauritius, and Hong Kong[221] - The company imports a vast majority of merchandise from foreign countries, exposing it to political, foreign trade, financial, banking, currency policies, and labor unrest risks[225] Item 4. Controls and Procedures This item reports on the effectiveness of the company's disclosure controls and procedures, concluding they were effective at a reasonable assurance level as of August 2, 2025, and states there were no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of August 2, 2025[228] - There have been no changes in internal control over financial reporting during the quarter ended August 2, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[229] Part II - Other Information This part provides additional non-financial and other disclosures not covered in the financial information section Item 1. Legal Proceedings This item refers to Note 7 of the consolidated financial statements for details on legal proceedings, indicating no new material information beyond what is already disclosed - Information regarding legal proceedings is discussed in 'Note 7. Commitments and Contingencies' to the consolidated financial statements[232] Item 1A. Risk Factors This item states that there were no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended February 1, 2025 - 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 February 1, 2025[233] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item provides an update on the company's share repurchase program, including remaining availability and details of share repurchase activity during the second quarter, primarily related to tax withholdings for stock awards - The $250.0 million Share Repurchase Program, authorized in November 2021, has $156.1 million remaining availability as of August 2, 2025[234] - Repurchases are subject to heightened payment conditions under the Credit Agreement, except for shares withheld to cover taxes in conjunction with the vesting of stock awards[234][235] Share Repurchase Activity During Second Quarter 2025 | 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 | | :--------------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | :------------------------------------------------------------------------------------------------- | | May 4, 2025 through May 31, 2025 | 56,280 | $6.00 | 337,421 | $156,127 | | June 1, 2025 through July 5, 2025 | — | — | — | $156,127 | | July 6, 2025 through August 2, 2025 | — | — | — | $156,127 | | Total | 56,280 | $6.00 | 337,421 | N/A | Item 5. Other Information This item states that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the Second Quarter 2025 - No directors or officers adopted or terminated a 'Rule 10b5-1 trading arrangement' or a 'non-Rule 10b5-1 trading arrangement' during the Second Quarter 2025[237] Item 6. Exhibits This item lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including amendments to credit facilities, stock award agreements, and certifications - Exhibits filed include Amendment No. 2 to Commitment Letter for the $40 Million Senior Unsecured Credit Facility, forms of Deferred Cash Award, Performance-Based Cash Award, and Restricted Stock Unit Award Agreements, and Section 302 and 906 certifications[239] Signatures This section formally certifies the accuracy and completeness of the quarterly report by authorized officers - The report was signed by Muhammad Umair, President and Interim Chief Executive Officer, and John Szczepanski, Chief Financial Officer, on September 5, 2025[243]