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What changed in Childrens Place, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Childrens Place, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+263 added−262 removedSource: 10-K (2023-03-28) vs 10-K (2022-03-25)

Top changes in Childrens Place, Inc.'s 2023 10-K

263 paragraphs added · 262 removed · 200 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

60 edited+18 added−13 removed45 unchanged
Biggest changeThe following tables show, by segment, our net sales and operating income for the past three fiscal years and total assets as of January 29, 2022 and January 30, 2021: Fiscal Years Ended January 29, 2022 January 30, 2021 February 1, 2020 (in thousands) Net sales: The Children’s Place U.S. $ 1,723,887 $ 1,372,079 $ 1,671,165 The Children’s Place International 191,477 150,519 199,502 Total net sales $ 1,915,364 $ 1,522,598 $ 1,870,667 Fiscal Years Ended January 29, 2022 January 30, 2021 February 1, 2020 (in thousands) Operating income (loss): The Children’s Place U.S. $ 253,419 $ (196,565) $ 77,989 The Children’s Place International 22,229 (3,350) 18,369 Total operating income (loss) $ 275,648 $ (199,915) $ 96,358 Operating income (loss) as a percentage of net sales: The Children’s Place U.S. 14.7 % (14.3) % 4.7 % The Children’s Place International 11.6 % (2.2) % 9.2 % Total operating income (loss) as a percentage of net sales 14.4 % (13.1) % 5.2 % January 29, 2022 January 30, 2021 (in thousands) Total assets: The Children’s Place U.S. $ 951,401 $ 1,054,339 The Children’s Place International 86,059 85,788 Total assets $ 1,037,460 $ 1,140,127 See “Note 14.
Biggest changeThe following tables show, by segment, our net sales, operating income (loss), and operating income (loss) as a percentage of net sales for the past three fiscal years and total assets as of January 28, 2023 and January 29, 2022: Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 (in thousands) Net sales: The Children’s Place U.S. $ 1,533,934 $ 1,723,887 $ 1,372,079 The Children’s Place International 174,548 191,477 150,519 Total net sales $ 1,708,482 $ 1,915,364 $ 1,522,598 Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 (in thousands) Operating income (loss): The Children’s Place U.S. $ (8,781) $ 253,419 $ (196,565) The Children’s Place International 7,251 22,229 (3,350) Total operating income (loss) $ (1,530) $ 275,648 $ (199,915) Operating income (loss) as a percentage of net sales: The Children’s Place U.S.
If we make any substantive amendments to our code of business conduct or grant any waiver, including any implicit waiver, from a provision of the code for the benefit of our Chief Executive Officer and President 11 Table of Contents or our Chief Financial Officer, we will disclose the nature of such amendment or waiver on our corporate website or in a Current Report on Form 8-K. 12 Table of Contents
If we make any substantive amendments to our code of business conduct or grant any waiver, including any implicit waiver, from a provision of the code for the benefit of our Chief Executive Officer and President or our Chief Financial Officer, we will disclose the nature of such amendment or waiver on our corporate website or in a Current Report on Form 8-K. 12 Table of Contents
Our private label credit card is issued to our customers for use exclusively at The Children’s Place stores and online at www.childrensplace.com, www.gymboree.com , and www.sugarandjade.com , and credit is extended to such customers through a third-party financial institution on a non-recourse basis to us.
Our private label credit card is issued to our customers for use exclusively at The Children’s Place stores and online at www.childrensplace.com, www.gymboree.com , www.sugarandjade.com , and www.pjplace.com , and credit is extended to such customers through a third-party financial institution on a non-recourse basis to us.
We design, contract to manufacture, sell at retail and wholesale, and license to sell trend right, high quality merchandise predominantly at value prices, primarily under our proprietary “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, and “Sugar & Jade” brand names.
We design, contract to manufacture, sell at retail and wholesale, and license to sell, trend right, high quality merchandise predominantly at value prices, primarily under our proprietary “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place” brand names.
Trademarks and Service Marks “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, “Crazy 8”, “Sugar & Jade” and certain other marks have been registered as trademarks and/or service marks with the United States Patent and Trademark Office and in Canada and other foreign countries.
Trademarks and Service Marks “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, “Crazy 8”, “Sugar & Jade”, “PJ Place” and certain other marks have been registered as trademarks and/or service marks with the United States Patent and Trademark Office and in Canada and other foreign countries.
High Quality and Value We believe that offering high quality, value priced, trend right apparel, footwear, and accessories under “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, and “Sugar & Jade” brand names is a competitive advantage.
High Quality and Value We believe that offering high quality, value priced, trend right apparel, footwear, and accessories under “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place” brand names is a competitive advantage.
Talent ultimately defines our success, and, over the past several years, we have built a best-in-class management team. We believe that our talented team is a significant competitive advantage for our Company. Underlying these growth initiatives is a commitment to operational excellence.
Overlaying these strategic initiatives is talent. Talent ultimately defines our success, and, over the past several years, we have built a best-in-class management team. We believe that our talented team is a significant competitive advantage for our Company. Underlying these growth initiatives is a commitment to operational excellence.
Following the reassignment, the Corporate Responsibility, Sustainability & Governance Committee is responsible for overseeing the Company’s ESG risk management activities, including environmental initiatives, and social topics such as responsible sourcing in the Company’s global supply chain. This Committee is also charged with the oversight of the Company’s corporate governance policies and practices.
The Corporate Responsibility, Sustainability & Governance Committee is responsible for overseeing the Company’s ESG risk management activities, including environmental initiatives, and social topics such as responsible sourcing in the Company’s global supply chain. This Committee is also charged with the oversight of the Company’s corporate governance policies and practices.
This ESG Report includes 22 public goals across our global operations, aligned with Sustainability Accounting Standards Board (“SASB”) guidelines for apparel, accessories & footwear, Global Reporting Initiative core standards (“GRI”), and United Nations Sustainable Development Goals.
This ESG Report includes 26 public goals across our global operations, aligned with Sustainability Accounting Standards Board (“SASB”) guidelines for apparel, accessories & footwear, Global Reporting Initiative core standards (“GRI”), and United Nations Sustainable Development Goals.
These products are imported and are subject to U.S. and Canadian customs laws and regulations, which restrict the importation of and impose tariffs, anti-dumping and countervailing duties on, certain imported products, including textiles, apparel, footwear, and accessories. We currently are not restricted by any such anti-dumping and countervailing duties in the operation of our business.
These products are imported and are subject to U.S. and Canadian customs laws and regulations, which restrict the importation of and 11 Table of Contents impose tariffs, anti-dumping and countervailing duties on, certain imported products, including textiles, apparel, footwear, and accessories. We currently are not restricted by any such anti-dumping and countervailing duties in the operation of our business.
Our merchandise assortment offers one stop shopping across apparel, footwear, and accessories. Merchandising Strategy Our merchandising strategy delivers a compelling and coordinated assortment of apparel, footwear, and accessories that facilitate the purchase of head-to-toe outfits. We merchandise our deliveries by season and flow new product to stores monthly.
Our merchandise assortment offers one stop shopping across apparel, footwear, and accessories. Merchandising Strategy Our merchandising strategy delivers a compelling and coordinated assortment of apparel, footwear, and accessories that encourage the purchase of head-to-toe outfits. We merchandise our deliveries by season and flow new product monthly.
Approximately 1,500 were full-time store employees and approximately 8,400 were part-time and seasonal store employees. None of our employees are covered by a collective bargaining agreement.
Approximately 1,400 were full-time store employees and approximately 8,000 were part-time and seasonal store employees. None of our employees are covered by a collective bargaining agreement.
Our physical stores offer a friendly and convenient shopping environment, segmented into departments that serve the wardrobe needs of girls and boys (sizes 4-18), toddler girls and boys (sizes 6 months-5T), and baby (sizes 0-24 months). Our merchandise is also available online at www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com .
Our physical stores offer a friendly and convenient shopping environment, segmented into 3 Table of Contents departments that serve the wardrobe needs of girls and boys (sizes 4-18), toddler girls and boys (sizes 6 months-5T), and baby (sizes 0-24 months). Our merchandise is also available online at www.childrensplace.com, www.gymboree.com, www.sugarandjade.com, and www.pjplace.com .
As such, we will continue to make required investments in back-end infrastructure, as well as front-end technology to deliver on this commitment. We believe that the critical investments made in areas such as e-commerce infrastructure and mobile optimization, as well as additional front-end website features, have improved our customer experience.
As such, we will continue to make required investments in back-end infrastructure, as well as front-end technology to deliver on this commitment. We believe that the critical investments 9 Table of Contents made in areas such as e-commerce infrastructure and mobile optimization, as well as additional front-end website features, have improved our customer experience.
Other terms that are commonly used in this Annual Report on Form 10-K are defined as follows: • Fiscal 2021 — The fifty-two weeks ended January 29, 2022 • Fiscal 2020 — The fifty-two weeks ended January 30, 2021 • Fiscal 2019 — The fifty-two weeks ended February 1, 2020 • Fiscal 2022 — Our next fiscal year representing the fifty-two weeks ending January 28, 2023 • SEC — U.S.
Other terms that are commonly used in this Annual Report on Form 10-K are defined as follows: • Fiscal 2022 — The fifty-two weeks ended January 28, 2023 • Fiscal 2021 — The fifty-two weeks ended January 29, 2022 • Fiscal 2020 — The fifty-two weeks ended January 30, 2021 • Fiscal 2023 — Our next fiscal year representing the fifty-three weeks ending February 3, 2024 • SEC — U.S.
Further, this 6 Table of Contents team plans the flow of inventory to ensure that we are adequately supporting store floor sets, online demand, and key selling periods. Production, Quality Assurance, and Responsible Sourcing During Fiscal 2021, we engaged independent contract vendors located primarily in Asia and Africa.
Further, this team plans the flow of inventory to ensure that we are adequately supporting store floor sets, online demand, and key selling periods. Production, Quality Assurance, and Responsible Sourcing During Fiscal 2022, we engaged independent contract vendors located primarily in Asia and Africa.
To improve its understanding of the Company’s culture and talent pipeline, the Board of Directors and its committees periodically meet with high-potential executives in formal and informal settings.
Diversity, Equity and Inclusion To improve its understanding of the Company’s culture and talent pipeline, the Board of Directors and its committees periodically meet with high-potential executives in formal and informal settings.
The Company reports annually on employment data, including ethnicity, in line with Equal Employment Opportunity Commission (“EEOC”) guidelines, publishes its complete EEO-1 data on its corporate website, and continues to focus on building a culture which supports diversity, equity and inclusion, and which works to ensure fair compensation and opportunity for all employees regardless of gender or race.
The Company reports annually on employment data, including ethnicity, in line with Equal Employment Opportunity Commission (“EEOC”) guidelines, publishes its racial, ethnic and gender diversity information on its corporate website, and continues to focus on building a culture which supports diversity, equity and inclusion, and which works to ensure fair compensation and opportunity for all employees regardless of gender or race.
Segment Information” of the Notes to Consolidated Financial Statements for further segment financial data. 5 Table of Contents All foreign net sales are in The Children’s Place International segment, while certain foreign expenses related to our buying operations are allocated between the two segments. Key Capabilities Our objective is to sell high quality, value priced, trend right children’s merchandise.
Segment Information” of the Notes to Consolidated Financial Statements for further segment financial data. All foreign net sales are in The Children’s Place International segment, while certain foreign expenses related to our buying operations are allocated between the two segments. Key Capabilities Our objective is to sell high quality, value priced, trend right children’s merchandise across our Family of Brands.
We try to create an open and brightly lit environment for customers. Our stores typically feature white fixtures to ensure the product is the focal point, using color to brand and create shop identifiers. Fleet Optimization We have closed 527 stores, including the 78 stores closed during Fiscal 2021, since the announcement of our fleet optimization initiative in 2013.
We try to create an open and brightly lit environment for customers. Our stores typically feature white fixtures to ensure the product is the focal point, using color to brand and create shop identifiers. Fleet Optimization We have closed 586 stores, including the 59 stores closed during Fiscal 2022, since the announcement of our fleet optimization initiative in 2013.
The following table sets forth the number of stores in the U.S., Puerto Rico, and Canada as of the current and prior fiscal year end: Number of Stores Location January 29, 2022 January 30, 2021 United States 582 640 Canada 83 101 Puerto Rico 7 8 Total Stores 672 749 At The Children’s Place, our store concepts consist of multiple formats ranging in size from approximately 2,500 to 22,800 square feet, which have evolved over time in response to market trends, and are strategically placed within each market.
The following table sets forth the number of stores in the U.S., Canada, and Puerto Rico as of the current and prior fiscal year end: Number of Stores Location January 28, 2023 January 29, 2022 United States 533 582 Canada 73 83 Puerto Rico 7 7 Total Stores 613 672 At The Children’s Place, our store concepts consist of multiple formats ranging in size from approximately 2,500 to 22,800 square feet, which have evolved over time in response to market trends, and are strategically placed within each market.
At the end of Fiscal 2021, members of our MyPLACE Rewards loyalty program and/or private label credit card program accounted for approximately 75% of sales.
At the end of Fiscal 2022, members of our MyPLACE Rewards loyalty program and/or private label credit card program accounted for approximately 80% of sales.
Separately, the Human Capital & Compensation Committee has the oversight responsibility for the Company’s human capital management policies and practices, including diversity, equity and inclusion topics and associated risks. The Human Capital & Compensation Committee also is charged with the oversight of the Company’s executive compensation policies, practices and plans, and associated risks.
Separately, the Human Capital & Compensation Committee has the oversight responsibility for the Company’s human capital management policies and practices, including DE&I topics and associated risks. The Human Capital & Compensation Committee also is charged with the oversight of the Company’s executive compensation policies, practices and plans, and associated risks.
Company Stores The following section highlights various store information for The Children’s Place operated stores as of January 29, 2022. Existing Stores As of January 29, 2022, we had a total of 672 The Children’s Place stores in the United States, Canada, and Puerto Rico and our online stores at www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com.
Company Stores The following section highlights various store information for The Children’s Place operated stores as of January 28, 2023. Existing Stores As of January 28, 2023, we had a total of 613 The Children’s Place stores in the United States, Canada, and Puerto Rico and our online stores at www.childrensplace.com, www.gymboree.com, www.sugarandjade.com, and www.pjplace.com.
As a result of the heightened demand for online purchasing, including due to the COVID-19 pandemic, we accelerated our planned store closures and closed 256 stores over the past two fiscal years. Since 2013, we have reduced our total store square footage from 5.2 million to 3.2 million.
As a result of the heightened demand for online purchasing, including due to the COVID-19 pandemic, we accelerated our planned store closures in Fiscal 2020 and closed 315 stores over the past three fiscal years. Since 2013, we have reduced our total store square footage from 5.2 million to 2.9 million.
During Fiscal 2021, we sourced all of our merchandise directly without the use of third-party commissioned buying agents for our branded product. We source from a diversified network of vendors, purchasing primarily from Vietnam, Cambodia, Indonesia, Ethiopia, Bangladesh, and China. No country accounted for 15% or more of our production.
During Fiscal 2022, we sourced all of our merchandise directly without the use of third-party commissioned buying agents for our branded product. We source from a diversified network of vendors, purchasing primarily from Bangladesh, Ethiopia, Cambodia, Vietnam, India, Indonesia and China. Only Bangladesh accounted for more than 15% of our production.
Our commitment to having a positive social influence also extends to our charitable mission of supporting children and families in need. Human Capital Management As of January 29, 2022, we had approximately 11,900 employees, approximately 2,000 of whom were based at our corporate offices and distribution centers.
Our commitment to having a positive social influence also extends to our charitable mission of supporting children and families in need. Human Capital Management As of January 28, 2023, we had approximately 11,300 employees, approximately 1,900 of whom were based at our corporate offices and distribution centers.
We also use a third-party provider of warehousing and logistics services in both Malaysia and China to support our international franchise business. Competition The children’s apparel, footwear, and accessories retail markets are highly competitive.
On occasion, we may utilize additional facilities to support seasonal warehousing needs. We also use a third-party provider of warehousing and logistics services in both Malaysia and China to support our international franchise business. Competition The children’s apparel, footwear, and accessories retail markets are highly competitive.
Distribution In the United States, we own and operate a 700,000 square foot distribution center in Alabama, which supports both U.S. retail store operations and U.S. e-commerce operations. In Canada, we lease and operate a 95,000 square foot distribution center in Ontario for our Canadian retail store operations.
Distribution In the United States, we own and operate a 700,000 square foot distribution center in Alabama, which supports both U.S. retail store operations and U.S. e-commerce operations.
International Franchisees and Wholesale We have 211 international points of distribution (stores, shop in shops, e-commerce site) with seven partners operating in 16 countries. We generate revenues from our franchisees from the sale of products and sales royalties.
International Franchisees and Wholesale We have 220 international points of distribution (stores, shop-in-shops, e-commerce sites) with five partners operating in 15 countries. We generate revenues from our franchisees from the sale of products and sales royalties.
The Corporate Responsibility, Sustainability & Governance Committee oversees our environmental initiatives which aim to: • Reduce scope 1, 2 and 3 greenhouse gas emissions (“GHG”) in our operations and across our global supply chain through science-based goals to address climate change; • Deliver responsibly sourced product offerings through the use of sustainable raw materials; • Reduce and manage water and chemical usage in manufacturing and processing in our global supply chain; and • Divert the amount of waste from our operations sent to landfills and move to a more circular system through reusing and recycling. 7 Table of Contents In designing and implementing our environmental initiatives, we identify areas where we believe we can make a difference and establish quantitative goals in an effort to positively impact the communities and environments affected by our business.
The Corporate Responsibility, Sustainability & Governance Committee oversees our environmental initiatives which aim to: 7 Table of Contents • Reduce scope 1, 2 and 3 greenhouse gas emissions (“GHG”) in our operations and across our global supply chain through science-based goals to address climate change; • Deliver responsibly sourced product offerings through the use of sustainable raw materials; • Reduce and manage water and chemical usage in manufacturing and processing in our global supply chain; and • Divert the amount of waste from our operations sent to landfills and move to a more circular system through reusing and recycling.
Brand Image We focus on our brand image and strengthening our customer loyalty by: • Consistently offering high quality and age appropriate products and trend right fashion predominantly at value prices in a friendly and convenient store shopping environment and online; • Providing coordinated outfits and accessories for our customers’ lifestyle needs; • Providing exclusive products on our e-commerce sites to expand the breadth of our offerings; • Creating strong merchandising and visual presentations to create compelling in-store and online experiences; • Emphasizing our great value fashion in marketing visuals to convey a consistent message across our brands; • Leveraging our customer database to communicate with our customers and personalize communications to maximize customer satisfaction, engagement and retention; and • Utilizing our MyPLACE Loyalty Rewards program and private label credit card to drive customer engagement and retention.
Brand Image We focus on our brand image and strengthening our customer loyalty by: • Consistently offering high quality and age appropriate products and trend right fashion predominantly at value prices online and in our stores; • Providing coordinated outfits and accessories for our customers’ lifestyle needs; • Providing exclusive products on our e-commerce sites to expand the breadth of our offerings; • Creating strong merchandising and visual presentations to create compelling online and in-store experiences; • Emphasizing our great value fashion in marketing visuals to convey a consistent message across our brands; • Leveraging our customer database to communicate with our customers and personalize communications to maximize customer satisfaction, engagement and retention; • Utilizing our MyPLACE Loyalty Rewards program and private label credit card to drive customer engagement and retention; and • Optimizing our fully integrated creative marketing strategies paired with a robust media mix, aimed to reach, inspire and convert our shoppers at every stage of their purchase journey with The Children’s Place Family of Brands .
In November 2021, we launched the Sugar & Jade e-commerce website at www.sugarandjade.com . Registration of our trademarks and the service marks may be renewed to extend the original registration period indefinitely, provided the marks are still in use. We intend to continue to use and protect our trademarks and service marks and maintain their registrations.
In November 2021, we launched the Sugar & Jade e-commerce website at www.sugarandjade.com, and in October 2022, we launched the PJ Place e-commerce website at www.pjplace.com. Registration of our trademarks and the service marks may be renewed to extend the original registration period indefinitely, provided the marks are still in use.
Environmental, Social & Governance We published a comprehensive Environment, Social & Governance (“ESG”) Report in November 2021, which is available at http://corporate.childrensplace.com under the ESG tab.
Environmental, Social & Governance We published our latest Environment, Social & Governance (“ESG”) Report in October 2022, which is available at http://corporate.childrensplace.com under the ESG tab.
As of January 29, 2022, we operated 672 stores throughout North America, as well as our online stores. During Fiscal 2021, we opened one store and closed 78 stores. During Fiscal 2020, we opened three stores and closed 178 stores. Jane Elfers, our President and Chief Executive Officer, established several key strategic initiatives: 1.
As of January 28, 2023, we operated 613 stores throughout North America, as well as our online stores. During Fiscal 2022, we closed 59 stores and did not open any new stores. During Fiscal 2021, we opened one store and closed 78 stores. Jane Elfers, our President and Chief Executive Officer, established several key strategic initiatives: 1.
Our distribution centers have remained open and operating during the pandemic to support our retail stores and e-commerce business. Segment Reporting In accordance with FASB ASC 280— Segment Reporting , we report segment data based on geography: The Children’s Place U.S. and The Children’s Place International. Each segment includes an e-commerce business located at www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com .
Segment Reporting In accordance with FASB ASC 280— Segment Reporting , we report segment data based on geography: The Children’s Place U.S. and The Children’s Place International. Each segment includes an e-commerce business located at www.childrensplace.com, www.gymboree.com, www.sugarandjade.com, and www.pjplace.com.
Our sourcing offices in Hong Kong, Shanghai, Indonesia, Ethiopia, and Bangladesh, and our presence in Asia and Africa and other areas in which we source products, give us access to a wide range of vendors and allow us to work to maintain and/or reduce our merchandise costs by capitalizing on new sourcing opportunities while maintaining our high standard for product quality.
Our sourcing offices in Hong Kong, Shanghai, Indonesia, Ethiopia, India, Kenya, and Bangladesh, and our presence in Asia and Africa and other areas in which we source products, give us access to a wide range of vendors and allow us to work to maintain and/or reduce our merchandise costs by capitalizing on new sourcing opportunities while maintaining our high standard for product quality. 6 Table of Contents Merchandising Process The strong collaboration between our cross-functional teams in design, merchandising, sourcing, and planning have enabled us to build our brands.
The Company’s commitment to operational excellence includes disciplined expense management and a focus on ongoing improvement in store and e-commerce operations, and combined with our finance, human resources, compliance and legal areas, form the strong base necessary to support our long-term growth initiatives.
The Company’s commitment to operational excellence includes disciplined expense management and a focus on ongoing improvement in store and e-commerce operations, and combined with our finance, human resources, compliance and legal areas, form the strong base necessary to support our long-term growth initiatives. 4 Table of Contents COVID-19 Pandemic The COVID-19 pandemic continues to impact regions all around the world, including the United States and Canada.
As reported in the Company’s ESG Report, 87% of the Company’s associates are women. Over 50% of both the members of our Board of Directors and senior leadership team are women. 87% of new hires and 90% of promotions during Fiscal 2020 were women.
As reported in the Company’s ESG Report, 87% of the Company’s associates are women. 60% of our Board of Directors are women, and 50% of our senior leadership team are women. 89% of new hires and 93% of 8 Table of Contents promotions during Fiscal 2021 were women.
As a result of the impact of the COVID-19 pandemic, we continue to experience business disruption with many of our retail stores across the U.S. and Canada. As of January 29, 2022, all of our stores were open to the public in the U.S., Canada, 4 Table of Contents and Puerto Rico.
As a result of the impact of the COVID-19 pandemic, we continue to experience certain disruptions in our business and our supply chain. As of January 28, 2023, all of our stores were open to the public in the U.S., Canada, and Puerto Rico.
Planning and Allocation The planning and allocation organization works collaboratively with the merchandising, finance, and global sourcing teams to develop seasonal sales and margin plans to support our financial objectives and merchandising strategies.
Design The design team gathers information from trends, color services, research, and trade shows. Merchandising Each quarter, we develop seasonal merchandising strategies. Planning and Allocation The planning and allocation organization works collaboratively with the merchandising, finance, and global sourcing teams to develop seasonal sales and margin plans to support our financial objectives and merchandising strategies.
In addition, our seven international partners operated 211 international points of distribution in 16 countries.
In addition, our five international partners operated 220 international points of distribution in 15 countries.
Our design, merchandising, sourcing, and planning teams strive to ensure that our product is trend right, while at the same time balancing fashion and fashion basics with more frequent, wear-now deliveries.
Our design, merchandising, sourcing, and planning teams strive to ensure that our product is trend right, while at the same time balancing fashion and fashion basics with more frequent, wear-now deliveries. We reintroduced the Gymboree brand in February 2020 on an enhanced Gymboree website and in certain co-branded locations in Company stores in the U.S. and Canada.
Fleet Optimization - As a result of the heightened demand for online purchasing, including due to the COVID-19 pandemic, we accelerated our planned store closures under our fleet optimization initiative and have closed 256 stores, against our original target of 300 stores, over the past two fiscal years, including the 78 stores closed during Fiscal 2021.
Fleet Optimization - As a result of the heightened demand for online purchasing, including due to the COVID-19 pandemic, in Fiscal 2020 we accelerated our planned store closures under our 2013 fleet optimization initiative, targeting the closure of 300 additional stores.
We have also registered our trademarks in other countries where we source our products and where we have established and possibly may establish franchising operations. We believe our trademarks and service marks have received broad recognition and are of significant value to our business.
We intend to continue to use and protect our trademarks and service marks and maintain their registrations. We have also registered our trademarks in other countries where we source our products and where we have established and possibly may establish franchising operations.
These results further our commitment to continue to execute our optimization program. We continuously review the performance of our store fleet. We base our decisions to open, close, or remodel stores on a variety of factors, including lease terms, landlord negotiations, market dynamics, and projected financial performance.
We base our decisions to open, close, or remodel stores on a variety of factors, including lease terms, landlord negotiations, market dynamics, and projected financial performance. When assessing whether to close a store, we also consider remaining lease life and current financial performance.
The following table shows the quarterly distribution, as a percentage of the full year, of net sales and operating income (loss) (results in Fiscal 2020 were significantly impacted by the COVID-19 pandemic, including the government mandated temporary closure of all of our stores for substantial periods of time during Fiscal 2020): First Quarter Second Quarter Third Quarter Fourth Quarter Net sales as a percentage of full year Fiscal 2021 22.8 % 21.6 % 29.1 % 26.5 % Fiscal 2020 16.8 % 24.2 % 27.9 % 31.1 % Operating income (loss) as a percentage of full year Fiscal 2021 23.9 % 13.7 % 41.3 % 21.1 % Fiscal 2020 (86.6) % (32.3) % 11.7 % 7.2 % For more information regarding the seasonality of our business and the disruption caused by the COVID-19 pandemic, refer to “Item 7.
The following table shows the quarterly distribution, as a percentage of the full year, of net sales, and the quarterly distribution of operating income (loss): First Quarter Second Quarter Third Quarter Fourth Quarter Net sales as a percentage of full year Fiscal 2022 21.2 % 22.3 % 29.8 % 26.7 % Fiscal 2021 22.8 % 21.6 % 29.1 % 26.5 % First Quarter Second Quarter Third Quarter Fourth Quarter (in thousands) Operating income (loss) Fiscal 2022 $ 19,254 $ (13,829) $ 57,837 $ (64,792) Fiscal 2021 65,907 37,849 113,810 58,082 For more information regarding the seasonality of our business and the disruption caused by the COVID-19 pandemic, refer to “Item 7.
Comparable Retail Sales do not exclude any temporarily closed stores impacted by the COVID-19 pandemic. • CCPSA — Canada Consumer Product Safety Act • CPSA — U.S. Consumer Product Safety Act • CPSC — U.S. Consumer Product Safety Commission • CPSIA — U.S.
Comparable Retail Sales do not exclude any temporarily closed stores impacted by the COVID-19 pandemic. • CCPSA — Canada Consumer Product Safety Act • CPSIA — U.S. Consumer Product Safety Improvement Act of 2008 General The Children’s Place, Inc. is the largest pure-play children’s specialty apparel retailer in North America.
Additionally, in November 2021, we introduced our new brand, Sugar & Jade, which is targeted at the girls’ “tween” market and is offered exclusively online. We have a customer loyalty program and a private label credit card program.
We also launched the Sugar & Jade brand in November 2021 which is targeted at the girls’ “tween” market and is offered exclusively online, and more recently, launched the PJ Place brand in October 2022, which is a sleepwear lifestyle brand targeted towards Millennial and Gen Z customers, and is offered exclusively online. 10 Table of Contents We have a customer loyalty program and a private label credit card program.
This has resulted in continuing restrictions of businesses and other activities implemented by national, state, and local authorities and private entities, leading to significant adverse economic conditions and business and lifestyle disruptions, as well as significant volatility in global financial and retail markets.
This has resulted in continuing disruptions of businesses and other activities, leading to adverse economic conditions and business and lifestyle disruptions, as well as volatility in global financial and retail markets. Such factors, among others, have resulted in a significant decline in retail traffic and consumer spending on discretionary items.
Our wholesale business includes our relationship with Amazon. 9 Table of Contents Store Operations The Children’s Place store operations are organized by geographic region. Our U.S. Vice Presidents and Canada Regional Director oversee a number of district managers residing within each region. We have a centralized corporate store operations function which supports the operations of our stores.
Vice Presidents and Canada Regional Director oversee a number of district managers residing within each region. We have a centralized corporate store operations function which supports the operations of our stores. Our stores are staffed by store managers and full-time and part-time sales associates, with additional temporary associates hired to support seasonal needs.
In recognition of the increasing importance to our shareholders and other stakeholders of enhanced board oversight of ESG topics, in Fiscal 2021, our Board of Directors directed the Corporate Responsibility, Sustainability & Governance Committee (previously the Nominating and Corporate Governance Committee) to formulate a recommendation to the Board of Directors concerning the assignment of oversight responsibilities for ESG topics, including human capital management and diversity, equity, and inclusion (“DE&I”) matters.
In recognition of the increasing importance to our shareholders and other stakeholders of enhanced board oversight of ESG topics, in Fiscal 2021, two of the three committees of the Board were renamed and all three committees had their charters amended, as each committee was reassigned certain oversight responsibilities for ESG topics, including human capital management and diversity, equity, and inclusion (“DE&I”) matters.
We also use a third-party provider operating a 694,000 square foot distribution center in Indiana and a 286,000 square foot distribution center in Ontario, Canada to support our U.S. and Canadian 10 Table of Contents e-commerce operations, respectively. On occasion, we may utilize additional facilities to support seasonal warehousing needs.
In Canada, we lease and operate a 95,000 square foot distribution center in Ontario, which supports both Canadian retail store operations and Canadian e-commerce operations. We also use a third-party provider operating a 315,000 square foot distribution center in Indiana and a 184,000 square foot distribution center in Ontario, Canada to support our U.S. and Canadian e-commerce fulfillment operations, respectively.
In order to motivate our store management, we offer a monthly incentive compensation plan that awards bonuses for achieving certain financial goals. Seasonality Our business is subject to seasonal influences, with historically heavier concentrations of sales during the back-to-school and holiday seasons.
Seasonality Our business is subject to seasonal influences, with historically heavier concentrations of sales during the back-to-school and holiday seasons.
These closures have resulted in improved profitability and operating margin accretion due to sales transfer to surrounding stores and/or e-commerce, low cost of exit, and the elimination of underperforming locations. In markets where we have closed stores, we are seeing the neighboring stores and e-commerce business in the area of the closing become more productive and profitable.
We are currently targeting approximately 100 additional store closures, with the majority in Fiscal 2023, which will leave us with approximately 500 stores entering 2024. These closures have resulted in improved profitability and operating margin accretion due to sales transfer to surrounding stores and/or e-commerce, low cost of exit, and the elimination of underperforming locations.
When assessing whether to close a store, we also consider remaining lease life and current financial performance. E-commerce Sales Each of our U.S. and International segments includes an e-commerce business located at www.childrensplace.com, www.gymboree.com , and www.sugarandjade.com and digital growth remains one of our top strategic priorities.
E-commerce Sales Each of our U.S. and International segments includes an e-commerce business located at www.childrensplace.com, www.gymboree.com , www.sugarandjade.com, and www.pjplace.com and digital growth remains one of our top strategic priorities. We are committed to delivering a best in class, end-to-end user experience, including product assortment and website operation, fulfillment, and customer service.
Our stores are staffed by store managers and full-time and part-time sales associates, with additional temporary associates hired to support seasonal needs. Our store managers spend a high percentage of their time on the store’s selling floor providing direction, motivation, and development to store associates. To maximize selling productivity, our teams emphasize greeting, replenishment, presentation standards, procedures, and controls.
Our store managers spend a high percentage of their time on the store’s selling floor providing direction, motivation, and development to store associates. To maximize selling productivity, our teams emphasize greeting, replenishment, presentation standards, procedures, and controls. In order to motivate our store management, we offer a monthly incentive compensation plan that awards bonuses for achieving certain financial goals.
Additionally, 64% of our associates identify as racially diverse and associates identifying as racially diverse represented 70% of new hires and 62% of promotions during Fiscal 2020. In addition, the Company is committed to doubling its Black associate population at its corporate headquarters by 2025.
The Company is committed to maintaining at least 80% representation of women in our overall workforce and at least 50% representation of women in our corporate leadership positions. Additionally, 67% of our associates identify as racially/ethnically diverse and associates identifying as racially/ethnically diverse represented 72% of new hires and 64% of promotions during Fiscal 2021.
The Company seeks to uphold its diverse and inclusive culture by striving to ensure its talent acquisition programs sustain and grow diverse representation across its workforce, promoting talent from within, building an inclusive culture through awareness and education, and rewarding all employees equitably. 8 Table of Contents For additional information concerning the Company’s environmental initiatives, DE&I initiatives and EEO-1 data, please refer to the Company’s ESG Report, which can be found on the Company’s corporate website at http://corporate.childrensplace.com under the ESG section, and the Company’s Proxy Statement for Fiscal 2021.
For additional information concerning the Company’s environmental initiatives, DE&I initiatives and diversity data, please refer to the Company’s ESG Report, which can be found on the Company’s corporate website at http://corporate.childrensplace.com under the ESG section, and the Company’s Proxy Statement for Fiscal 2022.
We reintroduced the Gymboree brand in February 2020 on an enhanced Gymboree website and in certain co-branded locations in Company stores in the U.S. and Canada, and in November 2021, we introduced our new brand, Sugar & Jade, which is targeted at the girls’ “tween” market and is offered exclusively online. 2.
We also launched the Sugar & Jade brand in November 2021 which is targeted at the girls’ “tween” market and is offered exclusively online, and more recently, launched the PJ Place brand in October 2022, which is a sleepwear lifestyle brand targeted towards Millennial and Gen Z customers, and is offered exclusively online. 2.
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Consumer Product Safety Improvement Act of 2008 3 Table of Contents General The Children’s Place, Inc. is the largest pure-play children’s specialty apparel retailer in North America.
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Alternative Channels of Distribution - We have 220 international points of distribution (stores, shop-in-shops, e-commerce sites) with five partners operating in 15 countries. We generate revenues from our franchisees from the sale of products and sales royalties.
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We have closed 527 stores since the announcement of this initiative in 2013. We are targeting 40 retail store closures in Fiscal 2022, which would bring our total store closures since the fleet optimization initiative began to 567 stores. Overlaying these strategic initiatives is talent.
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Our wholesale business includes our relationship with Amazon, which we strengthened in Fiscal 2022, and is a key focus area in our wholesale distribution growth strategy. Amazon is an important customer acquisition vehicle and represents a significant growth opportunity in Fiscal 2023 and beyond. 4.
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COVID-19 Pandemic The COVID-19 pandemic continues to significantly impact regions all around the world, including the United States and Canada.
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We closed 315 stores over the past three fiscal years, bringing the total closed stores to 586 since the announcement of the original fleet optimization initiative in 2013. We are currently targeting approximately 100 additional store closures, with the majority in Fiscal 2023, which will leave us with approximately 500 stores entering 2024.
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Federal, state, and local governments and health officials worldwide continue to impose varying degrees of preventative and protective actions, such as travel bans, restrictions on public gatherings, forced closures of businesses and other activities, social distancing, and the adoption of remote or hybrid learning models for schools, all in an effort to reduce the spread of the virus.
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In addition to the above discussed key strategic initiatives, we have also embarked on a marketing transformation which is designed to better position us to maximize our interactions with our younger, digitally savvy core millennial and Gen Z customers, and to support top-line opportunity by increasing new customer acquisition, increasing customer retention and loyalty, and significantly increasing customer lifetime value by supporting our three new brand launches.
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In addition, certain U.S. and Canadian mall owners continue to restrict hours of operation and the number of people permitted in stores. Such factors, among others, have resulted in a significant decline in retail traffic and consumer spending on discretionary items.
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Our marketing transformation includes strategic investments across key areas of the marketing organization: our teams – both internal and external, our research and processes, and implementation of new, state-of-the-art, marketing tools and systems.
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Merchandising Process The strong collaboration between our cross-functional teams in design, merchandising, sourcing, and planning have enabled us to build our brands. Design The design team gathers information from trends, color services, research, and trade shows. Merchandising Each quarter, we develop seasonal merchandising strategies.
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We are confident in our ability to conceptualize, build, deploy and optimize fully integrated creative marketing strategies paired with a robust media mix, aimed to reach, inspire and convert our shoppers at every stage of their purchase journey with The Children’s Place family of brands, comprised of “The Children’s Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place” ( “ Family of Brands”), and are positioning marketing as a key growth lever in Fiscal 2023 and beyond.
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Following a comprehensive review and analysis of oversight responsibilities by the Corporate Responsibility, Sustainability & Governance Committee, in conjunction with governance and legal advisors, the Board of Directors approved the Committee’s recommendations to leverage director skillsets, rename the Committees to better reflect the Committees’ expanded roles, and amend Committee charters to include the enhanced oversight responsibilities.
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(0.6) % 14.7 % (14.3) % The Children’s Place International 4.2 % 11.6 % (2.2) % Total operating income (loss) as a percentage of net sales (0.1) % 14.4 % (13.1) % 5 Table of Contents January 28, 2023 January 29, 2022 (in thousands) Total assets: The Children’s Place U.S. $ 922,120 $ 951,401 The Children’s Place International 64,161 86,059 Total assets $ 986,281 $ 1,037,460 See “Note 14.
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Previously, oversight of ESG topics resided primarily with the Audit Committee of the Board of Directors. In response to the recommendations made to and approved by the Board of Directors, components of the Company’s ESG activities were assigned between the other two committees, and both of those committees were renamed to better reflect their new oversight responsibilities.
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The Audit Committee remains responsible for overseeing our financial and enterprise risk matters, including matters related to our global supply chain, information and data security, privacy, and business transformation activities.
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The Company has benefited greatly, especially during the COVID-19 pandemic, from the stability of our senior leadership team, who have an average tenure of over six years, including our CEO who has led the Company for over a decade.
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In designing and implementing our environmental initiatives, we identify areas where we believe we can make a difference and establish quantitative goals in an effort to positively impact the communities and environments affected by our business.
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The Company has a strong track record of succession planning and growing talent within the organization with 60% of its senior leadership team promoted into their current role. In addition, during Fiscal 2020, almost 70% of all open corporate roles and over 50% of all field management roles were filled internally.
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The Company has benefited from a senior leadership team with deep retail industry expertise both at The Children’s Place and at other retailers.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs of January 29, 2022, the Company had all of its stores open to the public in the U.S., Canada and Puerto Rico, and had permanently closed 256 stores during the past two fiscal years. • The Company has experienced, and will likely continue to experience, reductions and volatility in demand for its retail products, including as a result of customers delaying their purchases of merchandise due to certain restrictions on hours of store operation and the number of people permitted in certain stores, and changes in consumer spending behaviors and needs (including because of the adoption of remote or hybrid learning models by schools) due to the COVID-19 pandemic, have adversely impacted and are likely to continue to adversely impact traffic in stores and sales, and such actions have resulted, and are likely to continue to result, in a loss of sales and profit. • The Company has experienced, and will likely continue to experience, significant temporary and long-term disruptions in its global supply chain, as the COVID-19 outbreak has resulted in travel and shipping disruptions and has significantly adversely impacted, and will likely continue to significantly adversely impact, manufacturing and distribution throughout the world, including in all countries in which the Company’s products are produced.
Biggest changeFor example: • The Company has experienced, and will likely continue to experience, reductions and volatility in demand for its retail products, and changes in consumer spending behaviors and needs (including because of the adoption of remote or hybrid learning models by schools) due to the COVID-19 pandemic, have adversely impacted and are likely to continue to adversely impact traffic in stores and sales, and such actions have resulted, and are likely to continue to result, in a loss of sales and profit. 19 Table of Contents • The Company has experienced, and will likely continue to experience, temporary disruptions in its global supply chain, as the COVID-19 outbreak has resulted in travel and shipping disruptions and has adversely impacted, and will likely continue to adversely impact, manufacturing and distribution throughout the world, including in all countries in which the Company’s products are produced.
High unemployment levels, inflation, increases in tax rates, declines in real estate values, availability of credit, volatility in the global financial markets, and the overall level of consumer confidence have negatively impacted, and could in the future negatively impact, the level of consumer spending for discretionary items.
High inflation, high unemployment levels, increases in tax rates, declines in real estate values, availability of credit, volatility in the global financial markets, and the overall level of consumer confidence have negatively impacted, and could in the future negatively impact, the level of consumer spending for discretionary items.
These factors could have a material adverse effect on our business, financial position, results of operations, and cash flows. Fluctuations in the prices of raw materials, labor, energy, and services could result in increased product and/or delivery costs. Our profitability may decline as a result of increasing pressure on margins.
These factors could have a material adverse effect on our business, financial position, results of operations, and cash flows. Fluctuations in the prices of raw materials, labor, energy, and services could result in increased product and/or delivery costs. Our profitability and cash flows may decline as a result of increasing pressure on margins.
Additionally, given that virtually all of our merchandise is purchased from foreign suppliers, we are subject to various risks of doing business in foreign markets and importing merchandise from abroad, including from less politically or socially stable and/or less developed countries, such as: • new tariffs or imposition of duties, taxes, and other charges on or costs of relying on imports; • foreign governmental regulations, including, but not limited to, changing requirements in the course of dealing with regard to product safety, product testing, environmental matters, employment, taxation, and language preference; • the failure of a vendor or supplier to comply with local laws or industry standards or ethical business practices, including worker safety ( e.g. , fire safety and building codes), worker rights of association, freedom from harassment and coercion, unauthorized subcontracting or use of forced, indentured or child labor, social compliance with health and welfare standards, and environmental matters; • financial, political, or societal instability, or military action, war or other conflict; • the rising cost of doing business in particular countries, including China; • pandemics or other health issues, such as COVID-19; • bankruptcy or insolvency of our vendors; • fluctuation of the U.S. dollar against foreign currencies; • pressure from or campaigns by non-governmental organizations or other persons, including on social media; • customer acceptance of foreign produced merchandise; • developing countries with less or inadequate infrastructure; • new and existing legislation relating to use of forced, indentured or child labor by unaffiliated manufacturers or suppliers, import quotas or other restrictions that may limit or prevent the import of our merchandise; • changes to, or repeal, suspension or discontinuation of, trade agreements, trade legislation and/or trade preferences; • significant delays in the manufacture, transportation and delivery of cargo due to COVID-19 and other health issues, port security considerations, political unrest, war, weather conditions, or cyber-security events; • disruption of imports by labor disputes and local business or unethical practices; • regulations under the United States Foreign Corrupt Practices Act; and • increased costs of or shortages of equipment, containers for shipments, or transportation.
Additionally, given that virtually all of our merchandise is purchased from foreign suppliers, we are subject to various risks of doing business in foreign markets and importing merchandise from abroad, including from less politically or socially stable and/or less developed countries, such as: • new tariffs or imposition of duties, taxes, and other charges on or costs of relying on imports; • foreign governmental regulations, including, but not limited to, changing requirements in the course of dealing with regard to product safety, product testing, environmental matters, employment, taxation, and language preference; • the failure of a direct or indirect vendor or supplier to comply with local laws or industry standards or ethical business practices, including worker safety ( e.g. , fire safety and building codes), worker rights of association, freedom from harassment and coercion, unauthorized subcontracting or use of forced, indentured or child labor, social compliance with health and welfare standards, and environmental matters; • financial, political, or societal instability, or military action, war or other conflict; • the rising cost of doing business in particular countries; • pandemics or other health issues, such as COVID-19; • bankruptcy or insolvency of our vendors; • fluctuation of the U.S. dollar against foreign currencies; • pressure from or campaigns by non-governmental organizations or other persons, including on social media; • customer acceptance of foreign produced merchandise; • developing countries with less or inadequate infrastructure; • new and existing legislation relating to use of forced, indentured or child labor by unaffiliated manufacturers or suppliers, import quotas or other restrictions that may limit or prevent the import of our merchandise; • changes to, or repeal, suspension or discontinuation of, trade agreements, trade legislation and/or trade preferences; • significant delays in the manufacture, transportation and delivery of cargo due to COVID-19 and other health issues, port security considerations, political unrest, war, weather conditions, or cyber-security events; • disruption of imports by labor disputes and local business or unethical practices; • regulations under the United States Foreign Corrupt Practices Act; and • increased costs of or shortages of equipment, containers for shipments, or transportation.
The receipt of products and raw materials has been, and will likely continue to be, significantly slowed or disrupted, which has significantly adversely impacted, and will likely continue to significantly adversely impact, the fulfillment of merchandise orders from the Company’s vendors. • In response to increased digital demand, the Company increased and will continue to increase the utilization of its third-party logistics providers to further support both our U.S. and Canadian e-commerce operations.
The receipt of products and raw materials has been, and will likely continue to be, slowed or disrupted, which has adversely impacted, and will likely continue to adversely impact, the fulfillment of merchandise orders from the Company’s vendors. • In response to increased digital demand, the Company increased and will continue to increase the utilization of its third-party logistics providers to further support both our U.S. and Canadian e-commerce operations.
Any cybersecurity incident could result in any or all of the following: • theft, destruction, loss, misappropriation, or release of confidential financial and other data, intellectual property, customer awards or loyalty points, or customer, employee or vendor information, including personally identifiable information such as payment card information, bank account information, email addresses, passwords, social security numbers, home addresses, or health information; • operational or business delays resulting from the disruption of our e-commerce site, computer network, or the computer networks of our third-party vendors, consultants and other partners and subsequent material clean-up and mitigation costs and activities; • negative publicity resulting in material reputation or brand damage with our investors, customers, vendors, third-party partners, or industry peers; • loss of sales, including those generated through our e-commerce websites; and 20 Table of Contents • governmental penalties, fines and/or enforcement actions, payment and industry penalties and fines, and/or class action and other lawsuits.
Any cybersecurity incident could result in any or all of the following: • theft, destruction, loss, misappropriation, or release of confidential financial and other data, intellectual property, customer awards or loyalty points, or customer, employee or vendor information, including personally identifiable information such as payment card information, bank account information, email addresses, passwords, social security numbers, home addresses, or health information; • operational or business delays resulting from the disruption of our e-commerce site, computer network, or the computer networks of our third-party vendors, consultants and other partners and subsequent material clean-up and mitigation costs and activities; • negative publicity resulting in material reputation or brand damage with our investors, customers, vendors, third-party partners, or industry peers; • loss of sales, including those generated through our e-commerce websites; and • governmental penalties, fines and/or enforcement actions, payment and industry penalties and fines, and/or class action and other lawsuits.
Increases in the price of raw materials, including cotton and other materials used in the production of fabric, clothing, footwear, and accessories, as well as volatility and increases in labor (including increases in minimum wages and wage rates as a result of change in laws or business practices), energy, shipping or distribution costs, pandemics or other health issues, such as COVID-19, and other costs, could result in significant increases in operating costs, as well as cost increases for our products and their distribution to our and our third-party partners’ distribution centers, retail locations, international franchise partners, and wholesale and retail customers.
Increases in the price of raw materials, including cotton and other materials used in the production of fabric, clothing, footwear, and accessories, as well as volatility and increases in labor (including increases in minimum wages and wage rates as a result of changes in laws or business practices), energy, shipping or distribution costs, pandemics or other health issues, such as COVID-19, and other costs, could result in significant increases in operating costs, as well as cost increases for our products and their distribution to our and our third-party partners’ distribution centers, retail locations, international franchise partners, and wholesale and retail customers.
The regulatory environment surrounding information security and privacy is very demanding, with the frequent imposition of new and changing significant requirements, such as the California Consumer Privacy Act and the California Privacy Rights Act, and more recently, the Virginia Consumer Data Protection Act and the Colorado Privacy Act, some of which involve significant costs to implement and significant penalties if not followed properly.
The regulatory environment surrounding information security and privacy is very demanding, with the frequent imposition of new and changing significant requirements, such as the California Consumer Privacy Act and the California Privacy Rights Act, and more recently, the Virginia Consumer Data Protection Act, the Colorado Privacy Act, the Connecticut Data Privacy Act and the Utah Consumer Privacy Act, some of which involve significant costs to implement and significant penalties if not followed properly.
As of the end of Fiscal 2021, the top ten institutional holders own over 50% of our outstanding shares of common stock. These holdings would permit these institutions to approve proposals submitted to the vote of stockholders, which may be contrary to positions supported by our Board of Directors or management. Our share price may be volatile.
As of the end of Fiscal 2022, the top ten institutional holders own over 50% of our outstanding shares of common stock. These holdings would permit these institutions to approve proposals submitted to the vote of stockholders, which may be contrary to positions supported by our Board of Directors or management. Our share price may be volatile.
We also use a third-party warehouse provider, with distribution centers located in: (i) Brownsburg, Indiana, to support our U.S. e-commerce operations; and (ii) Mississauga, Ontario to support our Canadian e-commerce operations. Our international franchise partners receive the vast majority of shipments of merchandise from our third-party warehouse provider located in Asia.
We also use a third-party warehouse provider, with distribution centers located in Brownsburg, Indiana, to support our U.S. e-commerce operations, and Mississauga, Ontario to support our Canadian e-commerce operations. Our international franchise partners receive the vast majority of shipments of merchandise from our third-party warehouse provider located in Asia.
If any of these factors rendered the conduct of business in a particular region or country undesirable or impractical, or if our current foreign manufacturing and supply sources 16 Table of Contents ceased doing business with us or we ceased doing business with them for any reason and we were unable to find alternative sources of supply, we could experience a material adverse effect on our business, financial position, results of operations, and cash flows.
If any of these factors rendered the conduct of business in a particular region or country undesirable or impractical, or if our current foreign manufacturing and supply sources ceased doing business with us or we ceased doing business with them for any reason and we were unable to find alternative sources of supply, we could experience a material adverse effect on our business, financial position, results of operations, and cash flows.
Product safety concerns, recalls, or the failure to properly manage recalls, defects, or errors could result in governmental fines, rejection of our products by customers, damage to our reputation, lost sales, product liability litigation, and increased costs, any or all of which could harm our business and have a material adverse effect on our business, financial position, results of operations, and cash flows.
Product safety concerns, recalls, or the failure to properly manage recalls, defects, or errors could result in governmental fines, rejection of our products by customers, damage to our reputation, lost sales, product liability litigation, 18 Table of Contents and increased costs, any or all of which could harm our business and have a material adverse effect on our business, financial position, results of operations, and cash flows.
Therefore, for example, our target customer may not purchase warm weather spring clothing during an extended period of unseasonably cold weather occurring in what otherwise should be warmer weather months, particularly since infants and younger children tend to outgrow clothing at a faster rate than older children and adults.
Therefore, for example, our target customer may not purchase warm weather spring clothing during an extended period of unseasonably cold weather occurring in what otherwise 22 Table of Contents should be warmer weather months, particularly since infants and younger children tend to outgrow clothing at a faster rate than older children and adults.
We monitor our vendors’ practices; however, we do not control these independent manufacturers, their business practices, their labor practices, their health and safety practices, the physical condition of their factories, worker dormitories or other facilities, the integrity of their information or other business systems, or from where they buy or otherwise source their raw materials or labor.
We monitor our vendors’ practices; however, we do not control these independent manufacturers, their business practices, their labor practices, their health and safety practices, the physical condition of their factories, worker dormitories or other facilities, the integrity of their information or other business systems, or from where they 16 Table of Contents buy or otherwise source their raw materials or labor.
For example, the recent outbreak of respiratory and other illnesses caused by the COVID-19 virus, has led to worldwide work and travel restrictions which in turn has led to textile mill and factory closures and delays in reopening, and delays in workers returning to work, which have affected our third-party manufacturers.
For example, the outbreak of respiratory and other illnesses, including those caused by the COVID-19 virus, has led to worldwide work and travel restrictions which in turn has led to textile mill and factory closures and delays in reopening, and delays in workers returning to work, which have affected our third-party manufacturers.
Maxx and Marshall’s (each of which is a division of TJX Companies, Inc.), 19 Table of Contents Burlington Coat Factory, Inc., Kohl’s Corporation, Walmart Stores, Inc., and other department stores. We also compete with a wide variety of specialty stores, other national and regional retail chains, catalog companies, and e-commerce retailers, including Amazon.
Maxx and Marshall’s (each of which is a division of TJX Companies, Inc.), Burlington Coat Factory, Inc., Kohl’s Corporation, Walmart Stores, Inc., and other department stores. We also compete with a wide variety of specialty stores, other national and regional retail chains, catalog companies, and e-commerce retailers, including Amazon.
The nature of our target customer heightens the effects of unseasonable weather on our sales. Our target customer is a value conscious, lower to middle income mother buying for infants and younger children 22 Table of Contents primarily based on need rather than based on fashion, trend, or impulse.
The nature of our target customer heightens the effects of unseasonable weather on our sales. Our target customer is a value conscious, lower to middle income mother buying for infants and younger children primarily based on need rather than based on fashion, trend, or impulse.
Damage to, or prolonged interruption of operations at, any of these third-party facilities due to a work stoppage, pandemics or other health issues, such as COVID-19, weather conditions such as a tornado, hurricane or flood, other natural disaster, fire, or other event could have a material adverse effect on our business, financial position, results of operations, and cash flows.
Damage to, or prolonged interruption of operations at, any of the Company-operated or third-party facilities due to a work stoppage, pandemics or other health issues, such as COVID-19, weather conditions such as a tornado, hurricane or flood, other natural disaster, fire, or other event could have a material adverse effect on our business, financial position, results of operations, and cash flows.
Our cash flows are dependent on many factors, including: • seasonal fluctuations in our net sales and net income; • the continued operation of our store fleet and e-commerce websites; • the timing of inventory purchases for upcoming seasons, such as when to purchase merchandise for the back-to-school season; • vendor and other supplier terms and related conditions, which may be less favorable to us as a smaller company in comparison to larger companies; and • consumer sentiment, general business conditions, and economic uncertainty or slowdown, including as a result of events such as acts of terrorism, effects of war, pandemics, or other health issues such as COVID-19.
Our cash flows are dependent on many factors, including: • seasonal fluctuations in our net sales and net income; • the continued operation of our store fleet and e-commerce websites; • the timing of inventory purchases for upcoming seasons, such as when to purchase merchandise for the back-to-school season; • vendor and other supplier terms and related conditions, which may be less favorable to us as a smaller company in comparison to larger companies; and • consumer sentiment, general business conditions, including the high levels of inflation currently being experienced, and macro-economic uncertainty or slowdown, including as a result of events such as acts of terrorism, effects of war, pandemics, or other health issues such as COVID-19.
We will continue our store fleet optimization program, which is intended to address the accelerated consolidation of the brick and mortar retail channel resulting from the COVID-19 pandemic and to increase the profitability of our existing retail store fleet.
We will continue our store fleet optimization program in Fiscal 2023, which is intended to address the accelerated consolidation of the brick and mortar retail channel resulting from the COVID-19 pandemic and to increase the profitability of our existing retail store fleet.
The positioning of the Gymboree and the Sugar & Jade brands and their products, relative to our existing products, the fashion choices we make with respect to our products, and our ability to integrate the Gymboree and the Sugar & Jade brands and their products into our existing marketing, sourcing, inventory, sales/e-commerce, customer relations, and logistics operations and systems will be critical to our ability to leverage the Gymboree and the Sugar & Jade brands to expand our business.
The positioning of the Gymboree, Sugar & Jade and PJ Place brands and their products, relative to our existing products, the fashion choices we make with respect to our products, and our ability to integrate the Gymboree, Sugar & Jade and PJ Place brands and their products into our existing marketing, sourcing, inventory, sales/e-commerce, customer relations, and logistics operations and systems will be critical to our ability to leverage all of these brands to expand our business.
These occurrences create significant instability and uncertainty in the United States and elsewhere in the world, causing consumers to defer purchases or to not shop in retail stores in shopping malls, or preventing our suppliers and service providers from providing required products, services, or materials to us.
These occurrences create significant instability and uncertainty in the United States and elsewhere in the world, causing consumers to defer purchases or to not shop in retail stores in shopping malls, or preventing our suppliers and 14 Table of Contents service providers from providing required products, services, or materials to us.
The COVID-19 pandemic has significantly negatively affected the domestic and global economies, significantly disrupted global supply chains, and created significant disruption of businesses, lifestyles, and the financial and retail markets, including a significant disruption in consumer demand for children’s clothing and accessories.
Since its onset in 2020, the COVID-19 pandemic has significantly negatively affected the domestic and global economies, significantly disrupted global supply chains, and created significant disruption of businesses, lifestyles, and the financial and retail markets, including a significant disruption in consumer demand for children’s clothing and accessories.
Our efforts and technology to secure our computer network and systems may not be sufficient to defend us against all unauthorized attempts to access our employees’, customers’, vendors’ and/or our information. We have been and may be subject to attempts to gain unauthorized access to our computer network and systems, including emails.
Our efforts and technology to secure our computer network and systems may not be sufficient to defend us against all unauthorized attempts to access our employees’, customers’, vendors’ and/or our information. We have been and may be 20 Table of Contents subject to attempts to gain unauthorized access to our computer network and systems, including emails.
This is 18 Table of Contents particularly true with our target customer who is a value conscious, lower to middle income mother buying for infants and children based on need rather than based on fashion, trend, or impulse.
This is particularly true with our target customer who is a value conscious, lower to middle income mother buying for infants and children based on need rather than based on fashion, trend, or impulse.
Risks associated with our e-commerce business include: • risks associated with the failure of the computer systems that operate our website or the failure or disruption of our information technology and other business systems, including, but not limited to, inadequate system capacity, security breaches, computer viruses, human error, changes in programming, failure of third-parties to continue to support older systems or system upgrades, or unintended disruptions occasioned as a result of such upgrades, or migration of these services to new systems, including to the cloud; • inadequacy of disaster recovery processes and the failure to align these processes with business continuity plans; • the integration and relaunch of the Gymboree brand in our stores and via our e-commerce website, and the launch of our newest brand, Sugar & Jade; • consumer privacy and information security concerns and regulation; • changes in applicable federal, state, provincial, local, or international regulations; • disruptions in telephone service or power outages; • reliance on third parties for computer hardware and software, cloud-based computing services, updates (patches), as well as delivery of merchandise to our customers; • increased or unplanned costs associated with order fulfillment and delivery of merchandise to our customers; • rapid technology changes and changes in consumer shopping habits, including as a result of the COVID-19 pandemic, such as the significant increase in online shopping, including through the use of mobile devices and apps; • credit or debit card fraud; • the diversion of sales from our physical stores; • natural disasters or adverse weather conditions; • negative publicity related to the social media influencers we have engaged; 21 Table of Contents • negative customer reviews or influencer reviews on social media; and • liability for online advertising and content.
Risks associated with our e-commerce business include: • risks associated with the failure of the computer systems that operate our website or the failure or disruption of our information technology and other business systems, including, but not limited to, inadequate system capacity, security breaches, computer viruses, human error, changes in programming, failure of third-parties to continue to support older systems or system upgrades, or unintended disruptions occasioned as a result of such upgrades, or migration of these services to new systems, including to the cloud; • inadequacy of disaster recovery processes and the failure to align these processes with business continuity plans; • the integration of the Gymboree brand in our stores and via our e-commerce website, the continued progress of our Sugar & Jade brand, and the launch of our newest brand, PJ Place; • consumer privacy and information security concerns and regulation; • changes in applicable federal, state, provincial, local, or international regulations; • disruptions in telephone service or power outages; • reliance on third parties for computer hardware and software, cloud-based computing services, updates (patches), as well as delivery of merchandise to our customers; • increased or unplanned costs associated with order fulfillment and delivery of merchandise to our customers; • rapid technology changes and changes in consumer shopping habits, including as a result of the COVID-19 pandemic, such as the significant increase in online shopping, including through the use of mobile devices and apps; • credit or debit card fraud; • the diversion of sales from our physical stores; • natural disasters or adverse weather conditions; • negative publicity related to the social media influencers we have engaged; • negative customer reviews or influencer reviews on social media; and • liability for online advertising and content. 21 Table of Contents Problems in any one or more of these areas, individually or in aggregation, could have a material adverse effect on our business, financial position, results of operations, and cash flows, and could damage our reputation and brands.
A wide variety of factors can cause a decline in consumer confidence and spending which could have a material adverse effect on the retail and apparel industries and our operating results. The apparel industry is cyclical in nature and is particularly affected by adverse trends in the general economy.
A wide variety of factors can cause a decline in consumer confidence and spending which could have a material adverse effect on the retail and apparel industries and our business, financial position, results of operations, and cash flows. The apparel industry is cyclical in nature and is particularly affected by adverse trends in the general economy.
Furthermore, the global situation is changing rapidly and the Company cannot foresee whether the outbreak of COVID-19 and/or variant viruses will be effectively contained, nor can it predict the severity and duration of the pandemic’s impact.
Furthermore, the global situation is in a state of flux and the Company cannot foresee whether the outbreak of COVID-19 and/or variant viruses will be effectively contained, nor can it predict the severity and duration of the pandemic’s impact.
If a disruption occurs in the operation of ports through which our products are exported or imported ( e.g. , the impact of pandemics or other health issues, such as COVID-19) or along the various shipping routes, we and our vendors may have to ship some or all of our products from Asia, Africa, and other regions by air freight or to or from alternative shipping destinations in the United States or in foreign countries.
If a disruption occurs in the operation of ports through which our products are exported or imported, or along the various shipping routes, we and our vendors may have to ship some or all of our products from Asia, Africa, and other regions by air freight or to or from alternative shipping destinations in the United States or in foreign countries.
In order to comply with the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, accounting guidance or disclosure requirements by the SEC, guidance that may come from the Public Company Accounting Oversight Board (“PCAOB”), or changes in listing standards by the Nasdaq Global Select Market, we may be required to enhance our internal controls, hire additional personnel, and utilize additional outside legal, accounting, and advisory services, all of which could cause our general and administrative expenses to increase materially. 24 Table of Contents Changes to existing tax or other laws, authoritative or regulatory guidance, and regulations may have a material adverse effect on our financial statements.
In order to comply with the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, accounting guidance or disclosure requirements by the SEC, guidance that may come from the Public Company Accounting Oversight Board (“PCAOB”), or changes in listing standards by the Nasdaq Global Select Market, we may be required to enhance our internal controls, hire additional personnel, and utilize additional outside legal, accounting, and advisory services, all of which could cause our general and administrative expenses to increase materially.
In addition, our expanded marketing and advertising strategies to promote sales, including the sponsorship of sweepstakes, contests and donations, and an increased online presence through collaborations with social media influencers, may not generate sufficient interest in our products while exposing us to other risks. Any of these challenges could hinder our success in new markets or new distribution channels.
In addition, our expanded marketing and advertising strategies to promote sales, including the sponsorship of sweepstakes, contests and donations, and an increased online presence through collaborations with social media influencers, may not generate sufficient interest in our products while exposing us to other risks.
The significant disruptions caused by the COVID-19 pandemic, and all measures taken, and to be taken in the future, in response to it, including those described above, may have a material adverse effect on our business, financial position, results of operations, and cash flows. 13 Table of Contents RISKS RELATED TO BUSINESS STRATEGIES AND GLOBAL OPERATIONS We may not be able to successfully execute our business strategies.
The disruptions caused by the COVID-19 pandemic, and all measures taken, and to be taken in the future, in response to it, including those described above, may have a material adverse effect on our business, financial position, results of operations, and cash flows.
If we are unable to generate sufficient cash flows, we may not be able to fund our ongoing operations, planned capital expenditures, debt service requirements, or share repurchases, and we may be required to seek additional sources of liquidity.
If we are unable to generate sufficient cash flows, we may not be able to fund our ongoing operations, planned capital expenditures, debt service requirements, or share repurchases, and we may be required to seek additional sources of liquidity. Furthermore, as a retail company, we are inherently subject to the risk of inventory loss and theft.
Changes in management or in our organizational structure, particularly in the most senior positions, or inadequate or ineffective management, could have a material adverse effect on our business.
Our success depends upon the service and capabilities of our management team. Changes in management or in our organizational structure, particularly in the most senior positions, or inadequate or ineffective management, could have a material adverse effect on our business.
Our failure to protect our intellectual property rights could diminish the value of our brands, weaken our competitive position, and could have a material adverse effect on our business, reputation, financial position, results of operations, and cash flows. 23 Table of Contents Federal tax and other legislation has had and will continue to have a material effect on our business, financial position, results of operations, and cash flows.
Our failure to protect our intellectual property rights could diminish the value of our brands, weaken our competitive position, and could have a material adverse effect on our business, reputation, financial position, results of operations, and cash flows.
Our ability to fund our ongoing operations, capital expenditures, debt service requirements, share purchase programs and, prior to its temporary suspension due to the COVID-19 pandemic, payment of dividends will depend on our ability to generate cash flows.
Our ability to fund our ongoing operations, capital expenditures, debt service requirements, share purchase programs and payment of dividends will depend on our ability to generate cash flows.
Investors in the Company should consider the following risk factors as well as the other information contained herein: RISKS RELATED TO THE COVID-19 PANDEMIC The COVID-19 pandemic has significantly disrupted, and is expected to continue to significantly disrupt, our business, which in turn could have a material adverse effect on our business, financial position, results of operations, and cash flows.
RISKS RELATED TO THE COVID-19 PANDEMIC The COVID-19 pandemic has significantly disrupted, and is expected to continue to disrupt, our business, which in turn could have a material adverse effect on our business, financial position, results of operations, and cash flows.
If the severity and reach of the COVID-19 pandemic continues or increases, there may be significant and material disruptions to our supply chain and operations, and disruptions in the manufacture, shipment, and sale of our products, which would have a material adverse effect on our business, financial position, results of operations, and cash flows. 17 Table of Contents Our success depends upon the service and capabilities of our management team.
If the severity and reach of these illnesses continues or increases, there may be significant and material disruptions to our supply chain and operations, and disruptions in the manufacture, shipment, and sale of our products, which would have a material adverse effect on our business, financial position, results of operations, and cash flows.
Our business and success is materially dependent on retaining members of our senior leadership team, including our chief executive officer, and other key individuals within the organization, to formulate and execute the Company’s strategic and business plans. Leadership changes can be inherently difficult to manage and may cause material disruption to our business or management team.
Our business and success is materially dependent on retaining members of our senior leadership team, including our chief executive officer, and other key individuals within the organization, to formulate and execute the Company’s strategic and business plans.
The Financial Accounting Standards Board is continuing its convergence efforts with its international counterpart, the International Accounting Standards Board, to converge U.S. and International standards into one uniform set of accounting rules. The effect of changes in tax and other laws or changes in accounting rules or regulatory guidance on our financial statements could be significant.
Changes to existing tax or other laws, authoritative or regulatory guidance, and regulations may have a material adverse effect on our financial statements. The Financial Accounting Standards Board is continuing its convergence efforts with its international counterpart, the International Accounting Standards Board, to converge U.S. and International standards into one 24 Table of Contents uniform set of accounting rules.
Although we believe that we have the in-house capability to more efficiently source all of our products, our inability to do so, or our inability to find adequate sources to support our current needs for merchandise and future growth, could have a material adverse effect on our business, financial position, results of operations, and cash flows. 15 Table of Contents Our merchandise is shipped directly from manufacturers through third-party logistics providers to our or our third-party providers’ distribution and fulfillment centers, and in turn, to our stores, our e-commerce customers, and our international franchise partners and wholesale customers.
Although we believe that we have the in-house capability to more efficiently source all of our products, our inability to do so, or our inability to find adequate sources to support our current needs for merchandise and future growth, could have a material adverse effect on our business, financial position, results of operations, and cash flows.
This increased utilization has resulted and may continue to result in higher fulfillment costs for the Company. The significant disruption to the domestic and global economies and to the Company’s business may lead to additional triggering events that may indicate that the carrying value of certain assets, including inventories, long-lived assets, and intangibles, may not be recoverable.
These disruptions to the domestic and global economies and to the Company’s business may lead to additional triggering events that may indicate that the carrying value of certain assets, including inventories, long-lived assets, and intangibles, may not be recoverable.
The apparel industry is subject to significant pricing pressure caused by many factors, including intense competition, the highly promotional retail environment, the financial health of competitors, changes in consumer demand, and macroeconomic conditions. If these factors cause us to reduce our sales prices and we fail to sufficiently reduce our product costs or operating expenses, our profitability could decline.
The apparel industry is subject to significant pricing pressure caused by many factors, including intense competition, the highly promotional retail environment, the financial health of competitors, changes in consumer demand, and macroeconomic conditions.
If our landlords should suffer financial difficulty or if we are unable to successfully negotiate acceptable lease terms, including resulting from actions taken by the Company in response to the COVID-19 pandemic, it could have a material adverse effect on our business, financial position, results of operations, and cash flows.
We may not be able to continue to compete successfully against existing or future competition. If our landlords should suffer financial difficulty or if we are unable to successfully negotiate acceptable lease terms, it could have a material adverse effect on our business, financial position, results of operations, and cash flows.
If our agents, manufacturers, suppliers or freight operators experience negative financial consequences, our inability to use or find substitute providers to support our manufacturing and distribution needs in a timely manner could have a material adverse effect on our business, financial position, results of operations, and cash flows.
Our operating results depend, in material part, on the orderly, timely, and accurate operation of our shipping, receiving, and distribution processes, which depends, in material part, on our manufacturers’ adherence to shipping schedules, the availability of ships, shipping containers and shipping routes, and our third-party providers’ effective management of our domestic and international shipping functions, distribution processes, facilities, and capacity. 15 Table of Contents If our agents, manufacturers, suppliers or freight operators experience negative financial consequences, our inability to use or find substitute providers to support our manufacturing and distribution needs in a timely manner could have a material adverse effect on our business, financial position, results of operations, and cash flows.
In addition, changes in current tax law could adversely impact our business, financial position, results of operations, and cash flows. Other legislative, regulatory, and other actions which might be taken by federal or state governments are unpredictable and could have unforeseen consequences having a material adverse effect on our business.
Federal tax and other legislation has had and will continue to have a material effect on our business, financial position, results of operations, and cash flows. In addition, changes in current tax law could adversely impact our business, financial position, results of operations, and cash flows.
The COVID-19 pandemic has had, and will likely continue to have, a significant adverse effect on our business, financial position, results of operations, and cash flows.
Measures undertaken by governments, private organizations and individuals have addressed the pandemic and the disruption it has caused. Nonetheless, the COVID-19 pandemic is expected to continue to adversely affect business and personal life. The COVID-19 pandemic has had, and will likely continue to have adverse effects on our business, financial position, results of operations, and cash flows.
Any disruption in, or changes to, our consumer credit arrangements, including our private label credit card agreement, may adversely affect the ability of our customers to obtain consumer credit.
Changes in senior management could lead to an environment that lacks inspiration and/or a lack of commitment by our employees, which could have a material adverse effect on our business. Any disruption in, or changes to, our consumer credit arrangements, including our private label credit card agreement, may adversely affect the ability of our customers to obtain consumer credit.
Since the program was announced in 2013, we have closed 527 stores, including 78 stores closed in Fiscal 2021, and it is planned that this program will close 40 stores in Fiscal 2022.
Since the program was announced in 2013, we have closed 586 stores, including 59 stores closed in Fiscal 2022.
There can be no assurance that we will successfully complete any planned expansion or that any new business will be profitable or meet our expectations. In addition, a wholly-owned subsidiary of the Company acquired certain intellectual property and related assets of Gymboree Group, Inc. and related entities, including worldwide rights to the name “Gymboree”.
In addition, a wholly-owned subsidiary of the Company acquired certain intellectual property and related assets of Gymboree Group, Inc. and related entities, including worldwide rights to the name “Gymboree”. We have relaunched the Gymboree brand to expand our business across our retail stores, e-commerce, international, and wholesale businesses.
Senior level management establishes the “tone at the top” by which an environment of ethical values, operating style, and management philosophy is fostered. Changes in senior management could lead to an environment that lacks inspiration and/or a lack of commitment by our employees, which could have a material adverse effect on our business.
Leadership changes can be inherently difficult to manage and may cause material disruption to our management 17 Table of Contents team or our business operations and financial results. Senior level management establishes the “tone at the top” by which an environment of ethical values, operating style, and management philosophy is fostered.
A failure to properly execute our plans and business strategies, delays in executing our plans and business strategies, increased costs associated with executing on our plans and business strategies, or failure to identify alternative strategies could have a material adverse effect on our business, financial position, results of operations, and cash flows. 14 Table of Contents We depend on generating sufficient cash flows, together with our existing cash balances and availability under our credit facility, to fund our ongoing operations, capital expenditures, debt service requirements, share repurchases and, prior to its temporary suspension due to the COVID-19 pandemic, payment of dividends.
We depend on generating sufficient cash flows, together with our existing cash balances and availability under our credit facility, to fund our ongoing operations, capital expenditures, debt service requirements, share repurchases and payment of dividends.
We are subject to income taxes in the United States and foreign jurisdictions, including Canada and Hong Kong.
Other legislative, regulatory, and other actions which might be 23 Table of Contents taken by federal or state governments are unpredictable and could have unforeseen consequences having a material adverse effect on our business. We are subject to income taxes in the United States and foreign jurisdictions, including Canada and Hong Kong.
We have relaunched and plan to use the Gymboree brand to expand our business across our retail stores, e-commerce, international, and wholesale businesses. We also recently launched the Sugar & Jade brand in November 2021.
We also launched the Sugar & Jade brand in November 2021 and more recently, launched the PJ Place brand in October 2022.
Removed
In March 2020, the World Health Organization declared COVID-19 a global pandemic and the President of the United States declared a national emergency.
Added
ITEM 1A. RISK FACTORS. Investors in the Company should consider the following risk factors as well as the other information contained herein: RISKS RELATED TO BUSINESS STRATEGIES AND GLOBAL OPERATIONS We may not be able to successfully execute our business strategies.
Removed
From the onset of the pandemic and as new variants emerged, federal, state, and local governments and private entities mandated, and continue to mandate, various restrictions, including closure of businesses, closure of and limits on social, educational, entertainment, and other activities, travel restrictions, prohibitions and restrictions on public gatherings, social distancing, stay-at-home and work-from-home orders and advisories, the adoption of remote or hybrid learning models for schools and the quarantining of people who may have been exposed to the virus.
Added
Any of these challenges could hinder our success in new and existing markets or new and existing distribution channels. There can be no assurance that we will successfully complete any planned expansion or that any new business will be profitable or meet our expectations.
Removed
For example: • In March 2020, for the safety of customers and employees, we suspended retail store operations in the U.S. and Canada, which has had a significant adverse effect on the results of operations and the financial condition of our business. We reopened the majority of our stores during the last two weeks of June 2020.
Added
In addition, pursuant to GAAP, we are required to recognize an impairment charge when circumstances indicate that the carrying value of our indefinite-lived Gymboree tradename asset may not be recoverable.
Removed
The decision to reopen stores was driven by a number of factors, including evaluating the safety of the Company’s customers and employees, as well as an evaluation of guidance provided by the federal, state, and local governments.
Added
If a determination is made that the carrying value of the Gymboree tradename asset is not recoverable, the asset is written down to its estimated fair value. 13 Table of Contents A failure to properly execute our plans and business strategies, delays in executing our plans and business strategies, increased costs associated with executing on our plans and business strategies, or failure to identify alternative strategies could have a material adverse effect on our business, financial position, results of operations, and cash flows.
Removed
Our operating results depend, in material part, on the orderly, timely, and accurate operation of our shipping, receiving, and distribution processes, which depends, in material part, on our manufacturers’ adherence to shipping schedules, the availability of ships, shipping containers and shipping routes, and our third-party providers’ effective management of our domestic and international shipping functions, distribution processes, facilities, and capacity.
Added
These losses may be caused by error or misconduct of associates, customers, vendors or other third parties, including through organized retail crime and professional theft. Since the onset of the COVID-19 pandemic, the retail industry has generally experienced an increase in inventory shrinkage, and there can be no assurance that the measures we are taking will effectively reduce inventory shrinkage.
Removed
We may not be able to continue to compete successfully against existing or future competition.
Added
Although some level of inventory shrinkage is an unavoidable cost of doing business, if we were to experience higher rates of inventory shrinkage or incur increased security costs to combat inventory theft, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Removed
Problems in any one or more of these areas, individually or in aggregation, could have a material adverse effect on our business, financial position, results of operations, and cash flows, and could damage our reputation and brands.
Added
If these factors cause us to reduce our sales prices and we fail to sufficiently reduce our product costs or operating expenses, our profitability and cash flows could decline.
Added
Our merchandise is shipped directly from manufacturers through third-party logistics providers to our or our third-party providers’ distribution and fulfillment centers, and in turn, to our stores, our e-commerce customers, and our international franchise partners and wholesale customers.
Added
This increased utilization has resulted and may continue to result in higher fulfillment costs for the Company. • Due to delays in the manufacture, transportation and delivery of cargo during the COVID-19 pandemic, the Company had begun to factor in these delays in its inventory management planning.
Added
This has resulted in a material increase in the costs of transporting and importing the Company’s products from overseas factories. Also, in the event these deliveries arrive earlier than expected, we could experience materially increased costs and lower selling prices due to a need to dispose of excess inventory.
Added
The effect of changes in tax and other laws or changes in accounting rules or regulatory guidance on our financial statements could be significant.

Item 2. Properties

Properties — owned and leased real estate

5 edited+1 added−1 removed0 unchanged
Biggest changeFootage Current Lease Term Expiration Fort Payne, AL (1) Warehouse Distribution Center 700,000 Owned Ontario, Canada (2) Warehouse Distribution Center 95,000 4/30/2024 500 Plaza Drive, Secaucus, NJ (3) Corporate Offices 200,000 5/31/2029 Hong Kong, China (3) Product Support 22,800 4/30/2022 Brownsburg, Indiana (4) Warehouse Distribution Center 315,000 8/31/2024 ____________________________________________ (1) Supports our U.S. stores, wholesale, and e-commerce business.
Biggest changeFootage Current Lease Term Expiration Fort Payne, AL (1) Store Distribution Center / E-commerce Fulfillment Center 700,000 Owned Ontario, Canada (2) Store Distribution Center / E-commerce Fulfillment Center 95,000 4/30/2024 500 Plaza Drive, Secaucus, NJ (3) Corporate Offices 200,000 5/31/2029 Hong Kong, China (3) Product Support 22,800 4/30/2024 Brownsburg, Indiana (4) E-commerce Fulfillment Center 315,000 8/31/2024 Ontario, Canada (5) E-commerce Fulfillment Center 184,000 9/9/2024 ____________________________________________ (1) Supports our U.S. stores, wholesale, and e-commerce business.
Generally, we enter into initial lease terms ranging between 5-10 years at inception and provide for contingent rent based on sales in excess of specific minimums. We anticipate that we will be able to extend those leases which we wish to extend on satisfactory terms as they expire or relocate to more desirable locations.
Generally, we enter into initial lease terms ranging between 1-10 years at inception and provide for contingent rent based on sales in excess of specific minimums. We anticipate that we will be able to extend those leases which we wish to extend on satisfactory terms as they expire or relocate to more desirable locations.
(2) Supports our Canadian stores and our Canadian e-commerce business via a third-party provider. (3) Supports our U.S. stores, our e-commerce business, our Canadian stores, our international franchisees, and wholesale business. (4) Supports our U.S. e-commerce business via a third-party provider. The Company currently utilizes 315,000 square feet of space in the 694,000 square foot facility.
(2) Supports our Canadian stores and our Canadian e-commerce business . (3) Supports our U.S. stores, our e-commerce business, our Canadian stores, our international franchisees, and wholesale business. (4) Supports our U.S. e-commerce business via a third-party provider. The Company's third-party provider currently utilizes 315,000 square feet of space in the 694,000 square foot facility.
ITEM 2. PROPERTIES. We lease all of our existing store locations in the United States, Puerto Rico, and Canada, with lease terms expiring through 2030. The average unexpired lease term for our stores is approximately 1.2 years in the United States and Puerto Rico and in Canada.
ITEM 2. PROPERTIES. We lease all of our existing store locations in the United States, Puerto Rico, and Canada, with lease terms expiring through 2032. The average unexpired lease term for our stores is approximately 0.9 years in the United States, Puerto Rico, and Canada.
The following table sets forth information with respect to certain of our non-store locations as of January 29, 2022: Location Use Approximate Sq.
The following table sets forth information with respect to certain of our non-store locations as of January 28, 2023: Location Use Approximate Sq.
Removed
On occasion, we may utilize additional third-party facilities to support seasonal warehousing needs.
Added
Occupancy costs are based on transaction volume. (5) Supports our Canadian e-commerce business via a third-party provider. The Company's third-party provider currently utilizes 184,000 square feet of space in the 286,000 square foot facility. Occupancy costs are based on transaction volume. On occasion, we may utilize additional third-party facilities to support seasonal warehousing needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

2 edited+0 added−0 removed7 unchanged
Biggest changeThe parties reached an agreement in principle in April 2017, and signed a definitive settlement agreement in November 2017, to settle the matter on a class basis with all individuals in the U.S. who made a qualifying purchase at The Children’s Place from February 11, 2012 through January 28, 2020, the date of preliminary approval by the court of the settlement.
Biggest changeThe parties reached an agreement in principle in April 2017, and signed a definitive settlement agreement in November 2017, to settle the matter on a class basis with all individuals in the U.S. who made a qualifying purchase at The Children’s Place from February 25 Table of Contents 11, 2012 through January 28, 2020, the date of preliminary approval by the court of the settlement.
The Company submitted its memorandum in support of final approval of the class settlement on March 2, 2021. On March 29, 2021, the court granted final 25 Table of Contents approval of the class settlement and denied plaintiff’s motion for attorney’s fees, with the amount of attorney’s fees to be decided after the class recovery amount has been determined.
The Company submitted its memorandum in support of final approval of the class settlement on March 2, 2021. On March 29, 2021, the court granted final approval of the class settlement and denied plaintiff’s motion for attorney’s fees, with the amount of attorney’s fees to be decided after the class recovery amount has been determined.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+1 added−2 removed4 unchanged
Biggest changeThe following table summarizes our share repurchases: Fiscal Years Ended January 29, 2022 January 30, 2021 Shares Amount Shares Amount (in thousands) Share repurchases related to: Share repurchase program 1,025 $ 85,648 294 $ 15,490 Shares acquired and held in treasury 4 $ 278 6 $ 209 The following table provides a month-to-month summary of our share repurchase activity during the 13 weeks ended January 29, 2022: 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 10/31/21-11/27/21 (1) 63,613 $ 96.47 62,907 $ 291,682 11/28/21-1/1/22 (2) 224,926 82.66 224,926 273,089 1/2/22-1/29/22 218,800 72.20 218,800 257,292 Total 507,339 $ 79.88 506,633 $ 257,292 ____________________________________________ (1) Includes 706 shares acquired as treasury stock as directed by participants in the Company’s deferred compensation plan and 158 shares withheld to cover taxes in conjunction with the vesting of stock awards.
Biggest changeThe following table summarizes our share repurchases: Fiscal Years Ended January 28, 2023 January 29, 2022 Shares Amount Shares Amount (in thousands) Share repurchases related to: Share repurchase program 1,953 $ 92,945 1,025 $ 85,648 Shares acquired and held in treasury 6 $ 293 4 $ 278 The following table provides a month-to-month summary of our share repurchase activity during the 13 weeks ended January 28, 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 10/30/22-11/29/22 (1) 373,055 $ 37.76 371,130 $ 164,367 11/30/22-12/31/22 — — — 164,367 1/1/23-1/28/23 (2) 411 35.64 411 164,352 Total 373,466 $ 37.76 371,541 $ 164,352 ____________________________________________ (1) Includes 1,925 shares acquired as treasury stock as directed by participants in the Company’s deferred compensation plan and 30 shares withheld to cover taxes in conjunction with the vesting of stock awards.
In November 2021, our Board of Directors approved another $250.0 million share repurchase program, which added to the remaining availability under the 2018 Share Repurchase Program. Under these programs, we may repurchase shares on the open market at current market prices at the time of purchase or in privately negotiated transactions.
In November 2021, our Board of Directors approved another $250.0 million share repurchase program (the “2021 Share Repurchase Program”), which added to the then remaining availability under the 2018 Share Repurchase Program. Under these programs, we may repurchase shares on the open market at current market prices at the time of purchase or in privately negotiated transactions.
(2) Includes 1,188 shares withheld to cover taxes in conjunction with the vesting of stock awards. 27 Table of Contents Equity Plan Compensation Information On May 20, 2011, our shareholders approved the 2011 Equity Incentive Plan (the “2011 Equity Plan”).
(2) Includes 411 shares withheld to cover taxes in conjunction with the vesting of stock awards. 27 Table of Contents Equity Plan Compensation Information On May 20, 2011, our shareholders approved the 2011 Equity Incentive Plan (the “2011 Equity Plan”).
COLUMN (A) COLUMN (B) COLUMN (C) Plan Category Securities to be issued upon exercise of outstanding options Weighted average exercise price of outstanding options Securities remaining available for future issuances under equity compensation plans (excluding securities reflected in Column (A)) Equity Compensation Plans Approved by Security Holders N/A N/A 596,216 Equity Compensation Plans Not Approved by Security Holders N/A N/A N/A Total N/A N/A 596,216 28 Table of Contents Performance Graph The following graph compares the cumulative stockholder return on our Common Stock with the return of companies comprising the NASDAQ US Benchmark TR Index and the NASDAQ US Benchmark Retail TR Index.
COLUMN (A) COLUMN (B) COLUMN (C) Plan Category Securities to be issued upon exercise of outstanding options Weighted average exercise price of outstanding options Securities remaining available for future issuances under equity compensation plans (excluding securities reflected in Column (A)) Equity Compensation Plans Approved by Security Holders N/A N/A 599,906 Equity Compensation Plans Not Approved by Security Holders N/A N/A N/A Total N/A N/A 599,906 Performance Graph The following graph compares the cumulative stockholder return on our Common Stock with the return of companies comprising the NASDAQ US Benchmark TR Index and the NASDAQ US Benchmark Retail TR Index.
The following table provides information as of January 29, 2022, about the shares of our Common Stock that may be issued under our equity compensation plans.
The following table provides information as of January 28, 2023, about the shares of our Common Stock that may be issued under our equity compensation plans.
FY17 FY18 FY19 FY20 FY21 The Children's Place---"PLCE" $ 145.60 $ 92.13 $ 59.67 $ 73.47 $ 70.44 NASDAQ US Benchmark TR Index 2,344.18 2,335.10 2,819.09 3,406.63 3,963.21 NASDAQ US Benchmark Retail TR Index 3,026.13 3,240.82 3,768.85 5,214.30 5,453.85
FY18 FY19 FY20 FY21 FY22 The Children's Place---"PLCE" $ 92.13 $ 59.67 $ 73.47 $ 70.44 $ 43.60 NASDAQ US Benchmark TR Index 2,335.10 2,819.09 3,406.63 3,963.21 3,687.47 NASDAQ US Benchmark Retail TR Index 3,240.82 3,768.85 5,214.30 5,453.85 4,647.98
On March 18, 2022, the number of holders of record of our common stock was 38 and the number of beneficial holders of our common stock was approximately 24,000. In March 2018, our Board of Directors authorized a $250.0 million share repurchase program (the “2018 Share Repurchase Program”).
On March 21, 2023, the number of holders of record of our common stock was 39 and the number of beneficial holders of our common stock was approximately 22,000. In March 2018, our Board of Directors authorized a $250.0 million share repurchase program (the “2018 Share Repurchase Program”).
As of January 29, 2022, there was $257.3 million remaining under these programs. From March 2020 through July 2021, we suspended share repurchases, other than to satisfy withholding tax requirements of equity award recipients, due to the COVID-19 pandemic.
As of January 28, 2023, the 2018 Share Repurchase Program was exhausted, and there was $164.4 million remaining under the 2021 Share Repurchase Program. From March 2020 through July 2021, we suspended share repurchases, other than to satisfy withholding tax requirements of equity award recipients, due to the COVID-19 pandemic.
Removed
The graph and the table below assume that $100 was invested on January 27, 2017 in each of our Common Stock, the NASDAQ US Benchmark TR Index and the NASDAQ US Benchmark Retail TR Index.
Added
The graph and the table below assume that $100 was invested on February 2, 2018 in each of our Common Stock, the NASDAQ US Benchmark TR Index and the NASDAQ US Benchmark Retail TR Index. 28 Table of Contents FY18 FY19 FY20 FY21 FY22 The Children's Place---"PLCE" $ 67.56 $ 42.87 $ 52.79 $ 50.61 $ 31.32 NASDAQ US Benchmark TR Index 99.61 120.26 145.32 169.07 157.30 NASDAQ US Benchmark Retail TR Index 107.09 124.54 172.31 180.23 153.59 The table below sets forth the closing price of our Common Stock and the closing indices for the NASDAQ US Benchmark TR Index and the NASDAQ US Benchmark Retail TR Index on the last day of each of our last five fiscal years.
Removed
FY17 FY18 FY19 FY20 FY21 The Children's Place---"PLCE" $ 155.72 $ 105.20 $ 66.76 $ 82.20 $ 78.81 NASDAQ US Benchmark TR Index 122.14 121.66 146.88 177.49 206.49 NASDAQ US Benchmark Retail TR Index 134.78 144.34 167.86 232.24 242.91 The table below sets forth the closing price of our Common Stock and the closing indices for the NASDAQ US Benchmark TR Index and the NASDAQ US Benchmark Retail TR Index on the last day of each of our last five fiscal years.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

65 edited+31 added−39 removed50 unchanged
Biggest changeIncluded among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by changes in economic conditions, the risks related to the COVID-19 pandemic, including the impact of the COVID-19 pandemic on our business or the economy in general (including decreased customer traffic, schools adopting remote and hybrid learning models, closures of businesses and other activities causing decreased demand for our products and negative impacts on our customers’ spending patterns due to decreased income or actual or perceived wealth, and the impact of the CARES Act and other legislation related to the COVID-19 pandemic, and any changes to the CARES Act or such other legislation), the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions and disruptions in the Company’s global supply chain, including resulting from the COVID-19 pandemic or other disease outbreaks, or foreign sources of supply in less developed countries or more politically unstable countries, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, various types of litigation, including class action litigations brought under consumer protection, employment, and privacy and information security laws and regulations, the imposition of regulations affecting the importation of foreign-produced merchandise, including duties and tariffs, and the uncertainty of weather patterns.
Biggest changeIncluded among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by changes in economic conditions (including inflation), the risks related to the COVID-19 pandemic, including the impact of the COVID-19 pandemic on our business or the economy in general, the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions, disruptions and higher costs in the Company’s global supply chain, including resulting from COVID-19 or other disease outbreaks, foreign sources of supply in less developed countries, more politically unstable countries, or countries where vendors fail to comply with industry standards or ethical business practices, including the use of forced, indentured or child labor, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases in inputs through value engineering or price increases, various types of litigation, including class action litigations brought under consumer protection, employment, and privacy and information security laws and regulations, the imposition of regulations affecting the importation of foreign-produced merchandise, including duties and tariffs, and the uncertainty of weather patterns.
Both the ABL Credit Facility and the Term Loan contain customary events of default, which include (subject in certain cases to customary grace and cure periods), nonpayment of principal or interest, breach of other covenants, failure to pay certain other indebtedness, and certain events of bankruptcy, insolvency or reorganization.
Both the ABL Credit Facility and the Term Loan contain customary events of default, which include (subject in certain cases to customary grace and cure periods), nonpayment of principal or interest, breach of covenants, failure to pay certain other indebtedness, and certain events of bankruptcy, insolvency or reorganization.
ABL Credit Facility and Term Loan We and certain of our subsidiaries maintain a $350 million ABL Credit Facility and a $50 million Term Loan with Wells Fargo Bank, National Association (“Wells Fargo”), Truist Bank, Bank of America, N.A., HSBC Business Credit (USA) Inc., and JPMorgan Chase Bank, N.A., as lenders (collectively, the “Lenders”) and Wells Fargo, as Administrative Agent, Collateral Agent, Swing Line Lender and Term Agent.
ABL Credit Facility and Term Loan We and certain of our subsidiaries maintain a $350.0 million ABL Credit Facility and a $50.0 million Term Loan with Wells Fargo Bank, National Association (“Wells Fargo”), Truist Bank, Bank of America, N.A., HSBC Business Credit (USA) Inc., and JPMorgan Chase Bank, N.A., as lenders (collectively, the “Lenders”) and Wells Fargo, as Administrative Agent, Collateral Agent, Swing Line Lender and Term Agent.
Segment Reporting In accordance with FASB ASC 280— Segment Reporting , we report segment data based on geography: The Children’s Place U.S. and The Children’s Place International. Each segment includes an e-commerce business located at www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com .
Segment Reporting In accordance with FASB ASC 280— Segment Reporting , we report segment data based on geography: The Children’s Place U.S. and The Children’s Place International. Each segment includes an e-commerce business located at www.childrensplace.com, www.gymboree.com, www.sugarandjade.com, and www.pjplace.com .
We design, contract to manufacture, sell at retail and wholesale, and license to sell trend right, high quality merchandise predominantly at value prices, primarily under our proprietary “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, and “Sugar & Jade” brand names.
We design, contract to manufacture, sell at retail and wholesale, and license to sell, trend right, high quality merchandise predominantly at value prices, primarily under our proprietary “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place” brand names.
Credit extended under the ABL Credit Facility is secured by a first priority security interest in substantially all of the Company’s U.S. and Canadian assets other than intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the Company’s intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock.
Credit extended under the ABL Credit Facility is secured by a first priority security interest in substantially all of our U.S. and Canadian assets other than intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in our intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock.
The ABL Credit Facility includes a $25 million Canadian sublimit and a $50 million sublimit for standby and documentary letters of credit.
The ABL Credit Facility includes a $25.0 million Canadian sublimit and a $50.0 million sublimit for standby and documentary letters of credit.
The Term Loan is secured by a first priority security interest in the Company’s intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the collateral securing the ABL Credit Facility on a first-priority basis.
The Term Loan is secured by a first priority security interest in our intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the collateral securing the ABL Credit Facility on a first-priority basis.
Comparable Retail Sales do not exclude any temporarily closed stores impacted by the COVID-19 pandemic. • Gross Margin — Gross profit expressed as a percentage of net sales • SG&A — Selling, general, and administrative expenses OVERVIEW Our Business We are the largest pure-play children’s specialty apparel retailer in North America.
Comparable Retail Sales do not exclude any temporarily closed stores impacted by the COVID-19 pandemic. 30 Table of Contents • Gross Margin — Gross profit expressed as a percentage of net sales • SG&A — Selling, general, and administrative expenses OVERVIEW Our Business We are the largest pure-play children’s specialty apparel retailer in North America.
Our ability to continue to meet our capital requirements in Fiscal 2022 depends on our cash on hand, our ability to generate cash flows from operations, and available borrowings under our ABL Credit Facility. Cash flows generated from operations depends on our ability to achieve our financial plans.
Our ability to continue to meet our capital requirements in Fiscal 2023 depends on our cash on hand, our ability to generate cash flows from operations, and available borrowings under our ABL Credit Facility. Cash flows generated from operations depends on our ability to achieve our financial plans.
The outstanding obligations under the ABL Credit Facility may be accelerated upon the occurrence of certain events, including, among others, non-payment, breach of covenants, the institution of insolvency proceedings, defaults under other 37 Table of Contents material indebtedness, and a change of control, subject, in the case of certain defaults, to the expiration of applicable grace periods.
The outstanding obligations under the ABL Credit Facility may be accelerated upon the occurrence of certain events, including, among others, non-payment, breach of covenants, the institution of insolvency proceedings, defaults under other material indebtedness, and a change of control, subject, in the case of certain defaults, to the expiration of applicable grace periods.
For Performance Awards granted in Fiscal 2021, employees may earn from 0% to 300% of their Target Shares and for Performance Awards granted in Fiscal 2020 and Fiscal 2019, employees may earn from 0% to 250% of their Target Shares, based on the terms of the award and our achievement of certain performance goals established at the beginning of the applicable service period.
For Performance Awards granted in Fiscal 2022, employees may earn from 0% to 200% of their Target Shares, for Performance Awards granted in Fiscal 2021, employees earn from 0% to 300% of their Target Shares, and for Performance Awards granted in Fiscal 2020, employees may earn from 0% to 250% of their Target Shares, based on the terms of the award and our achievement of certain performance goals established at the beginning of the applicable service period.
Estimates may differ from actual results due to the quantity, quality, and mix of products in inventory, 34 Table of Contents consumer and retailer preferences, and market conditions such as those resulting from disease pandemics and other catastrophic events.
Estimates may differ from actual results due to the quantity, quality, and mix of products in inventory, consumer and retailer preferences, and market conditions such as those resulting from disease pandemics and other catastrophic events.
The amount available for loans and letters of credit under the Credit Agreement is determined by a borrowing base consisting of certain credit card receivables, certain trade receivables, certain inventory, and the fair market value of certain real estate, subject to certain reserves.
The amount available for loans and letters of credit under the ABL Credit Facility is determined by a borrowing base consisting of certain credit card receivables, certain trade receivables, certain inventory, and the fair market value of certain real estate, subject to certain reserves.
Some of these risks and uncertainties are described in the Company’s filings with the Securities and Exchange Commission, including in Part I, Item 1A. Risk Factors of this Annual Report on Form 10-K for the fiscal year ended January 29, 2022.
Some of these risks and uncertainties are described in the Company’s filings with the Securities and Exchange Commission, including in Part I, Item 1A. Risk Factors of this Annual Report on Form 10-K for the fiscal year ended January 28, 2023.
Other terms that are commonly used in our Management’s Discussion and Analysis of Financial Condition and Results of Operations are defined as follows: • Fiscal 2021 — The fifty-two weeks ended January 29, 2022 • Fiscal 2020 — The fifty-two weeks ended January 30, 2021 • Fiscal 2019 — The fifty-two weeks ended February 1, 2020 • Fiscal 2022 — Our next fiscal year representing the fifty-two weeks ending January 28, 2023 • SEC — U.S.
Other terms that are commonly used in our Management’s Discussion and Analysis of Financial Condition and Results of Operations are defined as follows: • Fiscal 2022 — The fifty-two weeks ended January 28, 2023 • Fiscal 2021 — The fifty-two weeks ended January 29, 2022 • Fiscal 2020 — The fifty-two weeks ended January 30, 2021 • Fiscal 2023 — Our next fiscal year representing the fifty-three weeks ending February 3, 2024 • SEC — U.S.
Conversely, if our sales decrease or if our costs grow at a faster pace than our sales (i.e., “de-leveraging”), we have less efficiently utilized the investments we have made in our business.
Conversely, if our sales decrease or if our costs grow at a faster pace than our sales (i.e., “deleveraging”), we have less efficiently utilized the investments we have made in our business.
If, in the future, we determine that we would not be able to realize our recorded deferred tax assets, an increase in the valuation allowance would decrease earnings in the period in which such determination is made.
If, in the future, we determine that we would not be able to 33 Table of Contents realize our recorded deferred tax assets, an increase in the valuation allowance would decrease earnings in the period in which such determination is made.
External factors comprise the local environment 33 Table of Contents in which the store resides, including mall traffic, competition, and their effect on sales trends, as well as macroeconomic factors, such as the global pandemic.
External factors comprise the local environment in which the store resides, including mall traffic, competition, and their effect on sales trends, as well as macroeconomic factors, such as the global pandemic.
In addition, at January 29, 2022, we had $7.4 million of outstanding letters of credit with an additional $42.6 million available for issuing letters of credit under our ABL Credit Facility.
In addition, at January 28, 2023, we had $7.4 million of outstanding letters of credit with an additional $42.6 million available for issuing letters of credit under our ABL Credit Facility.
The table below summarizes the average translation rates that most significantly impact our operating results: Fiscal Years Ended January 29, 2022 January 30, 2021 February 1, 2020 Average Translation Rates (1) Canadian dollar 0.7986 0.7481 0.7550 Hong Kong dollar 0.1286 0.1290 0.1277 Chinese renminbi 0.1548 0.1459 0.1446 ____________________________________________ (1) The average translation rates are the average of the monthly translation rates used during each fiscal year to translate the respective income statements.
The table below summarizes the average translation rates that most significantly impact our operating results: Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 Average Translation Rates (1) Canadian dollar 0.7469 0.7986 0.7481 Hong Kong dollar 0.1277 0.1286 0.1290 Chinese renminbi 0.1432 0.1548 0.1459 ____________________________________________ (1) The average translation rates are the average of the monthly translation rates used during each fiscal year to translate the respective income statements.
For example, SG&A decreased approximately 410 basis points to 24.0% of net sales during Fiscal 2021 from 28.1% during Fiscal 2020. Accordingly, to the extent that our sales have increased at a faster rate than our costs (i.e., “leveraging”), the more efficiently we have utilized the investments we have made in our business.
For example, SG&A increased approximately 300 basis points to 27.0% of net sales during Fiscal 2022 from 24.0% during Fiscal 2021. Accordingly, to the extent that our sales have increased at a faster rate than our costs (i.e., “leveraging”), the more efficiently we have utilized the investments we have made in our business.
As of January 29, 2022 and January 30, 2021, unamortized deferred financing costs amounted to $2.9 million and $3.6 million, respectively, of which $2.6 million and $1.2 million, respectively, related to our asset-based revolving credit facility.
As of January 28, 2023 and January 29, 2022, unamortized deferred financing costs amounted to $2.3 million and $2.9 million, respectively, of which $2.0 million and $2.6 million, respectively, related to our asset-based revolving credit facility.
These covenants also limit the ability of the Company and its subsidiaries to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, or dispositions or to change the nature of its business.
These covenants also limit our ability to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, or dispositions, or to change the nature of our business.
On November 16, 2021, we completed the refinancing of our previous $360.0 million asset-based revolving credit facility (the “Previous ABL Credit Facility”) and our previous $80.0 million term loan (the “Previous Term Loan”) with a new lending group led by an affiliate of Wells Fargo Bank, National Association (“Wells Fargo”) by entering into a fourth amendment to our Credit Agreement, dated as of May 9, 2019, with the lenders party thereto (the “Fourth Amendment”).
On November 16, 2021, we completed the refinancing of the previous $360.0 million asset-based revolving credit facility (the “Previous ABL Credit Facility”) and our previous $80.0 million term loan (the “Previous Term Loan”) with a new lending group led by an affiliate of Wells Fargo by entering into the Fourth Amendment to our Credit Agreement with the lenders party thereto.
A store that is closed for a substantial remodel, relocation, or material change in size will be excluded from Comparable Retail Sales for at least 14 months beginning in the fiscal quarter in which the closure occurred.
A store that is closed for a substantial remodel, relocation, or material change in size will be excluded from Comparable Retail Sales for at least 14 months beginning in the fiscal quarter in which the closure occurred. However, stores that temporarily close will be excluded from Comparable Retail Sales until the store is re-opened for a full fiscal month.
These factors, among others, may cause gross profit as a percentage of net sales to fluctuate from period to period. Selling, general, and administrative expenses increased $31.0 million, or 7.2%, to $459.2 million during Fiscal 2021 from $428.2 million during Fiscal 2020.
These factors, among others, may cause gross profit as a percentage of net sales to fluctuate from period to period. Selling, general, and administrative expenses increased $1.8 million, or 0.4%, to $461.0 million during Fiscal 2022 from $459.2 million during Fiscal 2021.
Fiscal Years Ended January 29, 2022 January 30, 2021 February 1, 2020 Net sales 100.0 % 100.0 % 100.0 % Cost of sales (exclusive of depreciation and amortization) 58.5 78.1 65.0 Gross profit 41.5 21.9 35.0 Selling, general, and administrative expenses 24.0 28.1 25.6 Depreciation and amortization 3.0 4.4 4.0 Asset impairment charges 0.1 2.5 0.3 Operating income (loss) 14.4 (13.1) 5.2 Income (loss) before provision (benefit) for income taxes 13.4 (13.9) 4.7 Provision (benefit) for income taxes 3.6 (4.7) 0.8 Net income (loss) 9.8 % (9.2) % 3.9 % Number of Company stores, end of period 672 749 924 The following table sets forth net sales by segment, for the periods indicated: Fiscal Years Ended January 29, 2022 January 30, 2021 February 1, 2020 (in thousands) Net sales: The Children’s Place U.S. $ 1,723,887 $ 1,372,079 $ 1,671,165 The Children’s Place International 191,477 150,519 199,502 Total net sales $ 1,915,364 $ 1,522,598 $ 1,870,667 Fiscal 2021 Compared to Fiscal 2020 Net sales increased $392.8 million, or 25.8%, to $1.915 billion during Fiscal 2021 from $1.523 billion during Fiscal 2020.
Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 Net sales 100.0 % 100.0 % 100.0 % Cost of sales (exclusive of depreciation and amortization) 69.9 58.5 78.1 Gross profit 30.1 41.5 21.9 Selling, general, and administrative expenses 27.0 24.0 28.1 Depreciation and amortization 3.0 3.0 4.4 Asset impairment charges 0.2 0.1 2.5 Operating income (loss) (0.1) 14.4 (13.1) Income (loss) before provision (benefit) for income taxes (0.9) 13.4 (13.9) Provision (benefit) for income taxes (0.8) 3.6 (4.7) Net income (loss) (0.1) % 9.8 % (9.2) % Number of Company stores, end of period 613 672 749 The following table sets forth net sales by segment, for the periods indicated: Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 (in thousands) Net sales: The Children’s Place U.S. $ 1,533,934 $ 1,723,887 $ 1,372,079 The Children’s Place International 174,548 191,477 150,519 Total net sales $ 1,708,482 $ 1,915,364 $ 1,522,598 Fiscal 2022 Compared to Fiscal 2021 Net sales decreased $206.9 million, or 10.8%, to $1.708 billion during Fiscal 2022 from $1.915 billion during Fiscal 2021.
The Term Loan is guaranteed by each of the Company’s subsidiaries that guarantee the ABL Credit Facility and shares substantially the same covenants as provided in the ABL Credit Facility.
The Term Loan is guaranteed by each of our subsidiaries that guarantees the ABL Credit Facility and contains substantially the same covenants as provided in the ABL Credit Facility.
In November 2021, our Board of Directors approved another $250.0 million share repurchase program, which added to the remaining availability under the 2018 Share Repurchase Program.
In March 2018, our Board of Directors authorized a $250.0 million share repurchase program (the “2018 Share Repurchase Program”). In November 2021, our Board of Directors approved another $250.0 million share repurchase program (the “2021 Share Repurchase Program”), which added to the then remaining availability under the 2018 Share Repurchase Program.
We are charged an unused line fee of 0.20% on the unused portion of the commitments. Letter of credit fees range from 0.563% to 0.683% for commercial letters of credit and range from 0.625% to 0.875% for standby letters of credit. Letter of credit fees are determined based on the amount of our average excess availability under the facility.
Letter of credit fees range from 0.563% to 0.683% for commercial letters of credit and range from 0.625% to 0.875% for standby letters of credit. Letter of credit fees are determined based on the amount of our average excess availability under the facility.
Asset impairment charges during Fiscal 2020 were $38.5 million, inclusive of ROU assets, primarily related to 419 stores. These charges were related to underperforming stores identified in our ongoing store portfolio evaluation primarily as a result of decreased net sales and cash flow projections. Depreciation and amortization was $58.4 million during Fiscal 2021, compared to $66.4 million during Fiscal 2020.
Asset impairment charges were $3.3 million during Fiscal 2022, inclusive of ROU assets, compared to $1.5 million during Fiscal 2021. These charges were related to underperforming stores identified in our ongoing store portfolio evaluation primarily as a result of decreased net sales and cash flow projections.
The table below presents the components of our ABL Credit Facility and Previous ABL Credit Facility: January 29, 2022 January 30, 2021 (in millions) Credit facility maximum $ 350.0 $ 360.0 Borrowing base (1) 279.7 282.2 Outstanding borrowings 175.3 169.8 Letters of credit outstanding—standby 7.4 8.2 Utilization of credit facility at end of period 182.7 178.0 Availability (2) $ 97.0 $ 104.2 Interest rate at end of period 1.6% 4.2% Fiscal Years Ended January 29, 2022 January 30, 2021 Average end of day loan balance during the period $ 187.0 $ 216.2 Highest end of day loan balance during the period 269.7 275.6 Average interest rate 3.6% 3.8% ____________________________________________ (1) Lower of the credit facility maximum or the total borrowing base collateral.
The table below presents the components of our ABL Credit Facility and Previous ABL Credit Facility: January 28, 2023 January 29, 2022 (in millions) Credit facility maximum $ 350.0 $ 350.0 Borrowing base (1) 350.0 279.7 Outstanding borrowings 287.0 175.3 Letters of credit outstanding—standby 7.4 7.4 Utilization of credit facility at end of period 294.4 182.7 Availability (2) (3) $ 55.6 $ 97.0 Interest rate at end of period 5.9% 1.6% Fiscal Years Ended January 28, 2023 January 29, 2022 Average end of day loan balance during the period $ 274.9 $ 187.0 Highest end of day loan balance during the period $ 297.7 $ 269.7 Average interest rate 3.7% 3.6% ____________________________________________ (1) Lower of the credit facility maximum or the total borrowing base collateral.
For Fiscal 2021, we recognized $5.9 million in interest expense related to the Term Loan and the Previous Term Loan.
For Fiscal 2022, Fiscal 2021, and Fiscal 2020, we recognized $2.3 million, $5.9 million and $2.6 million, respectively, in interest expense related to the Term Loan and the Previous Term Loan.
The new debt consists of a revolving credit facility with $350.0 million of availability and a $50.0 million term loan. (See “Revolving Credit Facility and Term Loan” below for further information).
The new debt consists of a $350.0 million asset-based revolving credit facility (the “ABL Credit Facility”) and a $50.0 million term loan (the “Term Loan”). See “ABL Credit Facility and Term Loan” below for further information.
This Annual Report on Form 10-K contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives.
This Annual Report on Form 10-K contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives and results of operations, including adjusted net income (loss) per diluted share.
This decrease was primarily driven by reduced depreciation of capitalized software, the permanent closure of 78 stores during Fiscal 2021, and a decrease in net book value as a result of the impairment charges recorded in Fiscal 2020.
Depreciation and amortization was $51.5 million during Fiscal 2022, compared to $58.4 million during Fiscal 2021. This decrease was primarily driven by reduced depreciation of capitalized software, the permanent closure of 59 stores during Fiscal 2022, and a decrease in net book value as a result of the impairment charges recorded in Fiscal 2022.
Forward-looking statements typically are identified by use of terms such as “may”, “will”, “should”, “plan”, “project”, “expect”, “anticipate”, “estimate”, and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company’s current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially.
Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate,” and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company’s current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially.
As of January 29, 2022, we had 672 stores across North America, our e-commerce business at www.childrensplace.com, www.gymboree.com , and www.sugarandjade.com, and had 211 international points of distribution with our seven franchise partners in 16 countries.
As of January 28, 2023, we had 613 stores across North America, our e-commerce business at www.childrensplace.com, www.gymboree.com , www.sugarandjade.com, and www.pjplace.com, and had 220 international points of distribution with our five franchise partners in 15 countries.
Cash provided by operating activities during Fiscal 2021 was primarily the result of earnings generated during the period, partially offset by planned changes in working capital, which brought our vendor 38 Table of Contents payables in line with historical payment terms.
Cash generated from operating activities during Fiscal 2021 was primarily the result of earnings generated during the period, partially offset by planned changes in working capital, which brought our vendor payables in line with historical payment terms. Cash used in investing activities was $45.9 million during Fiscal 2022, compared to $29.3 million during Fiscal 2021.
Our primary uses of cash are for working capital requirements, which are principally inventory purchases, the financing of capital projects, including investments in new systems, and for the capital return program (other than payment of dividends, which continue to be temporarily suspended due to the COVID-19 pandemic).
Our primary uses of cash are for working capital requirements, which are principally inventory purchases, the financing of capital projects, including investments in new systems, and for the capital return program.
Net income increased $327.6 million to $187.2 million, or $12.59 per diluted share, during Fiscal 2021, compared to a net loss of $140.4 million, or $9.59 per share, during Fiscal 2020, due to the factors discussed above.
Net income (loss) decreased to a loss of $1.1 million, or $(0.09) per diluted share, during Fiscal 2022, compared to income of $187.2 million, or $12.59 per share, during Fiscal 2021, due to the factors discussed above. Fiscal 2021 Compared to Fiscal 2020 See “Item 7.
As a percentage of net sales, SG&A decreased 410 basis points to 24.0% during Fiscal 2021 from 28.1% during Fiscal 2020.
As a percentage of net sales, SG&A increased 300 basis points to 27.0% during Fiscal 2022 from 24.0% during Fiscal 2021.
Our distribution centers have remained open and operating during the pandemic to support our retail stores and e-commerce business. We have experienced, and will likely continue to experience, disruptions in our global supply chain, which have caused delays in the production and transportation of our products, which we are mitigating through shifting production schedules.
COVID-19 Pandemic As a result of the impact of the COVID-19 pandemic, we continue to experience disruptions in our business and we have experienced, and will likely continue to experience, disruptions in our global supply chain, which have caused delays in the production and transportation of our products, which we are mitigating through shifting production schedules.
During Fiscal 2021, we repurchased approximately 1.0 million shares of our common stock for $85.6 million, consisting of shares surrendered to cover tax withholdings associated with the vesting of equity awards and shares acquired in the open market. As of January 29, 2022, there was $257.3 million remaining under these programs.
During Fiscal 2022, we repurchased approximately 2.0 million shares of our common stock for $92.9 million, consisting of shares surrendered to cover tax withholdings associated with the vesting of equity awards and shares acquired in the open market.
Cash Flows and Capital Expenditures Cash provided by operating activities was $133.3 million during Fiscal 2021, compared to $35.7 million of cash used by operating activities of during Fiscal 2020.
Cash Flows and Capital Expenditures Cash used in operating activities was $8.2 million during Fiscal 2022, compared to $133.3 million of cash generated from operating activities during Fiscal 2021.
Impairment of Long-Lived Assets We periodically review our long-lived assets for impairment when events indicate that their carrying value may not be recoverable. Such events include a historical or projected trend of cash flow losses or a future expectation that we will sell or dispose of an asset significantly before the end of its previously estimated useful life.
Such events include a historical or projected trend of cash flow losses or a future expectation that we will sell or 32 Table of Contents dispose of an asset significantly before the end of its previously estimated useful life.
We have subsidiaries whose operating results are based in foreign currencies and are thus subject to the fluctuations of the corresponding translation rates into U.S. dollars.
As of January 28, 2023, the 2018 Share Repurchase Program was exhausted, and there was $164.4 million remaining under the 2021 Share Repurchase Program. We have subsidiaries whose operating results are based in foreign currencies and are thus subject to the fluctuations of the corresponding translation rates into U.S. dollars.
We are not subject to any early termination fees. The ABL Credit Facility contains covenants, which include conditions on stock buybacks and the payment of cash dividends or similar payments.
We are not subject to any early termination fees. 37 Table of Contents The ABL Credit Facility contains covenants, which include conditions on stock buybacks and the payment of cash dividends or similar payments, and a fixed-charge coverage ratio covenant, which only becomes effective in the event that borrowings exceed $315.0 million.
We believe that our e-commerce and brick-and-mortar retail store operations are highly interdependent, with both sharing common customers purchasing from a common pool of product inventory.
Basis of Presentation and Summary of Significant Accounting Policies” for discussion regarding the impact of recently issued accounting standards on our consolidated financial statements. RESULTS OF OPERATIONS We believe that our e-commerce and brick-and-mortar retail store operations are highly interdependent, with both sharing common customers purchasing from a common pool of product inventory.
Our effective tax rate was an expense of 27.2% and a benefit of 33.7% during Fiscal 2021 and Fiscal 2020, respectively.
Provision (benefit) for income taxes was a benefit of $13.6 million during Fiscal 2022, compared to an expense of $69.9 million during Fiscal 2021. Our effective tax rate was a benefit of 92.3% and an expense of 27.2% during Fiscal 2022 and Fiscal 2021, respectively.
Cash used in investing activities was $29.3 million during Fiscal 2021, compared to $30.4 million during Fiscal 2020. This change was primarily driven by the timing of capital expenditures. Cash used in financing activities was $112.7 million during Fiscal 2021, compared to cash provided by financing activities of $60.9 million during Fiscal 2020.
The increase was driven by capital expenditures primarily related to digital and supply chain fulfillment initiatives. Cash provided by financing activities was $17.1 million during Fiscal 2022, compared to cash used in financing activities of $112.7 million during Fiscal 2021.
Total e-commerce sales, which include postage and handling, were 44.8% of net sales during Fiscal 2021, compared to 52.7% during Fiscal 2020. Gross profit increased $461.4 million, or 138.4%, to $794.7 million during Fiscal 2021 from $333.3 million during Fiscal 2020. Gross margin increased 1,960 basis points to 41.5% during Fiscal 2021 from 21.9% during Fiscal 2020.
Total e-commerce sales, which include postage and handling, wer e 47.7% of net retail sales and 44.0% of net sales during Fiscal 2022, compared to 46.6% and 44.8%, respectively, during Fiscal 2021. Gross profit decreased $280.5 million, or 35.3%, to $514.2 million during Fiscal 2022 from $794.7 million during Fiscal 2021.
Fiscal 2020 Compared to Fiscal 2019 See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2021 for the Fiscal 2020 to Fiscal 2019 comparative discussion.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022 for the Fiscal 2021 to Fiscal 2020 comparative discussion. 36 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Liquidity Our working capital needs typically follow a seasonal pattern, peaking during the third fiscal quarter based on seasonal inventory purchases.
Fiscal 2021 results included incremental expenses, including personal protective equipment and incentive pay for our associates of $1.4 million.
Gross margin decreased 1,140 basis points to 30.1% during Fiscal 2022 from 41.5% during Fiscal 2021. Fiscal 2022 results included a one-time reversal of expense due to fleet optimization of $0.6 million. Fiscal 2021 included incremental expenses, including personal protective equipment and incentive pay for our associates of $1.4 million.
During Fiscal 2021, we repurchased approximately 1.0 million shares for $85.6 million. During Fiscal 2020, prior to the suspension of our capital return program, we repurchased approximately 0.3 million shares for $15.5 million. At January 29, 2022, we had $175.3 million of outstanding borrowings and $97.0 million available for borrowing under our ABL Credit Facility.
During Fiscal 2022, we repurchased approximately 2.0 million shares for $92.9 million. During Fiscal 2021, we repurchased approximately 1.0 million shares for $85.6 million. At January 28, 2023, we had $287.0 million of outstanding borrowings under our $350.0 million asset-based revolving credit facility.
Recent Developments Recent macroeconomic events have increased the cost of goods necessary to produce and distribute our products, including cotton and other materials used in production, as well as labor, fuel and energy. We expect these product input costs to continue to increase in 2022, which is planned to be partially mitigated by higher price realization.
Recent Developments Recent macroeconomic conditions have increased the cost of goods and services necessary to produce, import, and distribute our products, including cotton and other materials used in production, as well as labor, transportation, fuel and energy. The same inflationary pressures have adversely affected our core customer, resulting in a decrease in discretionary apparel purchases during Fiscal 2022.
The Children’s Place International net sales increased $41.0 million, or 27.2%, to $191.5 million during Fiscal 2021, compared to $150.5 million during Fiscal 2020. The increase in net sales was driven primarily by the strong customer response to our product assortment and strategic pricing and promotion changes.
The Children’s Place International net sales decreased $17.0 million, or 8.9%, to $174.5 million during Fiscal 2022, compared to $191.5 million during Fiscal 2021. The decrease was primarily driven by the impact of unprecedented inflation on our customer and permanent store closures.
Operating Highlights Net sales increased $392.8 million, or 25.8%, to $1.915 billion during Fiscal 2021 from $1.523 billion during Fiscal 2020.
We expect these increased product input costs, transportation costs and inflationary pressures to continue to impact Fiscal 2023. Operating Highlights Net sales decreased $206.9 million, or 10.8%, to $1.708 billion during Fiscal 2022 from $1.915 billion during Fiscal 2021.
Gross profit increased $461.4 million, or 138.4%, to $794.7 million during Fiscal 2021 from $333.3 million during Fiscal 2020. Gross margin increased 1,960 basis points to 41.5% during Fiscal 2021 from 21.9% during Fiscal 2020.
During Fiscal 2022, we closed 59 stores and did not open any new stores. Gross profit decreased $280.5 million, or 35.3%, to $514.2 million during Fiscal 2022 from $794.7 million during Fiscal 2021. Gross margin decreased 1,140 basis points to 30.1% during Fiscal 2022 from 41.5% during Fiscal 2021.
The quarterly statement of operations data set forth below reflect, in our opinion, all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the results of operations for these fiscal quarters (unaudited): Fiscal Year Ended January 29, 2022 First Quarter Second Quarter Third Quarter Fourth Quarter (in thousands, except earnings per share) Net sales $ 435,481 $ 413,855 $ 558,225 $ 507,803 Gross profit 188,206 167,861 244,831 193,842 Selling, general, and administrative expenses 106,738 115,620 115,563 121,248 Depreciation and amortization 15,561 14,392 14,204 14,260 Asset impairment charges — — 1,254 252 Operating income 65,907 37,849 113,810 58,082 Income before provision for income taxes 61,496 33,153 109,851 52,530 Provision for income taxes 16,291 9,058 30,983 13,527 Net income $ 45,205 $ 24,095 $ 78,868 $ 39,003 Diluted earnings per share $ 3.01 $ 1.60 $ 5.30 $ 2.68 Diluted weighted average common shares outstanding 15,002 15,062 14,873 14,543 39 Table of Contents
The quarterly statement of operations data set forth below reflect, in our opinion, all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the results of operations for these fiscal quarters (unaudited): Fiscal Year Ended January 28, 2023 First Quarter Second Quarter Third Quarter Fourth Quarter (in thousands, except earnings per share) Net sales $ 362,350 $ 380,885 $ 509,120 $ 456,126 Gross profit 141,905 115,463 176,931 79,724 Selling, general, and administrative expenses 109,036 114,672 106,631 130,494 Depreciation and amortization 13,615 13,241 12,463 12,145 Asset impairment charges — 1,379 — 1,877 Operating income (loss) 19,254 (13,829) 57,837 (64,792) Income (loss) before provision (benefit) for income taxes 17,549 (16,418) 54,051 (69,943) Provision (benefit) for income taxes (2,282) (3,120) 11,196 (19,419) Net income (loss) $ 19,831 $ (13,298) $ 42,855 $ (50,525) Diluted earnings (loss) per share $ 1.43 $ (1.01) $ 3.26 $ (4.10) Diluted weighted average common shares outstanding 13,841 13,147 13,162 12,332 39 Table of Contents
The increase in interest expense was driven by a higher average debt balance and the higher interest rate associated with the Previous ABL Credit Facility and Previous Term Loan for the first nine months of Fiscal 2021.
The decrease in interest expense was driven by the combination of the elimination of fees and lower average interest rates associated with the refinancing of the revolving credit facility and term loan in the prior year, partially offset by increases in the floating interest rate on the Company’s revolving credit facility in Fiscal 2022 and higher average borrowings.
Basis of Presentation and Summary of Significant Accounting Policies” for discussion regarding the impact of recently issued accounting standards on our consolidated financial statements. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected income statement data expressed as a percentage of net sales.
Accordingly, we believe that consolidated omni-channel reporting presents the most meaningful and appropriate measure of our performance, including net sales. 34 Table of Contents The following table sets forth, for the periods indicated, selected data from Statements of Operations expressed as a percentage of net sales.
(2) The sublimit availability for letters of credit was $42.6 million and $41.8 million at January 29, 2022 and January 30, 2021, respectively.
(2) The sub-limit availability for the letters of credit was $42.6 million at January 28, 2023 and January 29, 2022. (3) The ABL Credit Facility contains an excess availability requirement which would effectively reduce this amount to $20.6 million.
The decrease primarily resulted from net proceeds received from the issuance of long-term debt during Fiscal 2020, compared to the use of cash in Fiscal 2021 to repay long-term debt, and increased repurchases of our common stock during Fiscal 2021, compared to Fiscal 2020.
Cash provided by financing activities during Fiscal 2022 primarily resulted from additional net borrowings under our ABL Credit Facility, partially offset by increased repurchases of our common stock during Fiscal 2022 compared to Fiscal 2021.
Removed
However, stores that temporarily close will be excluded from Comparable Retail Sales until the store is 30 Table of Contents re-opened for a full fiscal month.
Added
The decrease in net sales was primarily due to lapping the COVID-19 stimulus relief program and enhanced child tax credits last year, the impact of a slowdown in consumer demand resulting from the unprecedented inflation impacting our customer, an increase in promotional activity across the sector and the impact of permanent store closures.
Removed
COVID-19 Pandemic The COVID-19 pandemic continues to significantly impact regions all around the world, including the United States and Canada.
Added
The decrease in gross margin resulted primarily from higher cotton and inbound supply chain costs, lower merchandise margins due to a highly promotional environment, higher distribution expenses, increased shipping costs due to rate increases and higher levels of split customer shipments, and the deleverage of fixed expenses resulting from the decline in net sales.
Removed
This has resulted in continuing restrictions of businesses and other activities implemented by national, state, and local authorities and private entities, leading to significant adverse economic conditions and business and lifestyle disruptions, as well as significant volatility in global financial and retail markets.
Added
Operating income (loss) decreased $277.1 million to a loss of $1.5 million during Fiscal 2022 from income of $275.6 million during Fiscal 2021. Operating margin deleveraged 1,450 basis points to (0.1)% of net sales.
Removed
Federal, state, and local governments and health officials worldwide continue to impose varying degrees of preventative and protective actions, such as travel bans, restrictions on public gatherings, forced closures of businesses and other activities, social distancing, and the adoption of remote or hybrid learning models for schools, all in an effort to reduce the spread of the virus.
Added
Net income (loss) decreased $188.3 million to a loss of $1.1 million, or $(0.09) per diluted share, during Fiscal 2022, compared to income of $187.2 million, or $12.59 per share, during Fiscal 2021. 31 Table of Contents While we continue to face a challenging macroeconomic environment, including increases in the cost of goods and services necessary to produce, import, and distribute our products, including cotton and other inputs, as well as labor, transportation, fuel and energy and continuing uncertainty regarding the future impact of the COVID-19 pandemic, we continue to focus on our key strategic growth initiatives – superior product, digital transformation, alternative channels of distribution, and fleet optimization.
Removed
In addition, certain U.S. and Canadian mall owners continue to restrict hours of operation and the number of people permitted in stores. Such factors, among others, have resulted in a significant decline in retail traffic and consumer spending on discretionary items.
Added
Digital remains our top priority and we continue to expand our digital capabilities. We have migrated to a new responsive site and mobile application, and we have expanded our partnerships with our outside providers to help us monitor and reallocate our marketing budgets in a more efficient and timely manner to drive acquisition, retention and reactivation.
Removed
As a result of the impact of the COVID-19 pandemic, we continue to experience business disruption with many of our retail stores across the U.S. and Canada. As of January 29, 2022, all of our stores were open to the public in the U.S., Canada, and Puerto Rico.
Added
Starting in the second half of Fiscal 2022, the results from our new marketing strategies have been very encouraging and we are positioning marketing as a key growth lever in Fiscal 2023 and beyond.
Removed
The new debt consists of a revolving credit facility with $350.0 million of availability (the “ABL Credit Facility”) and a $50.0 31 Table of Contents million term loan (the “Term Loan”), both with five year maturities, lower interest rates, reduced reporting requirements, and increased flexibility under the covenants.
Added
As our digital business continues to expand, we continue to strengthen our partnership with our third party logistics providers in an effort to provide our customer with a best-in-class digital experience. We continue to evaluate our store fleet through our fleet optimization initiative.
Removed
The ABL Credit Facility is secured by a first-priority lien on substantially all of our U.S. and Canadian assets other than intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock; and a second-priority lien on our intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−0 removed5 unchanged
Biggest changeAs of January 29, 2022, we had $47.7 million of our cash and cash equivalents held in foreign subsidiaries, of which $25.5 million was in Hong Kong and $17.4 million was in Canada. Foreign Operations We have exchange rate exposure primarily with respect to certain revenues and expenses denominated in Canadian dollars.
Biggest changeForeign Operations We have exchange rate exposure primarily with respect to certain revenues and expenses denominated in Canadian dollars. As a result, fluctuations in exchange rates impact the amount of our reported sales and expenses.
Our Term Loan bears interest, payable monthly, at (a) the LIBOR Rate plus 2.50% for any portion that is a LIBOR loan, or (b) the base rate plus 1.75% for any portion that is a base rate loan. As of January 29, 2022, the outstanding balance of the Term Loan was $50.0 million.
Our Term Loan bears interest, payable monthly, at (a) the LIBOR Rate plus 2.50% for any portion that is a LIBOR loan, or (b) the base rate plus 1.75% for any portion that is a base rate loan. As of January 28, 2023, the outstanding balance of the Term Loan was $50.0 million.
As of January 29, 2022, net assets in Canada and Hong Kong amounted to $52.7 million. A 10% increase or decrease in the Canadian and Hong Kong foreign currency exchange rates would increase or decrease the corresponding net investment by $5.3 million. All changes in the net investments in our foreign subsidiaries are recorded in other comprehensive income.
As of January 28, 2023, net assets in Canada and Hong Kong amounted to $23.3 million. A 10% increase or decrease in the Canadian and Hong Kong foreign currency exchange rates would increase or decrease the corresponding net investment by $2.3 million. All changes in the net investments in our foreign subsidiaries are recorded in other comprehensive income (loss).
As of January 29, 2022, we had $175.3 million in borrowings outstanding under our ABL Credit Facility. A 10% change in the prime rate or LIBOR interest rates would not have had a material impact on our interest expense.
As of January 28, 2023, we had $287.0 million in borrowings outstanding under our ABL Credit Facility. A 10% change in the prime rate or LIBOR interest rates would not have had a material impact on our interest expense.
Additionally, we have foreign currency denominated receivables and payables that, when settled, result in transaction gains or losses. A 10% change in foreign currency exchange rates would not result in a significant transaction gain/loss in earnings. We import a vast majority of our merchandise from foreign countries, primarily Vietnam, Cambodia, Indonesia, Ethiopia, Bangladesh, and China.
A 10% change in foreign currency exchange rates would not result in a significant transaction gain/loss in earnings. We import a vast majority of our merchandise from foreign countries, primarily Bangladesh, Ethiopia, Cambodia, Vietnam, India, Indonesia and China.
As a result, fluctuations in exchange rates impact the amount of our reported sales and expenses. Assuming a 10% change in foreign currency exchange rates, Fiscal 2021 net sales would have decreased or increased by approximately $17 million, and total costs and expenses would have decreased or increased by approximately $19 million.
Assuming a 10% change in foreign currency exchange rates, Fiscal 2022 net sales would have decreased or increased by approximately $15 million, and total costs and expenses would have decreased or increased by approximately $19 million. Additionally, we have foreign currency denominated receivables and payables that, when settled, result in transaction gains or losses.
Added
As of January 28, 2023, we had $9.0 million of our cash and cash equivalents held in foreign subsidiaries, of which $3.1 million was in Canada, $2.1 million was in India, $1.9 million was in China, and $1.7 million was in Hong Kong.

Other PLCE 10-K year-over-year comparisons