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What changed in Childrens Place, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Childrens Place, Inc.'s 2023 and 2024 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 2024 report.

+372 added−297 removedSource: 10-K (2024-05-06) vs 10-K (2023-03-28)

Top changes in Childrens Place, Inc.'s 2024 10-K

372 paragraphs added · 297 removed · 241 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

68 edited+6 added−13 removed42 unchanged
Biggest changeIn 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.
Biggest changeThis 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”), the Task Force on Climate-Related Financial Disclosures (“TCFD”), and United Nations Sustainable Development Goals. 7 Table of Contents 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 our board of directors (the “Board of Directors”) 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 recognize the importance of eliminating forced labor within the supply chain and its increasing significance in light of recent reports of human rights abuses in various regions of the world. In addition, we support and sponsor a number of worker well-being programs designed to improve the daily lives of the predominantly female factory workers who make our products.
We also recognize the importance of eliminating forced labor within the supply chain and its increasing significance in light of reports of human rights abuses in various regions of the world. In addition, we support and sponsor a number of worker well-being programs designed to improve the daily lives of the predominantly female factory workers who make our products.
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.
E-commerce Sales Each of our U.S. and International segments includes an e-commerce business located at www.childrensplace.com and www.gymboree.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.
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.
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.
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.
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 and www.gymboree.com , and credit is extended to such customers through a third-party financial institution on a non-recourse basis to us.
During the first quarter of Fiscal 2019, the Company acquired certain intellectual property and related assets of Gymboree Group, Inc. and related entities (the “Gymboree Assets”), which included the worldwide rights to the names “Gymboree” and “Crazy 8” and other intellectual property, including trademarks, domain names, copyrights, and customer databases.
During the first quarter of fiscal 2019, the Company acquired certain intellectual property and related assets of Gymboree Group, Inc. and related entities, which included the worldwide rights to the names “Gymboree” and “Crazy 8” and other intellectual property, including trademarks, domain names, copyrights, and customer databases.
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.
We also launched the Sugar & Jade brand in November 2021 which is targeted at the girls’ “tween” market and is offered exclusively online, and 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.
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.
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 2023.
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
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 Operating Officer and 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. 13 Table of Contents
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.
Other terms that are commonly used in this Annual Report on Form 10-K are defined as follows: • Fiscal 2023 — The fifty-three weeks ended February 3, 2024 • Fiscal 2022 — The fifty-two weeks ended January 28, 2023 • Fiscal 2021 — The fifty-two weeks ended January 29, 2022 • Fiscal 2024 — Our next fiscal year representing the fifty-two weeks ending February 1, 2025 • SEC — U.S.
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.
In addition to the above discussed key strategic initiatives, we have continued our 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 brand launches.
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 .
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 and www.gymboree.com .
Such reports, proxy statements, and other information may be obtained by visiting the SEC website ( http://www.sec.gov ) that contains reports, proxy, and information statements and other information regarding us and other issuers that file electronically. Our corporate website address is http://corporate.childrensplace.com .
Accordingly, we file periodic reports, proxy statements, and other information with the SEC. Such reports, proxy statements, and other information may be obtained by visiting the SEC website ( http://www.sec.gov ) that contains reports, proxy, and information statements and other information regarding us and other issuers that file electronically. Our corporate website address is http://corporate.childrensplace.com .
Diversity and inclusion are top priorities for the Company, and we actively work to ensure that our workplace includes a range of perspectives and backgrounds at the Board of Directors level, in senior leadership, and throughout our management and associate base.
Diversity and inclusion are top priorities for the Company, and we actively work to ensure that our workplace includes a range of perspectives and backgrounds in senior leadership and throughout our management and associate base.
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 .
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 our Family of Brands . 6 Table of Contents Low-Cost Global Sourcing We design, source, and contract to manufacture the substantial majority of the Company’s branded products.
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.
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 2024 and beyond. 4 Table of Contents Overlaying these strategic initiatives is talent.
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.
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 hav e closed 676 stores, including the 90 stores closed during Fiscal 2023, since the announcement of our fleet optimization initiative in 2013.
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.
The Company reports annually on employment data, including 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.
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.
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.
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.
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: 9 Table of Contents Number of Stores Location February 3, 2024 January 28, 2023 United States 454 533 Canada 63 73 Puerto Rico 6 7 Total Stores 523 613 At The Children’s Place, our store concepts consist of multiple formats ranging in size from approximately 2,800 to 29,000 square feet, which have evolved over time in response to market trends, and are strategically placed within each market.
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.
Wholesale and International Franchisees Our wholesale business includes our relationship with Amazon, which we strengthened in Fiscal 2022 and Fiscal 2023, and is a key focus area in our wholesale distribution growth strategy. Amazon is an important customer acquisition vehicle and continues to represent a significant growth opportunity in Fiscal 2024 and beyond.
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.
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.
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.
In November 2021, we launched the Sugar & Jade brand , and in October 2022, we launched the PJ Place brand . 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.
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 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, during Fiscal 2022, 68% of our associates identified as racially/ethnically diverse and associates identifying as racially/ethnically diverse represented 75% of new hires and 57% of promotions.
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.
Company Stores The following section highlights various store information for The Children’s Place operated stores as of February 3, 2024. Existing Stores As of February 3, 2024, we had a total of 523 The Children’s Place stores in the United States, Canada, and Puerto Rico and our online stores at www.childrensplace.com and www.gymboree.com.
The Human Capital & Compensation Committee is actively engaged in overseeing our human capital management strategies, including our talent and succession planning initiatives designed to attract, develop, engage, reward and retain top retail, digital and business leaders, who can drive our financial performance and strategic growth initiatives and contribute to building long-term shareholder value.
None of our employees are covered by a collective bargaining agreement. 8 Table of Contents The Human Capital & Compensation Committee is actively engaged in overseeing our human capital management strategies, including our talent and succession planning initiatives designed to attract, develop, engage, reward and retain top retail, digital and business leaders, who can drive our financial performance and strategic growth initiatives and contribute to building long-term shareholder value.
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.
Environmental, Social & Governance We published our latest Environment, Social & Governance (“ESG”) Report on July 27, 2023, which is available at http://corporate.childrensplace.com under the ESG tab.
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.
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 and www.gymboree.com. Included in The Children’s Place U.S. segment are our U.S. and Puerto Rico-based stores and revenue from our U.S.-based wholesale business.
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.
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 February 3, 2024, we had approximately 8,390 employees, approximately 1,610 of whom were based at our corporate offices and distribution centers.
The Company is committed to doubling its Black associate population at its corporate headquarters by 2025. 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.
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, developing and promoting talent from within, building an inclusive culture through awareness and education, and rewarding all employees equitably.
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.
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; • Incorporate more responsibly sourced materials in our products and packaging to have a more positive impact on the environments affected by our business; • 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.
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.
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 or reduce our merchandise costs by capitalizing on new sourcing opportunities while maintaining our high standard for product quality.
Low-Cost Global Sourcing We design, source, and contract to manufacture the substantial majority of the Company’s branded products. We believe that this is essential to assuring the consistency and quality of our merchandise, as well as our ability to deliver value to our customers. We have strong multi-year relationships with the substantial majority of our vendors.
We believe that this is essential to assuring the consistency and quality of our merchandise, as well as our ability to deliver value to our customers. We have strong multi-year relationships with the substantial majority of our vendors.
Our first fiscal quarter results are dependent upon sales during the period leading up to the Easter holiday, our second and third fiscal quarter results are dependent upon back-to-school sales, and our fourth fiscal quarter results are dependent upon sales during the holiday season. The business is also subject to shifts due to unseasonable weather conditions.
Our first fiscal quarter results are dependent upon sales during the period leading up to the Easter holiday, our second and third fiscal quarter results are dependent upon back-to-school sales, and our fourth fiscal quarter results are dependent upon sales during the holiday season.
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.
We have a customer loyalty program and a private label credit card program. At the end of Fiscal 2023, members of our MyPLACE Rewards loyalty program and/or private label credit card program accounted for approximately 82% of sales.
Additionally, in our effort to reach an even wider customer base who are digitally savvy during the COVID-19 pandemic and to utilize other forms of spending arrangements available, we have partnered with Afterpay to allow our customers to purchase our products on a “buy-now-pay-later” program. We promote affinity and loyalty through our marketing programs by utilizing specialized incentive programs.
Additionally, in our effort to reach an even wider customer base who are digitally savvy and to utilize other forms of spending arrangements available, we have partnered with Afterpay to allow our customers to purchase our products on a “buy-now-pay-later” program.
The 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.
The 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 February 3, 2024 and January 28, 2023: Fiscal Years Ended February 3, 2024 January 28, 2023 January 29, 2022 (in thousands) Net sales: The Children’s Place U.S. $ 1,457,352 $ 1,533,934 $ 1,723,887 The Children’s Place International 145,156 174,548 191,477 Total net sales $ 1,602,508 $ 1,708,482 $ 1,915,364 Fiscal Years Ended February 3, 2024 January 28, 2023 January 29, 2022 (in thousands) Operating income (loss): The Children’s Place U.S. $ (86,482) $ (8,781) $ 253,419 The Children’s Place International 2,684 7,251 22,229 Total operating income (loss) $ (83,798) $ (1,530) $ 275,648 Operating income (loss) as a percentage of net sales: The Children’s Place U.S.
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.
As a result of the heightened demand for online purchasing, we accelerated our planned store closures in Fiscal 2020 and closed 405 stores over the past four fiscal years. Since 2013, we have reduced our total store square footage from 5.2 million to 2.6 million. We continuously review the performance of our store fleet.
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.
We also launched the Sugar & Jade brand in November 2021 which is targeted at the girls’ “tween” market and is offered exclusively online, and 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.
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.
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.
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.
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 also are subject to similar international laws and regulations affecting our business. We believe that we are in material compliance with these laws and regulations. We are committed to product quality and safety.
We also are subject to similar international laws and regulations affecting our business. We believe that we are in material compliance with these laws and regulations. We are committed to product quality and safety. We focus our efforts to adhere to all applicable laws and regulations affecting our business, including the provisions of the U.S.
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.
As of February 3, 2024, we operated 523 stores throughout North America, as well as our online stores. During Fiscal 2023, we closed 90 stores, compared to 59 store closures in Fiscal 2022. We did not open any new stores in Fiscal 2023 or Fiscal 2022. Jane Elfers, our President and Chief Executive Officer, established several key strategic initiatives: 1.
(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.
(5.9) % (0.6) % 14.7 % The Children’s Place International 1.8 % 4.2 % 11.6 % Total operating income (loss) as a percentage of net sales (5.2) % (0.1) % 14.4 % 5 Table of Contents February 3, 2024 January 28, 2023 (in thousands) Total assets: The Children’s Place U.S. $ 758,003 $ 922,120 The Children’s Place International 42,305 64,161 Total assets $ 800,308 $ 986,281 See “Note 17.
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.
We do not own or operate any manufacturing facilities. During Fiscal 2023, 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, Bangladesh, Ethiopia, Cambodia, Kenya, India, and China.
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.
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.
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.
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. On occasion, we may utilize additional facilities to support seasonal warehousing needs.
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.
We promote affinity and loyalty through our marketing programs by utilizing specialized incentive programs. 11 Table of Contents 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 addition, our five international partners operated 220 international points of distribution in 15 countries.
In addition, our six international partners operated 225 international points of distribution in 16 countries.
We measure our segment profitability based on operating income, defined as income before interest and taxes. Net sales and direct costs are recorded by each segment.
Included in The Children’s Place International segment are our Canadian-based stores, revenue from our Canadian-based wholesale business, as well as revenue from international franchisees. We measure our segment profitability based on operating income, defined as income before interest and taxes. Net sales and direct costs are recorded by each segment.
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.
We design, contract to manufacture, and sell fashionable, high-quality apparel, accessories and footwear predominantly at value prices, primarily under our proprietary brands: “The Children’s Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place”.
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.
We have 225 international points of distribution (stores, shop-in-shops, e-commerce sites) with six partners operating in 16 countries. We generate revenues from our franchisees from the sale of products and sales royalties. Store Operations The Children’s Place store operations are organized by geographic region. Our U.S.
We also understand it is important for our associate population to reflect the diversity of our customers in an effort to bring varied perspectives to our products and the way we communicate to our stakeholders.
As a woman-led company, we are proud of our industry-leading gender diversity statistics across every level of our organization, including our leadership team. We also understand it is important for our associate population to reflect the diversity of our customers in an effort to bring varied perspectives to our products and the way we communicate to our stakeholders.
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.
Amazon is an important customer acquisition vehicle and continues to represent a significant growth opportunity in Fiscal 2024 and beyond. 4. 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.
The Company has benefited from a senior leadership team with deep retail industry expertise both at The Children’s Place and at other retailers.
The Company has benefited from a senior leadership team with deep retail industry expertise both at The Children’s Place and at other retailers and have an average tenure of over six years at the Company, including our CEO who has led the Company for over a decade.
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.
The business is also subject to shifts due to unseasonable weather conditions. 10 Table of Contents 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 2023 20.0 % 21.6 % 30.0 % 28.4 % Fiscal 2022 21.2 % 22.3 % 29.8 % 26.7 % First Quarter Second Quarter Third Quarter Fourth Quarter (in thousands) Operating income (loss) Fiscal 2023 $ (30,067) $ (36,941) $ 44,967 $ (61,757) Fiscal 2022 19,254 (13,829) 57,837 (64,792) For more information regarding the seasonality of our business, refer to “Item 7.
Also, in response to increased digital demand, including as a result of the COVID-19 pandemic, the Company has continued to increase the utilization of its third-party logistics provider to further support both our U.S. and Canadian e-commerce operations. 3.
Also, in response to increased digital demand, the Company has continued to increase the utilization of its third-party logistics provider to further support both our U.S. and Canadian e-commerce operations. 3. Alternative Channels of Distribution - We have 225 international points of distribution (stores, shop-in-shops, e-commerce sites) with six partners operating in 16 countries.
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.
Segment Information” of the Consolidated Financial Statements, “Item 8. Financial Statements and Supplementary Data” of this Form 10-K 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.
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.
Key Capabilities Our objective is to sell fashionable, high-quality apparel, accessories and footwear predominately at value prices across our Family of Brands. 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.
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 of February 3, 2024, over 50% of our senior leadership team are women. As reported in the Company’s latest ESG Report, during Fiscal 2022, 86% of the Company’s associates were women. We also reported that 87% of new hires and 94% of promotions during Fiscal 2022 were women.
We continue to pursue global sourcing opportunities to support our inventory needs and seek to reduce merchandise costs. We contract for the manufacture of the substantial majority of the products we sell. We do not own or operate any manufacturing facilities.
Production, Quality Assurance, and Responsible Sourcing During Fiscal 2023, we engaged independent contract vendors located primarily in Asia and Africa. We continue to pursue global sourcing opportunities to support our inventory needs and seek to reduce merchandise costs. We contract for the manufacture of the substantial majority of the products we sell.
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.
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.
We focus our efforts to adhere to all applicable laws and regulations affecting our business, including the provisions of the CPSIA, the Federal Hazardous Substances Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the CCPSA, the Canadian Textile Labelling Act, the Canadian Care Labelling Program, and various environmental laws and regulations.
Consumer Product Safety Improvement Act of 2008 (“CPSIA”), the Federal Hazardous Substances Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the Canada Consumer Product Safety Act (“CCPSA”), the Canadian Textile Labelling Act, the Canadian Care Labelling Program, and various environmental laws and regulations.
Internet Access to Reports We are a public company and are subject to the disclosure requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, we file periodic reports, proxy statements, and other information with the SEC.
We currently are not restricted by any such anti-dumping and countervailing duties in the operation of our business. 12 Table of Contents Internet Access to Reports We are a public company and are subject to the disclosure requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
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.
We closed 405 stores over the past four fiscal years, bringing the total closed stores to 676 since the announcement of the original fleet optimization initiative in 2013.
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. Store Operations The Children’s Place store operations are organized by geographic region. Our U.S.
We generate revenues from our franchisees from the sale of products and sales royalties. Our wholesale business includes our relationship with Amazon, which we strengthened in Fiscal 2022 and Fiscal 2023, and is a key focus area in our wholesale distribution growth strategy.
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.
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. Further, this team plans the flow of inventory to ensure that we are adequately supporting store floor sets, online demand, and key selling periods.
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.
Approximately 1,120 were full-time store employees and approximately 5,630 were part-time and seasonal store employees.
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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.
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However, stores that temporarily close will be excluded from Comparable Retail Sales until the store is re-opened for a full fiscal month 3 Table of Contents General The Children’s Place, Inc. and its subsidiaries operate an omni-channel children’s specialty portfolio of brands with an industry-leading digital-first operating model.
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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.
Added
Our global retail and wholesale network includes two digital storefronts, more than 500 stores in North America, wholesale marketplaces and distribution in 16 countries through six international franchise partners.
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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.
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We merchandise our deliveries by season and flow new product monthly. High Quality and Value We believe that offering high-quality apparel, accessories and footwear predominantly at value prices across our Family of Brands is a competitive advantage.
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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.
Added
Vietnam and Bangladesh accounted for more than 15% of our production.
Removed
Included in The Children’s Place U.S. segment are our U.S. and Puerto Rico-based stores and revenue from our U.S.-based wholesale business. Included in The Children’s Place International segment are our Canadian-based stores, revenue from our Canadian-based wholesale business, as well as revenue from international franchisees.
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The Company is committed to doubling its Black associate population at its corporate headquarters by 2025, from a base year of Fiscal 2020.
Removed
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.
Added
In Canada, we leased and operated a 95,000 square foot distribution center in Ontario, which supported both Canadian retail store operations and Canadian e-commerce operations. This lease expired in April 2024 and we moved these operations to the United States to our current distribution center in Alabama as of the end of the first quarter of Fiscal 2024.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks 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.
Biggest changeRisks 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; • increased or unplanned costs associated with order fulfillment and delivery of merchandise to our customers; • 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 and PJ Place brands; • 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; • rapid technology changes and changes in consumer shopping habits, 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.
In addition to the above, it is possible that other events beyond our control, both domestically and internationally, such as labor disputes, cybersecurity events or allegations of misconduct or unethical behavior affecting our unaffiliated manufacturers, suppliers, or transportation companies, a terrorist or similar act, military action, strike, weather conditions, natural disasters, pandemics or other health issues, such as COVID-19, or government spending cuts, could result in delays or disruptions in the production, transportation and/or delivery of merchandise to our distribution centers or our stores, international franchise partners and wholesale customers, or the fulfillment of e-commerce orders to our customers, or require us to incur substantial additional costs, including in air freight, to ensure timely delivery.
In addition to the above, it is possible that other events beyond our control, both domestically and internationally, such as labor disputes, cybersecurity events or allegations of misconduct or unethical behavior affecting our unaffiliated manufacturers, suppliers, or transportation companies, a terrorist or similar act, military action, strike, weather conditions, natural disasters, pandemics or other health issues, or government spending cuts, could result in delays or disruptions in the production, transportation and/or delivery of merchandise to our distribution centers or our stores, international franchise partners and wholesale customers, or the fulfillment of e-commerce orders to our customers, or require us to incur substantial additional costs, including in air freight, to ensure timely delivery.
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.
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; • 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; 17 Table of Contents • 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 epidemics or pandemics, 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.
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.
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, 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.
In addition to the economic environment, there are a number of other factors that could contribute to reduced customer traffic and/or reduced levels of consumer confidence and spending, such as actual or potential terrorist acts, including domestic terrorism, natural disasters, severe weather, pandemics or other health issues, such as COVID-19, political disruption, war, or geopolitical conflicts.
In addition to the economic environment, there are a number of other factors that could contribute to reduced customer traffic and/or reduced levels of consumer confidence and spending, such as actual or potential terrorist acts, including domestic terrorism, natural disasters, severe weather, pandemics or other health issues, political disruption, war, or geopolitical conflicts.
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.
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. 25 Table of Contents We are subject to income taxes in the United States and foreign jurisdictions, including Canada and Hong Kong.
Numerous factors affect our sales, comparable retail sales, margins, operating income, earnings per share, cash flows, and other financial results, including the effects of the COVID-19 pandemic, unseasonable weather conditions, merchandise assortment and product acceptance, the retail price of our merchandise, fashion trends, customer traffic, number of visits to our e-commerce site, as well as related conversion, economic conditions in general, including inflation and consumer confidence, and the retail sales environment in particular, calendar shifts of holidays or seasonal periods, birth rate fluctuations, timing or extent of promotional events by our Company or by competitors and other competitive factors, including competitor bankruptcies, fluctuations in currency exchange rates, macro-economic conditions, and our success in and the cost of executing our business strategies.
Numerous factors affect our sales, comparable retail sales, margins, operating income, earnings per share, cash flows, and other financial results, including unseasonable weather conditions, merchandise assortment and product acceptance, the retail price of our merchandise, fashion trends, customer traffic, number of visits to our e-commerce site, as well as related conversion, economic conditions in general, including inflation and consumer confidence, and the retail sales environment in particular, calendar shifts of holidays or seasonal periods, birth rate fluctuations, timing or extent of promotional events by our Company or by competitors and other competitive factors, including competitor bankruptcies, fluctuations in currency exchange rates, macro-economic conditions, and our success in and the cost of executing our business strategies.
While we have certain remedies under our lease agreements, the loss of business that could result if a shopping center should close or if customer traffic were to significantly decline as a result of lost tenants or improper care of the facilities or due to macroeconomic effects, including the COVID-19 pandemic or inflation, could have a material adverse effect on our business, financial position, results of operations, and cash flows.
While we have certain remedies under our lease agreements, the loss of business that could result if a shopping center should close or if customer traffic were to significantly decline as a result of lost tenants or improper care of the facilities or due to macroeconomic effects, including inflation, could have a material adverse effect on our business, financial position, results of operations, and cash flows.
The investment and analyst community follows all of these financial markers closely and fluctuations in these results, or the failure of our results to meet investors’ or analysts’ models or expectations, may have a significant adverse effect on the price of our common stock.
The investment and analyst community follows all of these financial markers closely and fluctuations in these results, or the failure of our results to meet investors’ or analysts’ models or expectations, have had, and may continue to have, a significant adverse effect on the price of our common stock.
To date, prior attempts to gain unauthorized access to the networks and systems of the Company, our third-party vendors, consultants or other partners have not had a material adverse effect on us. Our systems and procedures are required to meet the Payment Card Industry (“PCI”) data security standards, which require periodic audits by independent third-parties to assess compliance.
To date, prior attempts to gain unauthorized access to the networks and systems of the Company, our third-party vendors, consultants or other partners have not had a material adverse effect on us. 23 Table of Contents Our systems and procedures are required to meet the Payment Card Industry (“PCI”) data security standards, which require periodic audits by independent third-parties to assess compliance.
If any of these events were to occur, our business, financial position, results of operations, and cash flows could be adversely affected. RISKS RELATED TO THE RETAIL AND APPAREL INDUSTRIES We may suffer material adverse business consequences if we are unable to anticipate, identify, and respond to merchandise trends, marketing and promotional trends, changes in technology, or customer shopping patterns.
If any of these events were to occur, our business, financial position, results of operations, and cash flows could be adversely affected. 19 Table of Contents RISKS RELATED TO THE RETAIL AND APPAREL INDUSTRIES We may suffer material adverse business consequences if we are unable to anticipate, identify, and respond to merchandise trends, marketing and promotional trends, changes in technology, or customer shopping patterns.
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.
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.
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.
We will continue our store fleet optimization program in Fiscal 2024, 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.
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.
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.
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.
Leadership changes can be inherently difficult to manage and may cause material disruption to our management 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.
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.
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.
In addition, pursuant to GAAP, we are required to recognize an impairment charge when circumstances indicate that the carrying value of long-lived assets may not be recoverable. If a determination is made that the carrying value of a long-lived asset is not recoverable over its estimated useful life, the asset is written down to its estimated fair value.
GAAP, we are required to recognize an impairment charge when circumstances indicate that the carrying value of long-lived assets may not be recoverable. If a determination is made that the carrying value of a long-lived asset is not recoverable over its estimated useful life, the asset is written down to its estimated fair value.
Consumer demand, behavior, taste, and purchasing trends, as well as geopolitical conflicts and economic and political stability may differ in international markets and/or in the distribution channels through which our wholesale customers sell products, including as a result of the COVID-19 pandemic, and, as a result, sales of our products may not be successful or meet our expectations, or the margins on those sales may not be in line with those we currently anticipate.
Consumer demand, behavior, taste, and purchasing trends, as well as geopolitical conflicts and economic and political stability may differ in international markets and/or in the distribution channels through which our wholesale customers sell products, and, as a result, sales of our products may not be successful or meet our expectations, or the margins on those sales may not be in line with those we currently anticipate.
Our sales, comparable retail sales, margins, operating income, earnings per share, cash flows, and other financial results have fluctuated significantly in the past due to the factors cited above, and we anticipate that they may continue to fluctuate in the future, particularly in the highly competitive retail environment in which we operate, which may result in declines or delays in consumer spending.
Our sales, comparable retail sales, margins, operating income, earnings per share, cash flows, and other financial results have fluctuated significantly in the past (including during Fiscal 2023) due to the factors cited above, and we anticipate that they may continue to fluctuate in the future, particularly in the highly competitive retail environment in which we operate, which may result in declines or delays in consumer spending.
Terrorism and potential military responses, political unrest, war and other conflicts, natural disasters, pandemics or other health issues, such as COVID-19, have disrupted and could disrupt commerce and impact our or our franchisees’ ability to operate our stores in affected areas, produce our products in foreign countries, import our products from foreign countries, or provide critical functions necessary to the operation of our business.
Terrorism and potential military responses, political unrest, war and other conflicts, natural disasters, pandemics or other health issues, have disrupted and could disrupt commerce and impact our or our franchisees’ ability to operate our stores in affected areas, produce our products in foreign countries, import our products from foreign countries, or provide critical functions necessary to the operation of 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 14 Table of Contents 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 service providers from providing required products, services, or materials to us.
RISKS RELATED TO OUR STOCK AND STOCK PRICE Changes in our sales, comparable retail sales, margins, operating income, earnings per share, cash flows, and/or other results of operations could have a material adverse effect on the market price of our common stock.
RISKS RELATED TO OUR STOCK AND STOCK PRICE Changes in our sales, comparable retail sales, margins, operating income, earnings per share, cash flows, and/or other results of operations could have a material adverse effect on the market price of our common stock, which subsequently could lead to litigation.
Failure to properly identify or measure underperforming retail stores, failure to achieve anticipated sales transfer rates from closed stores to remaining retail stores and/or e-commerce sales, and failure to properly identify and analyze customer segmentation and spending patterns could have a material adverse effect on our business, financial position, results of operations, and cash flows.
Failure to properly identify or measure underperforming retail stores, failure to achieve anticipated sales transfer rates from closed stores to remaining retail stores and/or e-commerce sales, and failure to properly identify and analyze customer segmentation and spending patterns could have a material adverse effect on our business, financial position, results of operations, and cash flows. In addition, pursuant to U.S.
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.
Our ability to fund our ongoing operations, capital expenditures, debt service requirements, and any future share purchase programs or payment of dividends will depend on our ability to generate cash flows.
One of our company-operated distribution centers is located in Fort Payne, Alabama and supports our U.S. stores, wholesale, and e-commerce shipments in the U.S. Another company-operated distribution center is located in Mississauga, Ontario and supports all of our store fulfillment activities in Canada.
One of our company-operated distribution centers is located in Fort Payne, Alabama and supports our U.S. stores, wholesale, and e-commerce shipments in the U.S. We had another company-operated distribution center located in Mississauga, Ontario, which supported all of our store fulfillment activities in Canada.
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.
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.
Most of these factors are beyond our control. It is difficult to predict the impact that general economic conditions, including the effects of the COVID-19 pandemic and inflation, will continue to have on consumer spending and our financial results.
Most of these factors are beyond our control. It is difficult to predict the impact that general economic conditions, including the effects of inflation and geopolitical conditions, will continue to have on consumer spending and our financial results.
We also launched the Sugar & Jade brand in November 2021 and more recently, launched the PJ Place brand in October 2022.
We also launched the Sugar & Jade brand in November 2021 and launched the PJ Place brand in October 2022.
Our common stock is quoted on the Nasdaq Global Select Market. Stock markets in general have experienced, and are likely to continue to experience, price and volume fluctuations, which could have a material adverse effect on the market price of our common stock without regard to our operating performance.
Stock markets in general have experienced, and are likely to continue to experience, price and volume fluctuations, which could have a material adverse effect on the market price of our common stock without regard to our operating performance.
If the current macroeconomic environment deteriorates further, including as a result of the COVID-19 pandemic, there will likely be a negative effect on our revenues, operating margins, and earnings which could have a material adverse effect on our business, financial position, results of operations, and cash flows.
If the current macroeconomic environment deteriorates further, there will likely be a negative effect on our revenues, operating margins, and earnings which could have a material adverse effect on our business, financial position, results of operations, and cash flows.
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.
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. 15 Table of Contents In addition, pursuant to U.S.
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.
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, and other costs, have resulted, and could continue to result, in significant increases in operating costs, as well as cost increases for our products and their importation from our foreign sources of supply and their distribution to our and our third-party partners’ distribution centers, retail locations, international franchise partners, and wholesale and retail customers.
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.
Our cash flows are dependent on, and are affected by, 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 experienced in Fiscal 2023, macroeconomic uncertainties or slowdowns, and geopolitical conditions, including as a result of events such as acts of terrorism, effects of war, pandemics, or other health issues.
The successful operation of our e-commerce business depends on our ability to maintain the efficient and uninterrupted operation of our online order-taking and our fulfillment operations and on our ability to provide a shopping experience that will generate orders and return visits to our site, including by updating our e-commerce platform to stay abreast of changing consumer shopping habits such as the significantly increased use of mobile devices and apps to shop online.
The successful operation of our e-commerce business depends on our ability to conduct an efficient and uninterrupted operation of our online order-taking and our fulfillment operations, whether from our distribution center or from our third party provider’s, and on our ability to provide a shopping experience that will generate orders and return visits to our site, including by updating our e-commerce platform to stay abreast of changing consumer shopping habits such as the significantly increased use of mobile devices and apps to shop online.
Consequently, any such disruption could undermine consumer confidence, which could negatively impact consumer spending patterns or customer traffic, and thus have a material adverse effect on our business, financial position, results of operations, and cash flows.
Consequently, any such disruption could undermine consumer confidence, which could negatively impact consumer spending patterns or customer traffic, and thus have a material adverse effect on our business, financial position, results of operations, and cash flows. We have franchise partners located in Middle-Eastern 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.
In order to comply with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) 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. 26 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.
On occasion, we may utilize additional facilities to support our seasonal warehousing needs.
On occasion, we may utilize additional facilities to 16 Table of Contents support our seasonal warehousing needs.
Purchases of apparel and related merchandise are generally discretionary and, therefore, tend to decline during recessionary, inflationary and weak economic periods and also may decline at other times, including as a result of the COVID-19 pandemic.
Purchases of apparel and related merchandise are generally discretionary and, therefore, tend to decline during recessionary, inflationary and weak economic periods and also may decline at other times.
In addition, any changes in the current accounting rules, including legislative and other proposals, could increase the expenses we report under U.S. GAAP and have a material adverse effect on our business, financial position, results of operations, and cash flows. ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
In addition, any changes in the current accounting rules, including legislative and other proposals, could increase the expenses we report under U.S. GAAP and have a material adverse effect on our business, financial position, results of operations, and cash flows. We have in the past experienced a material weakness in our internal controls over financial reporting.
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.
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.
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.
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.
There can be no assurance that the delinquencies being experienced by providers of consumer credit generally would not cause providers of third-party credit offered by us to decrease the availability of, or increase the cost of, such credit.
Additionally, during periods of increasing consumer credit delinquencies, financial institutions may reexamine their lending practices and procedures. There can be no assurance that the delinquencies being experienced by providers of consumer credit generally would not cause providers of third-party credit offered by us to decrease the availability of, or increase the cost of, such credit.
Since the program was announced in 2013, we have closed 586 stores, including 59 stores closed in Fiscal 2022.
Since the program was announced in 2013, we have closed 676 stores, including 90 stores closed in Fiscal 2023.
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.
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. 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.
We rely heavily on various information and other business systems to manage our complex operations, including our online business, management of our global supply chain, merchandise assortment planning, inventory allocation and replenishment, order management, warehousing, distribution and shipping activities, point-of-sale processing in our stores, including credit and debit card processing, gift cards, our private label credit card, our customer loyalty program, and various other processes and transactions.
A material disruption in, failure of, inability to upgrade, or inability to properly implement disaster recovery plans for, our information technology or other business systems could have a material adverse effect on our business, financial position, results of operations, and cash flows. 24 Table of Contents We rely heavily on various information and other business systems to manage our complex operations, including our online business, management of our global supply chain, merchandise assortment planning, inventory allocation and replenishment, order management, warehousing, distribution and shipping activities, point-of-sale processing in our stores, including credit and debit card processing, gift cards, our private label credit card, our customer loyalty program, and various other processes and transactions.
In addition, we believe that factors such as quarterly fluctuations in our financial results, other risk factors identified here, announcements or actions by other competitors, the overall economy, including as affected by the COVID-19 pandemic, legislative, regulatory and other actions resulting from the Presidential administration or U.S.
In addition, we believe that factors such as quarterly fluctuations in our financial results, other risk factors identified here, announcements or actions by other competitors, the overall economy, legislative, regulatory and other actions resulting from the Presidential administration or U.S. Congress, and the geopolitical environment could individually or in aggregation cause the price of our common stock to fluctuate substantially.
Currency exchange rate fluctuations could also disrupt the business of the third-party manufacturers that produce our products, or franchisees that purchase our products, by making their purchases of raw materials or products more expensive and more difficult to finance.
Currency exchange rate fluctuations could also disrupt the business of the third-party manufacturers that produce our products, or franchisees that purchase our products, by making their purchases of raw materials or products more expensive and more difficult to finance. 18 Table of Contents Changes in currency exchange rates affect the U.S. dollar value of the Canadian dollar denominated prices at which our Canadian business sells product.
If any of our landlords or their substantial tenants, such as anchor department stores, should suffer financial difficulty, it could render our landlords unable to fulfill their duties under our lease agreements and/or could render certain malls to experience reduced customer traffic.
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. 20 Table of Contents If any of our landlords or their substantial tenants, such as anchor department stores, should suffer financial difficulty, it could render our landlords unable to fulfill their duties under our lease agreements and/or could render certain malls to experience reduced customer traffic.
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.
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 any future share repurchases, and we may be required to seek additional sources of liquidity as we did in Fiscal 2023 and are continuing to do so in Fiscal 2024.
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.
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.
Congress, and the geopolitical environment could individually or in aggregation cause the price of our common stock to fluctuate substantially. We have experienced, and may experience, large “short” positions in our common stock relative to other publicly traded companies in our industry.
We have experienced, and may experience, large “short” positions in our common stock relative to other publicly traded companies in our industry.
We believe that our trademarks and service marks are important to our success and our competitive position due to their name recognition with our customers.
RISKS RELATED TO LEGAL AND REGULATORY MATTERS We may be unable to protect our trademarks and other intellectual property rights. We believe that our trademarks and service marks are important to our success and our competitive position due to their name recognition with our customers.
Changes in currency exchange rates affect the U.S. dollar value of the Canadian dollar denominated prices at which our Canadian business sells product. As a result, fluctuations in exchange rates impact the amount of our reported sales and expenses, which could have a material adverse effect on our business, financial position, results of operations, and cash flows.
As a result, fluctuations in exchange rates impact the amount of our reported sales and expenses, which could have a material adverse effect on our business, financial position, results of operations, and cash flows. Additionally, we have foreign currency denominated receivables and payables that are not hedged against foreign currency fluctuations.
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.
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 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, and any future share repurchases or payment of dividends.
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.
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.
If payment of dividends is resumed, any subsequent reduction or discontinuance by us of the payment of quarterly cash dividends could cause the market price of our common stock to decline. RISKS RELATED TO LEGAL AND REGULATORY MATTERS We may be unable to protect our trademarks and other intellectual property rights.
If payment of dividends is resumed, any subsequent reduction or discontinuance by us of the payment of quarterly cash dividends could cause the market price of our common stock to decline. We have no current plans to pay regular cash dividends on our common stock for the foreseeable future.
Acts of terrorism, effects of war, pandemics or other health issues, such as COVID-19, natural disasters, other catastrophes, or political unrest could have a material adverse effect on our business. Threatened or actual acts of terrorism, including U.S. domestic terrorism, continue to be a risk to the U.S. and global economies.
When settled, these receivables and payables could result in significant transaction gains or losses. Acts of terrorism, effects of war, pandemics or other health issues, natural disasters, other catastrophes, or political unrest could have a material adverse effect on our business.
Credit card operations are subject to numerous federal and state laws that impose disclosure and other requirements upon the origination, servicing, and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be charged by a credit provider. Additionally, during periods of increasing consumer credit delinquencies, financial institutions may reexamine their lending practices and procedures.
Credit card operations are subject to numerous federal and state laws that impose disclosure and other requirements upon the origination, servicing, and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be charged by a credit provider, such as the Consumer Financial Protection Bureau’s recent amendment to Regulation Z to limit the dollar amounts credit card companies can charge for late fees, which we expect could have a material adverse effect on the income and cash flow from our private label credit card program.
A material disruption in, failure of, inability to upgrade, or inability to properly implement disaster recovery plans for, our information technology or other business systems could have a material adverse effect on our business, financial position, results of operations, and cash flows.
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.
Removed
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.
Added
We require continued access to capital and our business and operating results have been and can be affected by factors such as the availability, terms of and cost of capital, increases in interest rates or a reduction in credit rating.
Removed
Additionally, we have foreign currency denominated receivables and payables that are not hedged against foreign currency fluctuations. When settled, these receivables and payables could result in significant transaction gains or losses.
Added
We are party to an Amended and Restated Credit Agreement dated May 9, 2019 (as amended from time to time, the “Credit Agreement”), with Wells Fargo, National Association (“Wells Fargo”), Bank of America, N.A., HSBC Bank (USA), N.A., JPMorgan Chase Bank, N.A., Truist Bank and PNC Bank, National Association, as lenders (collectively, the “Credit Agreement Lenders”), and Wells Fargo, as Administrative Agent, Collateral Agent and Swing Line Lender.
Removed
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.
Added
Under the Credit Agreement we use our asset-based revolving credit facility (the “ABL Credit Facility”) to finance our ongoing operations and our future growth, and some of the aforementioned factors have already affected our business, and could continue to: cause our cost of doing business to increase, limit our ability to pursue business opportunities, reduce cash flow used for sales and marketing, and place us at a competitive disadvantage.
Removed
This viral outbreak continues to make it difficult for our suppliers to source raw materials, manufacture goods, and export our products.
Added
Our historical operating results, including the operational losses experienced in Fiscal 2023, macroeconomic uncertainties or slowdowns, volatility in the financial markets, significant losses in financial institutions’ U.S. retail portfolios, or environmental and social concerns, are all factors that may lead to a contraction in credit availability impacting our ability to finance our operations or our ability to refinance our ABL Credit Facility or other outstanding indebtedness.
Removed
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.
Added
Any increase in interest rates could increase our interest expense and materially adversely affect our financial condition. These increased costs have, and could continue to, reduce our profitability and/or impair our ability to meet our debt obligations and to conduct ongoing operations.
Removed
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.
Added
An increase in interest rates also could limit our ability to refinance existing debt upon maturity or cause us to pay higher rates upon refinancing.
Removed
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.
Added
A significant reduction in cash flow from operations or the availability of credit could materially and adversely affect our cash available and our operating results, by inhibiting our ability to conduct ongoing operations and carry out our development plans. 14 Table of Contents Furthermore, as a retail company, we are inherently subject to the risk of inventory loss and theft.
Removed
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.
Added
We may not be able to successfully execute our business strategies.
Removed
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.
Added
In Fiscal 2023, we recorded an impairment charge of $29.0 million on the Gymboree tradename, primarily due to an increase in the discount rate used to value the tradename and reductions in Gymboree sales forecasts.
Removed
For 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.
Added
Its lease expired in April 2024 and we moved these operations to the United States to our current distribution center in Alabama as of the end of the first quarter of Fiscal 2024.
Removed
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.

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Item 2. Properties

Properties — owned and leased real estate

3 edited+4 added−2 removed1 unchanged
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.
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 Hong Kong, China (3) Product Support 11,000 4/30/2027 500 Plaza Drive, Secaucus, NJ (3)(4) Corporate Offices 120,000 5/31/2037 500 Plaza Drive, Secaucus, NJ (5) Corporate Offices 80,000 5/31/2024 ____________________________________________ (1) Supports our U.S. stores, wholesale, and e-commerce business.
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.
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 1.8 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 28, 2023: Location Use Approximate Sq.
The following table sets forth information with respect to certain of our non-store locations as of February 3, 2024: Location Use Approximate Sq.
Removed
(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.
Added
(2) Supports our Canadian stores and our Canadian e-commerce business. We moved these operations to the United States to our current distribution center in Alabama as of the end of the first quarter of Fiscal 2024.
Removed
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.
Added
(3) Supports our U.S. stores, our e-commerce business, our Canadian stores, our international franchisees, and wholesale business. 29 Table of Contents (4) We signed a new lease in January 2024 under more favorable terms, which expires in May 2037, with a termination right after the seventh year, and two five-year renewal options at fair market value.
Added
(5) Supports our U.S. stores, our e-commerce business, our Canadian stores, our international franchisees, and wholesale business. The current lease expires on May 31, 2024 but will continue on a month-to-month basis until May 31, 2025, which we can terminate by providing the landlord with a 60-day notice period.
Added
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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

4 edited+11 added−0 removed5 unchanged
Biggest changeIn connection with the settlement, the Company recorded a reserve for $5.0 million in its consolidated financial statements in the first quarter of 2017. The Company is also involved in various legal proceedings arising in the normal course of business.
Biggest changeIn connection with the settlement, the Company recorded a reserve for $5.0 million in its consolidated financial statements in the first quarter of 2017. Similar to the Rael case above, the Company is also a defendant in Gabriela Gonzalez v. The Children’s Place, Inc. , a purported class action, pending in the U.S. District Court, Central District of California.
In the opinion of management, any ultimate liability arising out of these proceedings will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 26 Table of Contents PART II
In the opinion of management, any ultimate liability arising out of these proceedings will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 31 Table of Contents PART II
The settlement provides merchandise vouchers for qualified class members who submit valid claims, as well as payment of legal fees and expenses and claims administration expenses. Vouchers were distributed to class members on November 15, 2021 and they will be eligible for redemption in multiple rounds through November 2023.
The settlement provides merchandise vouchers for qualified class members who submit valid claims, as well as payment of legal fees and expenses and claims administration expenses. Vouchers were distributed to class members on November 15, 2021 and they were eligible for redemption in multiple rounds through November 2023.
The 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 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.
Added
On February 23, 2024, a hearing on motion for preliminary injunction and permanent injunction and to enforce judgement and settlement agreement was held.
Added
Pending receipt of the court’s ruling, upon the court’s order, the plaintiff filed a renewed motion for attorneys’ fees, costs and incentive awards on March 4, 2024, to which the Company filed a statement of non-opposition on April 1, 2024.
Added
Because the plaintiff was seeking less than the maximum amount agreed to in the settlement, the Company requested that such difference in amount be distributed as vouchers to authorized class members, pursuant to the settlement agreement. The hearing for the motion for attorneys’ fees, costs, and incentive awards is set for May 3, 2024.
Added
The plaintiff alleged that the Company had falsely advertised discounts that do not exist, in violation of California’s Unfair Competition Laws, False Advertising Law and the California Consumer Legal Remedies Act.
Added
The Company filed a motion to compel arbitration, which the plaintiff did not oppose, and the court granted the motion on August 17, 2022—staying the case pending the outcome of the arbitration. The demand for arbitration was filed on October 4, 2022, in connection with the individual claim of the plaintiff.
Added
A mass arbitration firm associated with plaintiff’s counsel then conducted an advertising campaign for claimants to conduct a mass arbitration. In part, to avoid the mass arbitration, the parties stipulated to return the original plaintiff’s claim to court to proceed as a class action.
Added
Accordingly, the arbitration would not be proceeding and the Company’s response to the original plaintiff’s complaint in court was filed on July 20, 2023. On August 16, 2023, however, the Company began to receive notices regarding approximately 1,300 individual demands that were filed with Judicial Arbitration and Mediation Services, Inc. as part of a related mass arbitration claim.
Added
The parties participated in mediation proceedings on November 15, 2023 and February 9, 2024. The parties agreed to further discuss settlement options in May 2024. As of February 2024, the Company is also a defendant in Randeep Singh Khalsa v.
Added
The Children’s Place, Inc. et al. , a purported class action, pending in the United States District Court of New Jersey.
Added
The complaint purports to assert claims under the federal securities laws, alleging that between March 16, 2023, and February 8, 2024, the Company made materially false and/or misleading statements, and failed to disclose material adverse facts to its investors, which the complaint alleges led to a drop in the price of the Company’s common stock.
Added
The Company intends to defend this case vigorously and it is currently too early to assess the possible outcome of this case. 30 Table of Contents The Company is also involved in various legal proceedings arising in the normal course of business.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures. 26 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 27 Item 6. [Reserved] 29 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 30 Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 40 Item 8.
Biggest changeItem 4. Mine Safety Disclosures. 31 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 32 Item 6. [Reserved] 35 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 36 Item 7A. Quantitative and Qualitative Disclosures A bout Market Risk. 48 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

9 edited+2 added−2 removed2 unchanged
Biggest changeThe timing and actual number of shares repurchased under a program will depend on a variety of factors, including price, corporate and regulatory requirements, and other market and business conditions. We may suspend or discontinue the programs at any time and may thereafter reinstitute purchases, all without prior announcement.
Biggest changeUnder this program, we may repurchase shares on the open market at current market prices at the time of purchase or in privately negotiated transactions. The timing and actual number of shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, and other market and business conditions.
(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”).
(2) Includes 411 shares withheld to cover taxes in conjunction with the vesting of stock awards. 32 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 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.
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 470,805 Equity Compensation Plans Not Approved by Security Holders N/A N/A N/A Total N/A N/A 470,805 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 28, 2023, about the shares of our Common Stock that may be issued under our equity compensation plans.
The following table provides information as of February 3, 2024, about the shares of our common stock that may be issued under our equity compensation plans.
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
FY19 FY20 FY21 FY22 FY23 The Children’s Place---"PLCE" $ 59.67 $ 73.47 $ 70.44 $ 43.60 $ 21.39 NASDAQ US Benchmark TR Index 2,819.09 3,406.63 3,963.21 3,687.47 4,518.41 NASDAQ US Benchmark Retail TR Index 3,768.85 5,214.30 5,453.85 4,647.98 6,293.98 34 Table of Contents
The 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.
The following table summarizes our share repurchases: Fiscal Years Ended February 3, 2024 January 28, 2023 Shares Amount Shares Amount (in thousands) Share repurchases related to: Share repurchase program 210 $ 7,131 1,953 $ 92,945 Shares acquired and held in treasury 8 $ 245 6 $ 293 The following table provides a month-to-month summary of our share repurchase activity during the 14 weeks ended February 3, 2024: 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 10/29/23-11/25/23 — $ — — $ 157,333 11/26/23-12/30/23 (1) 6,139 24.24 4,308 157,232 12/31/23-2/3/24 (2) 411 20.88 411 157,223 Total 6,550 $ 24.03 4,719 $ 157,223 ____________________________________________ (1) Includes 1,831 shares acquired as treasury stock as directed by participants in the Company’s deferred compensation plan and 4,308 shares withheld to cover taxes in conjunction with the vesting of stock awards.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is listed on the Nasdaq Global Select Market, or Nasdaq, under the symbol “PLCE”.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is listed on the Nasdaq Global Select Market, or Nasdaq, under the symbol “PLCE”. As of February 12, 2024, Mithaq had acquired more than 50% of our outstanding shares of common stock and became a controlling shareholder of the Company.
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”).
On April 29, 2024, the number of holders of record of our common stock was 37 and the number of beneficial holders of our common stock was approximately 16,500. In November 2021, our Board of Directors authorized a $250.0 million share repurchase program (the “Share Repurchase Program”).
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.
The graph and the table below assume that $100 was invested on January 31, 2019 in each of our common stock, the NASDAQ US Benchmark TR Index and the NASDAQ US Benchmark Retail TR Index. 33 Table of Contents FY19 FY20 FY21 FY22 FY23 The Children’s Place---"PLCE" $ 63.46 $ 78.14 $ 74.92 $ 46.36 $ 22.74 NASDAQ US Benchmark TR Index 120.73 145.89 169.72 157.91 193.50 NASDAQ US Benchmark Retail TR Index 116.29 160.89 168.29 143.42 194.21 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
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.
Added
We may suspend or discontinue the program at any time and may thereafter reinstitute purchases, all without prior announcement. Currently, pursuant to the terms of our Credit Agreement, as amended by its seventh amendment dated as of April 16, 2024, described in “Note 9. Debt” of the Consolidated Financial Statements, “Item 8.
Removed
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.
Added
Financial Statements and Supplementary Data” of this Form 10-K, we are not expecting to repurchase any shares in Fiscal 2024, except as described below, pursuant to our practice as a result of our insider trading policy. As of February 3, 2024, there was $157.2 million remaining availability under the Share Repurchase Program.

Item 7. Management's Discussion & Analysis

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

88 edited+54 added−19 removed39 unchanged
Biggest changeFiscal 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.
Biggest changeFiscal Years Ended February 3, 2024 January 28, 2023 January 29, 2022 Net sales 100.0 % 100.0 % 100.0 % Cost of sales (exclusive of depreciation and amortization) 72.2 69.9 58.5 Gross profit 27.8 30.1 41.5 Selling, general, and administrative expenses 27.9 27.0 24.0 Depreciation and amortization 2.9 3.0 3.0 Asset impairment charges 2.2 0.2 0.1 Operating income (loss) (5.2) (0.1) 14.4 Interest expense, net (1.9) (0.8) (1.0) Income (loss) before provision (benefit) for income taxes (7.1) (0.9) 13.4 Provision (benefit) for income taxes 2.5 (0.8) 3.6 Net income (loss) (9.6) % (0.1) % 9.8 % Number of Company stores, end of period 523 613 672 The following table sets forth Net sales by segment, for the periods indicated: Fiscal Years Ended February 3, 2024 January 28, 2023 January 29, 2022 (in thousands) Net sales: The Children’s Place U.S. $ 1,457,352 $ 1,533,934 $ 1,723,887 The Children’s Place International 145,156 174,548 191,477 Total Net sales $ 1,602,508 $ 1,708,482 $ 1,915,364 Fiscal 2023 Compared to Fiscal 2022 Net sales decreased $106.0 million, or 6.2%, to $1.603 billion during Fiscal 2023 from $1.708 billion during Fiscal 2022, primarily due to reductions in retail sales due to lower store count and traffic declines to stores, partially offset by continued strength in e-commerce and an increase in wholesale revenue.
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.
Conversely, if our sales decrease or if our costs grow at a faster pace than our sales (i.e., “deleveraging”), we have utilized the investments we have made in our business less efficiently.
Performance Awards cliff vest, if earned, after completion of the applicable service period, which is generally three years. The expense recognized for Performance Awards throughout the service period and the number of shares that are projected to ultimately vest, are based on the estimated degree to which the related performance metrics are expected to be achieved.
Performance Awards cliff vest, if earned, after completion of the applicable service period, which is generally three years. The expense (benefit) recognized for Performance Awards throughout the service period and the number of shares that are projected to ultimately vest, are based on the estimated degree to which the related performance metrics are expected to be achieved.
We grant time-vesting and performance-based stock awards to employees at various management levels. We also grant time-vesting stock awards to our non-employee directors. Time-vesting awards are granted in the form of restricted stock units that require each recipient to complete a service period (“Deferred Awards”). Deferred Awards granted to employees generally vest ratably over three years.
We grant time-vesting and performance-based stock awards to employees at senior management levels. We also grant time-vesting stock awards to our non-employee directors. Time-vesting awards are granted in the form of restricted stock units that require each recipient to complete a service period (“Deferred Awards”). Deferred Awards granted to employees generally vest ratably over three years.
The assets related to these functions are not allocated. We periodically review these allocations and adjust them based upon changes in business circumstances. Net sales to external customers are derived from merchandise sales, and we have no customers that individually account for more than 10% of our net sales.
The assets related to these functions are not allocated. We periodically review these allocations and adjust them based upon changes in business circumstances. Net sales to external customers are derived from merchandise sales, and we have no customers that individually accounted for more than 10% of our net sales.
Cash used in operating activities during Fiscal 2022 was primarily the result of a higher inventory balance, reflecting higher average unit costs, higher inbound transportation costs, and amounts on hand to support growth initiatives, as well as other planned changes in working capital, partially offset by the receipt of a net income tax 38 Table of Contents refund of $15.0 million.
Cash used in operating activities during Fiscal 2022 was primarily the result of a higher inventory balance, reflecting higher average unit costs, higher inbound transportation costs, and amounts on hand to support growth initiatives, as well as other planned changes in working capital, partially offset by the receipt of a net income tax refund of $15.0 million.
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.
The Term Loan was 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.
The discount rate used in our annual impairment testing was 12.0%, which was developed with the assistance of an independent third-party valuation specialist. Unfavorable changes in certain of our key assumptions may affect future testing results.
The discount rate used in our annual impairment testing was 15.0%, which was developed with the assistance of an independent third-party valuation specialist. Unfavorable changes in certain of our key assumptions may affect future testing results.
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.
The amount available for loans and letters of credit under the ABL Credit Facility was 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.
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.
For Performance Awards granted in Fiscal 2023 and Fiscal 2022, employees may earn from 0% to 200% of their Target Shares, and for Performance Awards granted in Fiscal 2021, employees may earn from 0% to 300% 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.
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.
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 2023 — The fifty-three weeks ended February 3, 2024 • Fiscal 2022 — The fifty-two weeks ended January 28, 2023 • Fiscal 2021 — The fifty-two weeks ended January 29, 2022 • Fiscal 2024 — Our next fiscal year representing the fifty-two weeks ending February 1, 2025 • SEC — U.S.
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.
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.
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.
For example, SG&A increased approximately 90 basis points to 27.9% of Net sales during Fiscal 2023 from 27.0% during Fiscal 2022. 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.
We have closed 586 stores since the announcement of our fleet optimization initiative in 2013, including 59 during Fiscal 2022. With over 75% of our store fleet coming up for lease action in the next 24 months, we continue to maintain meaningful financial flexibility in our lease portfolio.
We have closed 676 stores since the announcement of our fleet optimization initiative in 2013, including 90 during Fiscal 2023. With over 75% of our store fleet coming up for lease action in the next 24 months, we continue to maintain meaningful financial flexibility in our lease portfolio.
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.
If 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.
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.
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 February 3, 2024.
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.
Digital remains our top priority and we continue to expand our digital capabilities. 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.
Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by 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.
Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unable to achieve operating results at levels sufficient to fund and/or finance the Company’s current level of operations and repayment of indebtedness, 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 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 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 through value engineering or price increases, various types of litigation, including class action litigations brought under securities, 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, risks related to the existence of a controlling shareholder, and the uncertainty of weather patterns.
We continuously review the appropriateness of the estimates used in preparing our financial statements; however, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information. Consequently, actual results could differ materially from our estimates. “Note 1.
We continuously review the appropriateness of the estimates used in preparing our financial statements; however, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information. Consequently, actual results could differ materially from our estimates. “Note 1. Basis of Presentation and Summary of Significant Accounting Policies” of the Consolidated Financial Statements, “Item 8.
If macroeconomic conditions deteriorate, if interest rates increase, or if actual sales should differ from our projections, changes in these estimates can have a significant impact on the assessment of fair value, which could result in material impairment charges.
If macroeconomic conditions deteriorate, if interest rates increase, or if actual sales should differ from our projections, changes in these estimates can have a significant impact on the assessment of fair value, which could result in material impairment charges. We performed our annual impairment assessment of the Gymboree tradename as of December 31, 2023.
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.
On November 16, 2021, we completed the refinancing of our previous $360.0 million asset-based revolving credit facility and our previous $80.0 million term loan with a new lending group led by an affiliate of Wells Fargo Bank, National Association by entering into a fourth amendment to our Credit Agreement.
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.
The Term Loan was guaranteed by each of our subsidiaries that guaranteed the ABL Credit Facility and contained substantially the same covenants as provided in the ABL Credit Facility.
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.
Both the ABL Credit Facility and the Term Loan contained customary events of default, which included (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, such as a change of control.
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.
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.
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.
For Fiscal 2023, Fiscal 2022, and Fiscal 2021, we recognized $4.0 million, $2.3 million, and $5.9 million, respectively, in interest expense related to the Term Loan.
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.
The table below summarizes the average translation rates that most significantly impact our operating results: Fiscal Years Ended February 3, 2024 January 28, 2023 January 29, 2022 Average Translation Rates (1) Canadian dollar 0.7414 0.7469 0.7986 Hong Kong dollar 0.1277 0.1277 0.1286 ____________________________________________ (1) The average translation rates are the average of the monthly translation rates used during each fiscal year to translate the respective income statements.
Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts. Our historical estimates for inventory obsolescence and shrinkage have not differed materially from actual results. Recently Issued Accounting Standards Refer to “Item 8. Financial Statements and Supplementary Data – Note 1.
Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts. Our historical estimates for inventory obsolescence and shrinkage have not differed materially from actual results. 41 Table of Contents Recently Issued Accounting Standards Refer to “Note 1.
Actual performance may differ from such projections, which would impact the number of shares that vest and the total amount of expense recognized for the related Performance Awards, which could have a material impact on our consolidated financial statements.
Actual performance may differ from such projections, which would impact the number of shares that vest and the total amount of expense (benefit) recognized for the related Performance Awards, which could have a material impact on our consolidated financial statements. As discussed in “Note 18. Subsequent Events” of the Consolidated Financial Statements, “Item 8.
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 .
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 and www.gymboree.com . Included in The Children’s Place U.S. segment are our U.S. and Puerto Rico-based stores and revenue from our U.S.-based wholesale business.
As a percentage of net sales, SG&A increased 300 basis points to 27.0% during Fiscal 2022 from 24.0% during Fiscal 2021.
As a percentage of net sales, SG&A increased 90 basis points to 27.9% during Fiscal 2023 from 27.0% during Fiscal 2022.
Financial Statements and Supplementary Data” – “Note 7. Leases”, “Note 8. Debt”, and “Note 9. Commitments and Contingencies.” Off-Balance Sheet Arrangements We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.
Off-Balance Sheet Arrangements We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.
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.
ABL Credit Facility and Term Loan As of February 3, 2024, we and certain of our subsidiaries maintained the $445.0 million ABL Credit Facility and the $50.0 million Term Loan with Wells Fargo, Truist Bank, Bank of America, N.A., HSBC Business Credit (USA) Inc., JPMorgan Chase Bank, N.A., and PNC Bank as lenders and Wells Fargo, as Administrative Agent, Collateral Agent, Swing Line Lender and Term Agent.
As of January 28, 2023, we had total liquidity of $37.3 million, including $20.6 million of availability under our ABL Credit Facility (after factoring in our excess availability requirement), and $16.7 million of cash on hand.
As of February 3, 2024, we had total liquidity of $37.9 million, including $24.3 million of availability under our ABL Credit Facility (after factoring in our excess availability requirement), and $13.6 million of cash on hand.
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.
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 decreased $13.6 million, or 3.0%, to $447.3 million during Fiscal 2023 from $461.0 million during Fiscal 2022.
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 would range from 0.688% to 0.813% for commercial letters of credit and would range from 0.875% to 1.125% for standby letters of credit. Letter of credit fees would be determined based on the amount of our average daily excess availability under the facility.
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.
Cash Flows and Capital Expenditures Cash provided by operating activities was $92.8 million during Fiscal 2023, compared to $8.2 million of cash used in operating activities during Fiscal 2022.
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 increase primarily resulted from higher net payments under our ABL Credit Facility. Our ability to continue to meet our capital requirements in Fiscal 2024 depends on our cash on hand, our ability to generate cash flows from operations, and available borrowings under our ABL Credit Facility.
We believe that our existing cash on hand, cash generated from operations, and funds available to us through our ABL Credit Facility will be sufficient to fund our capital and other cash requirements for the foreseeable future. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS For a discussion of our contractual obligations and commercial commitments, see “Item 8.
Cash flows generated from operations depends on our ability to achieve our financial plans. We believe that our cash on hand, cash generated from operations, and funds available to us through our ABL Credit Facility will be sufficient to fund our capital and other cash requirements for the foreseeable future.
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.
As of February 3, 2024 and January 28, 2023, unamortized deferred financing costs amounted to $2.4 million and $2.3 million, of which $2.2 million and $2.0 million related to our ABL Credit Facility.
The 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. The Term Loan is pre-payable at any time without penalty, and does not require amortization.
The Term Loan bore interest, payable monthly, at (a) the SOFR per annum plus 2.750% for any portion that was a SOFR loan, or (b) the base rate per annum plus 2.000% for any portion that was a base rate loan. The Term Loan was pre-payable at any time without penalty, and did not require amortization.
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.
Recent Developments Macroeconomic conditions in Fiscal 2023 increased the cost of goods and services necessary to produce, import, and distribute our products, including due to increased costs of labor that reflected increases in wage rates. Inflationary pressures have also adversely affected our core customer, resulting in a decrease in discretionary apparel purchases during Fiscal 2023.
The ABL Credit Facility includes a $25.0 million Canadian sublimit and a $50.0 million sublimit for standby and documentary letters of credit.
Both the ABL Credit Facility and the Term Loan would mature in November 2026. The ABL Credit Facility included a $25.0 million Canadian sublimit and a $50.0 million sublimit for standby and documentary letters of credit.
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.
At February 3, 2024, 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. At April 30, 2024, we had $204.1 million of outstanding borrowings under our ABL Credit Facility.
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.
The table below presents the components of our ABL Credit Facility as of the end of Fiscal 2023 and Fiscal 2022: February 3, 2024 January 28, 2023 (in millions) Total borrowing base availability, net of the excess availability threshold, as applicable $ 258.4 $ 363.8 Credit facility maximum, net of the excess availability threshold, as applicable 400.5 315.0 Maximum borrowing availability (1) 258.4 315.0 Outstanding borrowings 226.7 287.0 Letters of credit outstanding—standby 7.4 7.4 Utilization of credit facility at end of period 234.1 294.4 Availability (2) $ 24.3 $ 20.6 Interest rate at end of period 8.1% 5.9% February 3, 2024 January 28, 2023 (in millions) Average end of day loan balance during the period $ 315.5 $ 274.9 Highest end of day loan balance during the period $ 379.4 $ 297.7 Average interest rate 7.5% 3.7% ____________________________________________ (1) Lower of the credit facility maximum and the total borrowing base availability, both net of the excess availability threshold.
We measure our segment profitability based on operating income, defined as income before interest and taxes. Net sales and direct costs are recorded by each segment.
Included in The Children’s Place International segment are our Canadian-based stores, revenue from our Canadian-based wholesale business, as well as revenue from international franchisees. We measure our segment profitability based on operating income, defined as income before interest and taxes. Net sales and direct costs are recorded by each segment.
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.
These covenants also limited 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. 45 Table of Contents Credit extended under the ABL Credit Facility was 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.
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.
We design, contract to manufacture, and sell fashionable, high quality apparel, accessories and footwear predominantly at value prices, primarily under our proprietary brands: “The Children’s Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place”.
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.
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 inflationary pressures impacting our customer, and changes in product input costs, transportation costs, distribution costs and wage rates.
Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts reflected for income taxes in our consolidated financial statements.
Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts reflected for income taxes in our consolidated financial statements. 40 Table of Contents A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.
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 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.
The Children’s Place U.S. net sales decreased $190.0 million, or 11.0%, to $1.534 billion during Fiscal 2022, compared to $1.724 billion during Fiscal 2021.
Comparable retail sales decreased 4.7% for Fiscal 2023. The Children’s Place U.S. Net sales decreased $76.7 million, or 5.0%, to $1.457 billion during Fiscal 2023, compared to $1.534 billion during Fiscal 2022.
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.
During Fiscal 2023, we repurchased approximately 0.2 million shares for $7.1 million, consisting of shares surrendered to cover tax withholding associated with the vesting of equity awards.
Excluding the impact of these charges, SG&A expenses deleveraged 310 basis points to 26.7% of net sales, primarily as a result of the deleverage of fixed expenses resulting from the decline in net sales as well as inflationary pressures and higher planned marketing spend, partially offset by lower incentive compensation.
Excluding the impact of these charges, SG&A expenses deleveraged 30 basis points to 27.0% of net sales, compared to 26.7%, primarily as a result of the deleveraging of fixed expenses resulting from the decline in net sales and higher planned marketing spending, partially offset by permanent reductions in store payroll and home office payroll, and reductions in variable performance-based equity compensation.
For Fiscal 2022, Fiscal 2021, and Fiscal 2020, we recognized $10.2 million, $7.0 million, and $8.2 million, respectively, in interest expense related to the ABL Credit Facility and Previous ABL Credit Facility. We are charged an unused line fee of 0.20% on the unused portion of the commitments.
For Fiscal 2023, Fiscal 2022, and Fiscal 2021, we recognized $24.2 million, $10.2 million, and $7.0 million, respectively, in interest expense related to the ABL Credit Facility.
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.
This decrease was primarily driven by reduced depreciation of capitalized software, the permanent closure of 90 stores during Fiscal 2023, and a decrease in net book value as a result of the impairment charges recorded in Fiscal 2023, partially offset by the accelerated depreciation related to the voluntary early termination of the corporate office lease.
(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.
(2) The sub-limit availability for letters of credit was $42.6 million at February 3, 2024, January 28, 2023, and January 29, 2022.
The assumptions utilized in determining future taxable income require significant judgment. Actual operating results in future years could differ from our current assumptions, judgments and estimates.
In determining the need for valuation allowances, we consider projected future taxable income, the availability of tax planning strategies, taxable income in prior carryback years, and future reversals of existing taxable temporary differences. The assumptions utilized in determining future taxable income require significant judgment. Actual operating results in future years could differ from our current assumptions, judgments and estimates.
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.
During Fiscal 2023, we closed 90 stores and did not open any new stores. Comparable retail sales decreased 4.7% for Fiscal 2023. Gross profit decreased $68.9 million, or 13.4%, to $445.3 million during Fiscal 2023 from $514.2 million during Fiscal 2022. Gross margin decreased 230 basis points to 27.8% during Fiscal 2023 from 30.1% during Fiscal 2022.
Our working capital deficit increased $76.1 million to $86.4 million at January 28, 2023, compared to $10.3 million at January 29, 2022, primarily reflecting higher outstanding borrowings under our ABL Credit Facility and a decrease in our cash balance, partially offset by higher receivables and lower payables balances, and a higher inventory balance, reflecting higher average unit costs, higher inbound transportation costs, and amounts on hand to support growth initiatives.
Our working capital deficit increased $77.9 million to $164.3 million at February 3, 2024, compared to $86.4 million at January 28, 2023, primarily reflecting a lower inventory balance, driven by lower average unit costs and improved inventory management, as well as a decrease in receivables and an increase in accounts payable, partially offset by lower outstanding borrowings under our ABL Credit Facility.
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.
The following table sets forth, for the periods indicated, selected data from our Statements of Operations expressed as a percentage of Net sales.
For example, keeping all other assumptions constant, a 100-basis point increase in the discount rate would cause the estimated fair value of the Gymboree tradename to decrease by approximately $8.0 million.
For example, keeping all other assumptions constant, a 100-basis point increase in the discount rate would result in further impairment charges of approximately $3.0 million or a 10% decrease in forecasted revenue would result in further impairment charges of approximately $4.0 million.
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 in Fiscal 2022.
Operating loss increased $(82.3) million to $(83.8) million during Fiscal 2023 from $(1.5) million during Fiscal 2022. Operating margin deleveraged 510 basis points to (5.2)% of net sales in Fiscal 2023.
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.
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. Accordingly, we believe that consolidated omni-channel reporting presents the most meaningful and appropriate measure of our performance, including net sales.
Fiscal 2022 and Fiscal 2021 results included incremental operating expenses of $8.6 million and $12.9 million, respectively, as described above, and included all asset impairment charges recorded. Excluding the impact of these incremental charges, operating margin deleveraged 1,470 basis points to 0.4% of net sales.
Fiscal 2023 and Fiscal 2022 results included incremental operating expenses of $51.3 million and $8.6 million, respectively, as described above, and included all asset impairment charges recorded.
Borrowings outstanding under the ABL Credit Facility bear interest, at our option, at: (i) the prime rate plus a margin of 0.375% or 0.625% based on the amount of our average excess availability under the facility; or (ii) the London InterBank Offered Rate, or “LIBOR”, for an interest period of one, three, or six months, as selected by us, plus a margin of 1.125% or 1.375% based on the amount of our average excess availability under the facility.
Under the ABL Credit Facility, based on the amount of our average daily excess availability under the facility, borrowings outstanding bore interest, at our option, at: (i) the prime rate per annum, plus a margin of 1.250% or 1.500%; or (ii) the SOFR per annum, plus a margin of 2.000% or 2.250%.
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.
As of February 3, 2024, we had 523 stores across North America, our e-commerce business at www.childrensplace.com and www.gymboree.com , social media channels on Instagram, Facebook, X, formerly known as Twitter, YouTube and Pinterest, and 225 international points of distribution with our six franchise partners in 16 countries.
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.
The results from our new marketing strategies have been very encouraging and we continue to position marketing as a key growth lever in Fiscal 2024 and beyond. 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 customers with a best-in-class digital experience.
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.
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, we continue to focus on our key strategic growth initiatives – superior product, digital transformation, alternative channels of distribution, and fleet optimization.
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 2022 Compared to Fiscal 2021 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 28, 2023 for the Fiscal 2022 to Fiscal 2021 comparative discussion.
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.
Our effective tax rate was a provision of 35.8% and a benefit of (92.3)% during Fiscal 2023 and Fiscal 2022, respectively.
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.
Senior management has discussed the development and selection of our critical accounting estimates with the Audit Committee of our Board of Directors, which has reviewed our related disclosures herein. 39 Table of Contents 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.
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.
Cash used in investing activities was $27.8 million during Fiscal 2023, compared to $45.9 million during Fiscal 2022. The decrease was driven by lower capital expenditures incurred during the year. Cash used in financing activities was $68.3 million during Fiscal 2023, compared to cash provided by financing activities of $17.1 million during Fiscal 2022.
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.
The ABL Credit Facility contained 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 would become effective in the event that borrowings and other uses of credit exceeded the maximum borrowing availability (as reflected in the table below), based on our ability to maintain a certain amount of excess availability for borrowings (the “excess availability threshold”).
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.
Net loss increased $(153.4) million to $(154.5) million, or $(12.36) per diluted share, during Fiscal 2023, compared to $(1.1) million, or $(0.09) per diluted share, during Fiscal 2022, due to the factors discussed above. Adjusted net loss was $(103.3) million, or $(8.26) per diluted share during Fiscal 2023, compared to $(1.1) million, or $(0.08) per diluted share, during Fiscal 2022.
The accounting estimates discussed below include those that we believe are the most critical to aid in fully understanding and evaluating our financial results. Senior management has discussed the development and selection of our critical accounting estimates with the Audit Committee of our Board of Directors, which has reviewed our related disclosures herein.
Financial Statements and Supplementary Data” of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. The accounting estimates discussed below include those that we believe are the most critical to aid in fully understanding and evaluating our financial results.
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.
Our primary uses of cash are for working capital requirements, which are principally inventory purchases; the payment of interest expense on our ABL Credit Facility and, prior to it being repaid in full as of the effective date of the Seventh Amendment, the term loan under the Credit Agreement; and the financing of capital projects.
The change in the effective tax rate for Fiscal 2022 compared to Fiscal 2021 resulted from a favorable mix of earnings compared to prior year and the release of a reserve for unrecognized tax benefits as a result of a settlement with a taxing authority in the first quarter of Fiscal 2022.
The change in the provision (benefit) for income taxes was primarily driven by the establishment of a valuation allowance against our net deferred tax assets in the fourth quarter of Fiscal 2023 and by the release of a reserve for unrecognized tax benefits as a result of a settlement with a taxing authority in Fiscal 2022.
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.
The decrease was primarily due to reductions in retail sales due to lower store count and traffic declines to stores. Total e-commerce sales, which include postage and handling, were 53.9% of net retail sales and 48.3% of net sales during Fiscal 2023, compared to 47.7% and 44.0%, respectively, during Fiscal 2022.
Fiscal 2021 results included incremental expenses, including personal protective equipment and incentive pay for our associates of $1.6 million, restructuring costs, primarily related to severance costs for corporate and store associates, of $2.3 million, fleet optimization costs of $2.4 million, and contract termination costs of $0.8 million.
Fiscal 2023 results included incremental operating expenses, including restructuring costs of $10.5 million, fleet optimization costs of $3.1 million, a reserve of $3.0 million for a customer lawsuit, contract termination costs of $3.0 million, professional and consulting fees of $1.8 million, offset by a settlement payment received of $6.5 million.
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.
However, stores that temporarily close will be excluded from Comparable Retail Sales until the store is re-opened for a full fiscal month 36 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 an omni-channel children’s specialty portfolio of brands with an industry-leading digital-first operating model.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+3 added−0 removed3 unchanged
Biggest changeA 10% change in the three month LIBOR Rate would not have had a material impact on our interest expense. Assets and Liabilities of Foreign Subsidiaries Assets and liabilities outside the United States are primarily located in Canada and Hong Kong, where our investments in our subsidiaries are considered long-term.
Biggest changeAssets and Liabilities of Foreign Subsidiaries Assets and liabilities outside the United States are primarily located in Canada and Hong Kong, where our investments in our subsidiaries are considered long-term. As of February 3, 2024, net assets in Canada and Hong Kong amounted to $5.5 million.
Consequently, any significant or sudden change in the political, foreign trade, financial, banking, or currency policies and practices, or the occurrence of significant labor unrest in these countries, could have a material adverse impact on our business, financial position, results of operations, and cash flows.
Consequently, any significant or sudden change in the political, foreign trade, financial, banking, or currency policies and practices, or the occurrence of significant labor unrest in these countries, could have a material adverse impact on our business, financial position, results of operations, and cash flows. 48 Table of Contents
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.
A 10% change in foreign currency exchange rates would not result in a significant transaction gain or loss in earnings. We import a vast majority of our merchandise from foreign countries, primarily Vietnam, Bangladesh, Ethiopia, Cambodia, Kenya, India, and China.
Because of the short-term nature of these instruments, changes in interest rates would not materially affect their fair values. Interest Rates Our ABL Credit Facility bears interest at a floating rate equal to the prime rate or LIBOR, plus a calculated spread based on our average excess availability under the facility.
Because of the short-term nature of these instruments, changes in interest rates would not materially affect their fair values. Interest Rates Our ABL Credit Facility bore interest at a floating rate equal to the prime rate or SOFR, plus a calculated spread based on our average daily excess availability under the facility.
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.
Assuming a 10% change in foreign currency exchange rates, Fiscal 2023 net sales would have decreased or increased by approximately $13.1 million, and total costs and expenses would have decreased or increased by approximately $15.9 million. Additionally, we have foreign currency denominated receivables and payables that, when settled, result in transaction gains or losses.
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.
As of February 3, 2024, we had $3.9 million of our cash and cash equivalents held in foreign subsidiaries, of which $1.5 million was in India, $1.3 million was in China, $0.5 million was in Canada, $0.4 million was in Hong Kong, and $0.2 million was held in other foreign countries.
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).
A 10% increase or decrease in the Canadian and Hong Kong foreign currency exchange rates would increase or decrease the corresponding net investment by $0.6 million. All changes in the net investments in our foreign subsidiaries are recorded in other comprehensive income (loss).
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.
As of February 3, 2024, we had $226.7 million in borrowings under our ABL Credit Facility. A 10% change in the prime rate or SOFR would not have had a material impact on our interest expense.
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.
Our Term Loan bore interest, payable monthly, at (a) the SOFR per annum plus 2.750% for any portion that was a SOFR loan, or (b) the base rate per annum plus 2.000% for any portion that was a base rate loan. As of February 3, 2024, the outstanding balance of the Term Loan was $50.0 million.
Added
A 10% change in the SOFR would not have had a material impact on our interest expense. As of the effective date of the Seventh Amendment, our Term Loan has been fully repaid. See “Recent Developments” above for further information.
Added
During the first quarter of Fiscal 2024, we entered into the New Mithaq Term Loan, which requires monthly payments equivalent to interest charged at the SOFR per annum plus 4.000% per annum, with such monthly payments to Mithaq deferred until April 30, 2025. We also entered into a commitment letter for the Mithaq Credit Facility.
Added
If any debt is incurred under the Mithaq Credit Facility, it shall require monthly payments equivalent to interest charged at the SOFR plus 5.000% per annum. See “Recent Developments” above for further information.

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