The Children's Place Retail Stores, Inc. Reports Results of Lease-Related Accounting Assessment; Previously Reported Fourth Quarter & Fiscal 2004 Earnings Per Share Remain Unchanged
SECAUCUS, N.J.--(BUSINESS WIRE)--April 13, 2005--The Children's Place Retail Stores, Inc. (Nasdaq: PLCE), today announced that it has completed its previously announced analysis of its lease-related accounting practices in light of an SEC clarification in February. Upon review of the results with its audit committee and independent auditors, the Company has concluded that certain of its accounting practices relating to leases were incorrect and should be changed. These accounting corrections do not materially impact fiscal 2003 net income and, as anticipated, do not materially impact fiscal 2004 net income. All related adjustments are detailed below, and final fourth quarter and fiscal year income statements and balance sheets for fiscal 2004 and fiscal 2003 are attached. Also as expected, these corrections do not impact the Company's current fiscal 2005 adjusted earnings per share guidance of $2.10 to $2.20, which excludes the effects of a non-cash item associated with the Disney Store acquisition and new accounting rules requiring the expensing of stock options. The Company continues to believe that fiscal 2005 net capital-related expenditures will approximate $100 million, comprised of capital expenditures of $110 million and landlord construction allowances of $10 million.
As a result of these corrections, the Company is restating its financial results for fiscal 2002 and fiscal 2003, and advises users that its previously filed financial results should no longer be relied upon. The Company is filing a Form 8-K today that describes the lease-related accounting corrections in more detail. Restated results for the years ended January 31, 2004 and February 1, 2003 will be included in the Company's Form 10-K for the year ended January 29, 2005 to be filed with the Securities and Exchange Commission.
Lease-Related Accounting Practices
Historically, when the Company received landlord construction allowances, they were classified on the balance sheet as a reduction of property and equipment and then amortized as a reduction of depreciation expense over the estimated useful life of the property. Consistent with the SEC clarification, the Company will now account for landlord construction allowances as lease incentives and record them as deferred liabilities, which are amortized as a reduction of rent expense over the lease term.
In addition, the Company has revised its treatment of occupancy costs during construction. Historically, the Company had incorrectly determined that the term of the lease begins on the commencement date of the lease, which generally coincides with the store opening date. The Company has corrected this policy to properly commence the lease once it takes physical possession of the property, which has the effect of including the construction phase in the period over which rent is calculated. The Company continues to capitalize occupancy costs incurred prior to the commencement of store pre-opening activities. These capitalized costs are amortized over the remaining lease term. The net effect was to decrease rent expense with a corresponding increase in depreciation expense, and to increase the amount of deferred rent liability with a corresponding increase in leasehold improvements.
As a result of these lease accounting corrections, the Company is increasing its previously announced fourth quarter, and therefore, fiscal 2004 net income by $16,000. As a result, there is no change to the Company's previously reported earnings per share amounts for the fourth quarter and full fiscal 2004 periods. In addition, the Company is decreasing its previously reported fiscal 2003 net income by $52,000, which does not change earnings per share for that period. Fiscal 2002 net income decreased by $853,000, or $0.03 per share.
The impact of the lease-related accounting corrections on the Company's January 29, 2005, consolidated balance sheet is an increase in net property and equipment of approximately $69.6 million, an increase in total assets of $71.4 million, an increase in total liabilities of $72.3 million and a decrease in stockholders' equity of $0.9 million. The impact on the Company's January 31, 2004, consolidated balance sheet is an increase in net property and equipment of approximately $64.8 million, an increase in total assets of $66.5 million, an increase in total liabilities of $67.5 million, and a decrease in stockholders' equity of $0.9 million.
While the corrections did not change total cash flows, they have changed the classification of landlord construction allowances received from a reduction of cash flows used in investing activities to an increase in cash flows provided by operating activities. For the fiscal years ended January 29, 2005, January 31, 2004 (as restated), and February 1, 2003 (as restated), cash flows provided by operating activities approximated $212.9 million, $80.0 million and $58.3 million, respectively. Additionally, cash flows used in investing activities for those same fiscal years approximated $168.9 million, $43.5 million and $69.2 million, respectively.
About The Children's Place Retail Stores, Inc.
The Children's Place Retail Stores, Inc. is a leading specialty retailer of children's merchandise. The Company designs, contracts to manufacture and sells high-quality, value-priced merchandise under the proprietary "The Children's Place" and licensed "Disney Store" brand names. As of April 1, 2005, the Company owned and operated 752 The Children's Place stores in North America, 306 Disney Stores in North America and its online store, www.childrensplace.com.
Use of Non-GAAP Measures
The Company is providing adjusted financial information as an addition to, and not as a substitute for, financial measures presented in accordance with generally accepted accounting principles ("GAAP"). To facilitate the analysis of net income, the Company adjusted its fourth quarter and fiscal 2004 net income to exclude a non-cash item and an extraordinary gain, both associated with the Company's November 2004 acquisition of Disney Store North America. The Company has excluded such items because it does not believe they are indicative of the core business and believes that the adjusted presentation is a beneficial supplemental disclosure to investors in analyzing its past and future performance. Such presentation is a non-GAAP measure, and a reconciliation to net income under accounting principles generally accepted in the United States is attached. Adjusted net income and adjusted earnings per share are "Non-GAAP financial measures" as defined by the Securities and Exchange Commission, and may differ from non-GAAP financial measures used by other companies.
This press release may contain certain forward-looking statements regarding future circumstances. These forward-looking statements are based upon the Company's current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements including, in particular, the risks and uncertainties described in the Company's filings with the Securities and Exchange Commission. Actual results, events, and performance may differ. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The inclusion of any statement in this release does not constitute an admission by The Children's Place or any other person that the events or circumstances described in such statement are material.
THE CHILDREN'S PLACE RETAIL STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
13 Weeks Ended: 52 Weeks Ended:
----------------- -----------------
January January January January
29, 31, 29, 31,
2005 2004 2005 2004
-------- ------- ------- ---------
(As (As
Restated) Restated)
Net sales $462,108 $234,569 $1,157,548 $797,938
Cost of sales 281,659 131,663 705,681 476,961
-------- -------- ---------- --------
Gross profit 180,449 102,906 451,867 320,977
Selling, general and
administrative expenses 128,982 65,922 329,916 235,415
Asset impairment charges 164 448 164 448
Depreciation and
amortization 13,383 12,753 51,835 48,700
-------- -------- ---------- --------
Operating income 37,920 23,783 69,952 36,414
Interest expense (income),
net 176 (127) 22 (255)
-------- -------- ---------- ---------
Income before income taxes
and extraordinary gain 37,744 23,910 69,930 36,669
Provision for income taxes 14,042 8,787 26,923 13,764
-------- -------- ---------- ---------
Income before extraordinary
gain 23,702 15,123 43,007 22,905
Extraordinary gain
(net of taxes) 273 -- 273 --
-------- -------- ---------- ---------
Net income $ 23,975 $ 15,123 $ 43,280 $ 22,905
======== ======== ========== =========
Basic income per share $ 0.89 $ 0.57 $ 1.61 $ 0.86
Basic weighted average number
of shares outstanding 27,076 26,726 26,919 26,646
Diluted income per share
before extraordinary gain $ 0.84 $ 0.55 $ 1.56 $ 0.85
Diluted income per share $ 0.85 $ 0.55 $ 1.57 $ 0.85
Diluted weighted average
number of shares outstanding 28,106 27,510 27,633 27,099
THE CHILDREN'S PLACE RETAIL STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
January 29, 2005 January 31, 2004
---------------- ----------------
(As Restated)
Current assets:
Cash and cash equivalents $ 165,196 $ 74,772
Accounts receivable 23,987 8,462
Inventories 161,969 96,128
Other current assets 41,007 20,070
------------- ---------------
Total current assets 392,159 199,432
Property and equipment, net 222,722 211,454
Other assets, net 12,507 15,317
------------- ---------------
Total assets $ 627,388 $ 426,203
============= ===============
Current liabilities:
Revolving credit facility $ 37,268 $ 0
Accounts payable 78,106 35,173
Accrued expenses and
other current liabilities 99,575 49,984
------------- ---------------
Total current liabilities 214,949 85,157
Other liabilities 100,776 84,961
------------- ---------------
Total liabilities 315,725 170,118
Stockholders' equity 311,663 256,085
------------- ---------------
Total liabilities and
stockholders' equity $ 627,388 $ 426,203
============= ===============
THE CHILDREN'S PLACE RETAIL STORES, INC.
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME
(In thousands, except per share amounts)
(Unaudited)
13 Weeks Ended January 29, 2005
----------------------------------------
Reported Adjustments Adjusted
--------- ------------- ----------
Net sales $ 462,108 $ -- $ 462,108
Cost of sales (1) 281,659 (5,044) 276,615
--------- ----------- ----------
Gross profit 180,449 5,044 185,493
Selling, general and
administrative expenses 128,982 -- 128,982
Asset impairment charges 164 -- 164
Depreciation and
amortization 13,383 -- 13,383
--------- ---------- ----------
Operating income 37,920 5,044 42,964
Interest expense (income),
net 176 -- 176
--------- ---------- ----------
Income before income taxes
and extraordinary gain 37,744 5,044 42,788
Provision for income taxes 14,042 1,942 15,984
--------- ---------- ----------
Income before extraordinary
gain 23,702 3,102 26,804
Extraordinary gain
(net of taxes)(2) 273 (273) 0
--------- ---------- ----------
Net income $ 23,975 $ 2,829 $ 26,804
========= ========== ==========
Basic income per share $ 0.89 $ 0.10 $ 0.99
Basic weighted average number
of shares outstanding 27,076 27,076 27,076
Diluted income per share $ 0.85 $ 0.10 $ 0.95
Diluted weighted average
number of shares outstanding 28,106 28,106 28,106
52 Weeks Ended January 29, 2005
----------------------------------------
Reported Adjustments Adjusted
--------- ------------- ---------
Net sales $1,157,548 $ -- $1,157,548
Cost of sales (1) 705,681 (5,044) 700,637
---------- ---------- ----------
Gross profit 451,867 5,044 456,911
Selling, general and
administrative expenses 329,916 -- 329,916
Asset impairment charges 164 -- 164
Depreciation and
amortization 51,835 -- 51,835
---------- ---------- ----------
Operating income 69,952 5,044 74,996
Interest expense (income),
net 22 -- 22
---------- ---------- ----------
Income before income taxes
and extraordinary gain 69,930 5,044 74,974
Provision for income taxes 26,923 1,942 28,865
---------- ---------- ----------
Income before extraordinary
gain 43,007 3,102 46,109
Extraordinary gain
(net of taxes)(2) 273 (273) 0
---------- ---------- ----------
Net income $ 43,280 $ 2,829 $ 46,109
========== ========== ==========
Basic income per share $ 1.61 $ 0.10 $ 1.71
Basic weighted average
number of shares outstanding 26,919 26,919 26,919
Diluted income per share $ 1.57 $ 0.10 $ 1.67
Diluted weighted average
number of shares outstanding 27,633 27,633 27,633
(1) The adjustment reverses the higher cost of sales resulting from the write-up of the acquired Disney Store inventory to its fair value from the value determined under the retail inventory method for the inventory that was sold during the 10 weeks ended January 29, 2005. Approximately $1.2 million fair value inventory write-up remains on the balance sheet as of January 29, 2005. The Company expects this remaining balance will be recorded as a cost of sales during the first quarter of fiscal 2005 as the remaining acquired inventory is sold.
(2) The extraordinary gain represents the fair value of assets acquired and liabilities assumed in excess of amounts paid to acquire the Disney Store North America.
CONTACT: The Children's Place
Seth Udasin, 201-558-2409
or
Investor Relations:
Heather Anthony, 201-558-2865
SOURCE: The Children's Place