Childrens Place, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April 30, 2022 January 29, 2022 May 1, 2021 (unaudited) (unaudited) (in thousands, except par value) ASSETS Current assets: Cash and cash equivalents $ 58,494 $ 54,787 $ 65,376 Accounts receivable 28,812 21,863 42,619 Inventories 549,167 428,813 417,808 Prepaid expenses and other current assets 50,990 76,075 50,594 Total current assets 687,463 581,538 576,397 Long-term assets: Property and equipment, net 157,033 155,006 172,090 Right-of-use assets 191,559 194,653 260,919 Tradenames, net 71,492 71,692 72,292 Deferred income taxes 24,568 23,109 37,433 Other assets 12,911 11,462 8,536 Total assets $ 1,145,026 $ 1,037,460 $ 1,127,667 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Revolving loan $ 249,544 $ 175,318 $ 196,893 Accounts payable 260,634 183,758 228,149 Current portion of operating lease liabilities 89,566 91,097 129,070 Income taxes payable 6,001 10,984 6,418 Accrued expenses and other current liabilities 111,926 130,669 112,904 Total current liabilities 717,671 591,826 673,434 Long-term liabilities: Long-term debt 49,702 49,685 74,526 Long-term portion of operating lease liabilities 129,111 134,761 195,435 Income taxes payable 18,929 14,939 14,939 Other tax liabilities 2,316 8,689 6,323 Other long-term liabilities 13,613 12,088 18,000 Total liabilities 931,342 811,988 982,657 Commitments and contingencies (see Note 7) Stockholders' equity: Preferred stock, $ 1.00 par value, 1,000 shares authorized, 0 shares issued and outstanding — — — Common stock, $ 0.10 par value, 100,000 shares authorized; 13,422 , 13,964 , and 14,693 issued; 13,360 , 13,903 , and 14,635 outstanding 1,342 1,396 1,469 Additional paid-in capital 155,097 160,348 155,908 Treasury stock, at cost ( 62 , 61 , and 58 shares) ( 3,512 ) ( 3,443 ) ( 3,234 ) Deferred compensation 3,512 3,443 3,234 Accumulated other comprehensive loss ( 14,668 ) ( 14,186 ) ( 12,930 ) Retained earnings 71,913 77,914 563 Total stockholders’ equity 213,684 225,472 145,010 Total liabilities and stockholders’ equity $ 1,145,026 $ 1,037,460 $ 1,127,667 See accompanying notes to these consolidated financial statements. 1 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Thirteen Weeks Ended April 30, 2022 May 1, 2021 (in thousands, except earnings per share) Net sales $ 362,350 $ 435,481 Cost of sales (exclusive of depreciation and amortization) 220,445 247,275 Gross profit 141,905 188,206 Selling, general, and administrative expenses 109,036 106,738 Depreciation and amortization 13,615 15,561 Operating income 19,254 65,907 Interest expense ( 1,710 ) ( 4,414 ) Interest income 5 3 Income before provision (benefit) for income taxes 17,549 61,496 Provision (benefit) for income taxes ( 2,282 ) 16,291 Net income $ 19,831 $ 45,205 Earnings per common share Basic $ 1.46 $ 3.08 Diluted $ 1.43 $ 3.01 Weighted average common shares outstanding Basic 13,621 14,670 Diluted 13,841 15,002 See accompanying notes to these consolidated financial statements. 2 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Thirteen Weeks Ended April 30, 2022 May 1, 2021 (in thousands) Net income $ 19,831 $ 45,205 Other comprehensive income: Foreign currency translation adjustment ( 482 ) 886 Total comprehensive income $ 19,349 $ 46,091 See accompanying notes to these consolidated financial statements. 3 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) Thirteen Weeks Ended April 30, 2022 Accumulated Additional Other Total Common Stock Paid-In Deferred Retained Comprehensive Treasury Stock Stockholders’ (in thousands) Shares Amount Capital Compensation Earnings Loss Shares Amount Equity Balance, January 29, 2022 13,964 $ 1,396 $ 160,348 $ 3,443 $ 77,914 $ ( 14,186 ) ( 61 ) $ ( 3,443 ) $ 225,472 Vesting of stock awards 123 12 ( 12 ) — Stock-based compensation expense 7,562 7,562 Purchase and retirement of common stock ( 665 ) ( 66 ) ( 12,801 ) ( 25,832 ) ( 38,699 ) Other comprehensive loss ( 482 ) ( 482 ) Deferral of common stock into deferred compensation plan 69 ( 1 ) ( 69 ) — Net income 19,831 19,831 Balance, April 30, 2022 13,422 $ 1,342 $ 155,097 $ 3,512 $ 71,913 $ ( 14,668 ) ( 62 ) $ ( 3,512 ) $ 213,684 Thirteen Weeks Ended May 1, 2021 Accumulated Additional Retained Other Total Common Stock Paid-In Deferred Earnings Comprehensive Treasury Stock Stockholders’ (in thousands) Shares Amount Capital Compensation (Deficit) Loss Shares Amount Equity Balance, January 30, 2021 14,641 $ 1,464 $ 148,519 $ 3,165 $ ( 42,790 ) $ ( 13,816 ) ( 57 ) $ ( 3,165 ) $ 93,377 Vesting of stock awards 81 8 ( 8 ) — Stock-based compensation expense 7,916 7,916 Purchase and retirement of common stock ( 29 ) ( 3 ) ( 519 ) ( 1,852 ) ( 2,374 ) Other comprehensive income 886 886 Deferral of common stock into deferred compensation plan 69 ( 1 ) ( 69 ) — Net income 45,205 45,205 Balance, May 1, 2021 14,693 $ 1,469 $ 155,908 $ 3,234 $ 563 $ ( 12,930 ) ( 58 ) $ ( 3,234 ) $ 145,010 See accompanying notes to these consolidated financial statements. 4 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Thirteen Weeks Ended April 30, 2022 May 1, 2021 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 19,831 $ 45,205 Reconciliation of net income to net cash used in operating activities: Non-cash portion of operating lease expense 19,247 26,659 Depreciation and amortization 13,615 15,561 Non-cash stock-based compensation expense 7,562 7,916 Deferred income tax provision (benefit) ( 1,583 ) 8,389 Other non-cash charges, net 467 389 Changes in operating assets and liabilities: Inventories ( 120,806 ) ( 29,689 ) Accounts receivable and other assets ( 8,460 ) ( 2,080 ) Prepaid expenses and other current assets ( 210 ) 623 Income taxes payable, net of prepayments 20,840 8,347 Accounts payable and other current liabilities 52,961 ( 30,085 ) Lease liabilities ( 23,822 ) ( 68,303 ) Other long-term liabilities 1,521 506 Net cash used in operating activities ( 18,837 ) ( 16,562 ) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 10,723 ) ( 6,726 ) Change in deferred compensation plan ( 260 ) 18 Net cash used in investing activities ( 10,983 ) ( 6,708 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit facility 222,776 192,415 Repayments under revolving credit facility ( 148,550 ) ( 165,300 ) Purchase and retirement of common stock, including shares surrendered for tax withholdings and transaction costs ( 40,370 ) ( 2,374 ) Payment of debt issuance costs — ( 291 ) Net cash provided by financing activities 33,856 24,450 Effect of exchange rate changes on cash and cash equivalents ( 329 ) 648 Net increase in cash and cash equivalents 3,707 1,828 Cash and cash equivalents, beginning of period 54,787 63,548 Cash and cash equivalents, end of period $ 58,494 $ 65,376 See accompanying notes to these consolidated financial statements. 5 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Thirteen Weeks Ended April 30, 2022 May 1, 2021 (in thousands) OTHER CASH FLOW INFORMATION: Net cash paid (received) for income taxes $ ( 21,645 ) $ 210 Cash paid for interest 1,713 4,123 Increase (decrease) in accrued capital expenditures 4,374 ( 1,547 ) See accompanying notes to these consolidated financial statements. 6 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION Description of Business The Children’s Place, Inc. and subsidiaries (collectively, the “Company”) is the largest pure-play children’s specialty apparel retailer in North America. The Company provides apparel, footwear, accessories, and other items for children and ‘tweens.’ The Company designs, contracts to manufacture, sells at retail and wholesale, and licenses to sell trend right, high-quality merchandise predominantly at value prices, primarily under the Company’s proprietary “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, and “Sugar & Jade” brand names. The Company classifies its business into two segments: The Children’s Place U.S. and The Children’s Place International. Included in The Children’s Place U.S. segment are the Company’s U.S. and Puerto Rico-based stores and revenue from its U.S.-based wholesale business. Included in The Children’s Place International segment are its Canadian-based stores, revenue from the Company’s Canadian-based wholesale business, as well as revenue from international franchisees. Each segment includes an e-commerce business located at www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com . Terms that are commonly used in the notes to the Company’s consolidated financial statements are defined as follows: • First Quarter 2022 — The thirteen weeks ended April 30, 2022 • First Quarter 2021 — The thirteen weeks ended May 1, 2021 • SEC — U.S. Securities and Exchange Commission • U.S. GAAP — Generally Accepted Accounting Principles in the United States • FASB — Financial Accounting Standards Board • FASB ASC — FASB Accounting Standards Codification, which serves as the source for authoritative U.S. GAAP, except that rules and interpretive releases by the SEC are also sources of authoritative U.S. GAAP for SEC registrants Basis of Presentation The unaudited consolidated financial statements and accompanying notes to consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. As of April 30, 2022, January 29, 2022 and May 1, 2021, the Company did not have any investments in unconsolidated affiliates. FASB ASC 810— Consolidation is considered when determining whether an entity is subject to consolidation. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of April 30, 2022 and May 1, 2021, the results of its consolidated operations for the thirteen weeks ended April 30, 2022 and May 1, 2021, consolidated comprehensive income for the thirteen weeks ended April 30, 2022 and May 1, 2021, consolidated cash flows for the thirteen weeks ended April 30, 2022 and May 1, 2021, and consolidated changes in stockholders’ equity for the thirteen weeks ended April 30, 2022 and May 1, 2021. The consolidated balance sheet as of January 29, 2022 was derived from audited financial statements. Due to the seasonal nature of the Company’s business, the results of operations for the thirteen weeks ended April 30, 2022 and May 1, 2021 are not necessarily indicative of operating results for a full fiscal year. These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022. Fiscal Year The Company’s fiscal year is a 52-week or 53-week period ending on the Saturday on or nearest to January 31. 7 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and amounts of revenues and expenses reported during the period. Actual results could differ from the assumptions used and estimates made by management, which could have a material impact on the Company’s financial position or results of operations. Critical accounting estimates inherent in the preparation of the consolidated financial statements include impairment of long-lived assets, income taxes, stock-based compensation, and inventory valuation. Recent Accounting Standards Updates There are no pending accounting standards updates that are currently expected to have a material impact on the Company. 2. REVENUES Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The following table presents the Company’s revenues disaggregated by geography: Thirteen Weeks Ended April 30, 2022 May 1, 2021 (in thousands) Net sales: South $ 136,372 $ 165,738 Northeast 75,396 95,022 West 50,132 62,223 Midwest 43,613 60,804 International and other 56,837 51,694 Total net sales $ 362,350 $ 435,481 The Company recognizes revenue, including shipping and handling fees billed to customers, upon purchase at the Company’s retail stores or when received by the customer if the product was purchased via e-commerce, net of coupon redemptions and anticipated sales returns. The Company deferred sales of $ 5.3 million and $ 6.7 million within Accrued expenses and other current liabilities as of April 30, 2022 and May 1, 2021, respectively, based upon estimated time of delivery, at which point control passes to the customer. Sales tax collected from customers is excluded from revenue. For the sale of goods with a right of return, the Company recognizes revenue for the consideration it expects to be entitled to and calculates an allowance for estimated sales returns based upon the Company’s sales return experience. Adjustments to the allowance for estimated sales returns in subsequent periods have not been material based on historical data, thereby reducing the uncertainty inherent in such estimates. The allowance for estimated sales returns, which is recorded in Accrued expenses and other current liabilities, was $ 1.7 million as of April 30, 2022 and May 1, 2021. The Company’s private label credit card is issued to customers for use exclusively at The Children’s Place stores and online at www.childrensplace.com, www.gymboree.com , and www.sugarandjade.com, and credit is extended to such customers by a third-party financial institution on a non-recourse basis to the Company. The private label credit card includes multiple performance obligations for the Company, including marketing and promoting the program on behalf of the bank and the operation of the loyalty rewards program. Included in the agreement with the third-party financial institution was an upfront bonus paid to the Company. The upfront bonus is recognized as revenue and allocated between brand and reward obligations. As the license of the Company’s brand is the predominant item in the performance obligation, the amount allocated to the brand obligation is recognized on a straight-line basis over the initial term. The amount allocated to the reward obligation is recognized on a point-in-time basis as redemptions under the loyalty program occur. 8 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) In measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer, the Company takes into account the related elements of variable consideration, such as additional bonuses, including profit-sharing, over the life of the private label credit card program. Similar to the upfront bonus, the usage-based royalties and bonuses are recognized as revenue and allocated between the brand and reward obligations. The amount allocated to the brand obligation is recognized on a straight-line basis over the initial term. The amount allocated to the reward obligation is recognized on a point-in-time basis as redemptions under the loyalty program occur. In addition, the annual profit-sharing amount is estimated and recognized quarterly within an annual period when earned. The additional bonuses are amortized over the contract term based on anticipated progress against future targets and level of risk associated with achieving the targets. The Company has a points-based customer loyalty program in which customers earn points based on purchases and other promotional activities. These points can be redeemed for coupons to discount future purchases. A contract liability is estimated based on the standalone selling price of benefits earned by customers through the program and the related redemption experience under the program. The value of each point earned is recorded as deferred revenue and is included within Accrued expenses and other current liabilities. The total contract liabilities related to this program were $ 1.8 million and $ 4.3 million as of April 30, 2022 and May 1, 2021, respectively. The Company’s policy with respect to gift cards is to record revenue as and when the gift cards are redeemed for merchandise. The Company recognizes gift card breakage income in proportion to the pattern of rights exercised by the customer when the Company expects to be entitled to breakage and the Company determines that it does not have a legal obligation to remit the value of the unredeemed gift card to the relevant jurisdiction as unclaimed or abandoned property. Gift card breakage is recorded within Net sales. Prior to their redemption, gift cards are recorded as a liability within Accrued expenses and other current liabilities. The liability is estimated based on expected breakage that considers historical patterns of redemption. The gift card liability balance as of April 30, 2022, January 29, 2022, and May 1, 2021 was $ 13.3 million, $ 12.1 million, and $ 12.7 million, respectively. In the First Quarter 2022, the Company recognized Net sales of $ 2.3 million related to the gift card liability balance that existed at January 29, 2022. The Company has an international program of territorial agreements with franchisees. The Company generates revenues from the franchisees from the sale of product and, in certain cases, sales royalties. The Company records net sales and cost of goods sold on the sale of product to franchisees when the franchisee takes ownership of the product. The Company records net sales for royalties when the applicable franchisee sells the product to their customers. Under certain agreements, the Company receives a fee from each franchisee for exclusive territorial rights and based on the opening of new stores. The Company records these territorial fees as deferred revenue and amortizes the fee into net sales over the life of the territorial agreement. 3. INTANGIBLE ASSETS The Company’s intangible assets were as follows: April 30, 2022 Useful Life Gross Amount Accumulated Amortization Net Amount (in thousands) Gymboree tradename (1) Indefinite $ 69,953 $ — $ 69,953 Crazy 8 tradename (1) 5 years 4,000 ( 2,461 ) 1,539 Customer databases (2) 3 years 3,000 ( 3,000 ) — Total intangibles $ 76,953 $ ( 5,461 ) $ 71,492 January 29, 2022 Useful Life Gross Amount Accumulated Amortization Net Amount (in thousands) Gymboree tradename (1) Indefinite $ 69,953 $ — $ 69,953 Crazy 8 tradename (1) 5 years 4,000 ( 2,261 ) 1,739 Customer databases (2) 3 years 3,000 ( 2,827 ) 173 Total intangibles $ 76,953 $ ( 5,088 ) $ 71,865 9 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) May 1, 2021 Useful Life Gross Amount Accumulated Amortization Net Amount (in thousands) Gymboree tradename (1) Indefinite $ 69,953 $ — $ 69,953 Crazy 8 tradename (1) 5 years 4,000 ( 1,661 ) 2,339 Customer databases (2) 3 years 3,000 ( 2,077 ) 923 Total intangibles $ 76,953 $ ( 3,738 ) $ 73,215 ____________________________________________ (1) Included within Tradenames, net on the Consolidated Balance Sheets. (2) Included within Other assets on the Consolidated Balance Sheets. 4. PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: April 30, 2022 January 29, 2022 May 1, 2021 (in thousands) Property and equipment: Land and land improvements $ 3,403 $ 3,403 $ 3,403 Building and improvements 36,188 36,045 36,045 Material handling equipment 64,179 64,989 58,209 Leasehold improvements 196,055 197,436 213,672 Store fixtures and equipment 213,039 212,613 223,546 Capitalized software 325,163 320,716 299,966 Construction in progress 16,199 8,170 16,862 854,226 843,372 851,703 Less accumulated depreciation and amortization ( 697,193 ) ( 688,366 ) ( 679,613 ) Property and equipment, net $ 157,033 $ 155,006 $ 172,090 At April 30, 2022 and May 1, 2021, the Company reviewed its store related long-lived assets for indicators of impairment, and performed a recoverability test if indicators were identified. Based on the results of the analyses performed, the Company did not record significant asset impairment charges in the First Quarter 2022 or First Quarter 2021. 5. LEASES The Company has operating leases for retail stores, corporate offices, distribution facilities, and certain equipment. The Company’s leases have remaining lease terms ranging from less than one year up to ten years , some of which include options to extend the leases for up to five years , and some of which include options to terminate the lease early. The Company records all occupancy costs in Cost of sales, except costs for administrative office buildings, which are recorded in Selling, general, and administrative expenses. As of the periods presented, the Company’s finance leases were not material to the Consolidated Balance Sheets, Consolidated Statements of Operations, or Consolidated Statements of Cash Flows. 10 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) The following components of lease expense were recognized in the Company’s Consolidated Statements of Operations: Thirteen Weeks Ended April 30, 2022 May 1, 2021 (in thousands) Fixed operating lease cost $ 22,970 $ 25,758 Variable operating lease cost (1) 15,118 3,374 Total operating lease cost $ 38,088 $ 29,132 ____________________________________________ (1) Includes short term leases with lease periods of less than 12 months as well as lease abatements accounted for as reductions to variable lease costs under the COVID-19 expedient of $ 0.8 million and $ 8.0 million during the First Quarter 2022 and First Quarter 2021, respectively. As of April 30, 2022, the weighted-average remaining operating lease term was 4.3 years, and the weighted-average discount rate for operating leases was 4.9 %. Cash paid for amounts included in the measurement of operating lease liabilities during the First Quarter 2022 was $ 23.8 million. ROU assets obtained in exchange for new operating lease liabilities were $ 21.1 million during the First Quarter 2022. As of April 30, 2022, the maturities of operating lease liabilities were as follows: April 30, 2022 (in thousands) Remainder of 2022 $ 81,935 2023 60,543 2024 30,697 2025 18,292 2026 15,679 Thereafter 33,671 Total lease payments 240,817 Less: imputed interest ( 22,140 ) Present value of operating lease liabilities $ 218,677 6. DEBT On November 16, 2021, the Company completed the refinancing of its previous $ 360.0 million asset-based revolving credit facility (the “Previous ABL Credit Facility”) and previous $ 80.0 million term loan (the “Previous Term Loan”) with a new lending group led by an affiliate of Wells Fargo Bank, National Association (“Wells Fargo”) by entering into a fourth amendment to its Credit Agreement, dated as of May 9, 2019, with the lenders party thereto. The new debt consists of a revolving credit facility with $ 350.0 million of availability (the “ABL Credit Facility”) and a $ 50.0 million term loan (the “Term Loan”). ABL Credit Facility and Term Loan The Company and certain of its subsidiaries maintain the $ 350 million ABL Credit Facility and the $ 50 million Term Loan with 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. Both the ABL Credit Facility and the Term Loan mature in November 2026, and both of these debt facilities have lower interest rates, reduced reporting requirements, and increased flexibility under the covenants compared to the Previous ABL Credit Facility and Previous Term Loan. The ABL Credit Facility includes a $ 25 million Canadian sublimit and a $ 50 million sublimit for standby and documentary letters of credit. 11 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Borrowings outstanding under the ABL Credit Facility bear interest, at the Company’s option, at: (i) the prime rate, plus a margin of 0.375 % or 0.625 % based on the amount of the Company’s 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 the Company, plus a margin of 1.125 % or 1.375 % based on the amount of the Company’s average excess availability under the facility. The Company is charged a fee of 0.20 % on the unused portion of the commitments. Letter of credit fees range from 0.563 % to 0.683 % for commercial letters of credit and from 0.625 % to 0.875 % for standby letters of credit. Letter of credit fees are determined based on the amount of the Company’s average excess availability under the facility. 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 outstanding obligations under the ABL Credit Facility may be accelerated upon the occurrence of certain events, including, among others, non-payment, breach of covenants, the institution of insolvency proceedings, defaults under other material indebtedness, and a change of control, subject, in the case of certain defaults, to the expiration of applicable grace periods. The Company is not subject to any early termination fees. The ABL Credit Facility contains covenants, which include conditions on stock buybacks and the payment of cash dividends or similar payments. These covenants also limit the ability of the Company and its subsidiaries to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, or dispositions or to change the nature of its business. Credit extended under the ABL Credit Facility is secured by a first priority security interest in substantially all of the Company’s U.S. and Canadian assets other than intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the Company’s intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock. The table below presents the components of the Company’s ABL Credit Facility and Previous ABL Credit Facility: April 30, 2022 January 29, 2022 May 1, 2021 (in millions) Credit facility maximum $ 350.0 $ 350.0 $ 360.0 Borrowing base (1) 350.0 279.7 330.4 Outstanding borrowings 249.5 175.3 196.9 Letters of credit outstanding—standby 7.4 7.4 7.4 Utilization of credit facility at end of period 256.9 182.7 204.3 Availability (2) $ 93.1 $ 97.0 $ 126.1 Interest rate at end of period 2.0 % 1.6 % 4.0 % First Quarter 2022 Fiscal 2021 First Quarter 2021 Average end of day loan balance during the period $ 251.2 $ 187.0 $ 210.3 Highest end of day loan balance during the period $ 308.6 $ 269.7 $ 260.6 Average interest rate 2.0 % 3.6 % 4.0 % ____________________________________________ (1) Lower of the credit facility maximum or the total borrowing base collateral. (2) The sub-limit availability for letters of credit was $ 42.6 million at April 30, 2022, January 29, 2022, and May 1, 2021. 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 12 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) penalty, and does not require amortization. For the First Quarter 2022, the Company recognized $ 0.4 million in interest expense related to the Term Loan. The Term Loan is secured by a first priority security interest in the Company’s intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the collateral securing the ABL Credit Facility on a first-priority basis. The Term Loan is guaranteed by each of the Company’s subsidiaries that guarantees the ABL Credit Facility and contains 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. 7. COMMITMENTS AND CONTINGENCIES Legal and Regulatory Matters The Company is a defendant in Rael v. The Children’s Place, Inc. , a purported class action, pending in the U.S. District Court, Southern District of California. In the initial complaint filed in February 2016, the plaintiff alleged that the Company falsely advertised discount prices in violation of California’s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act. The plaintiff filed an amended complaint in April 2016, adding allegations of violations of other state consumer protection laws. In August 2016, the plaintiff filed a second amended complaint, adding an additional plaintiff and removing the other state law claims. The plaintiffs’ second amended complaint sought to represent a class of California purchasers and sought, among other items, injunctive relief, damages, and attorneys’ fees and costs. The Company engaged in mediation proceedings with the plaintiffs in December 2016 and April 2017. 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. The Company submitted its memorandum in support of final approval of the class settlement on March 2, 2021. On March 29, 2021, the court granted final approval of the class settlement and denied plaintiff’s motion for attorney’s fees, with the amount of attorney’s fees to be decided after the class recovery amount has been determined. 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. In 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. 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. 8. STOCKHOLDERS’ EQUITY Share Repurchase Programs In March 2018, the Board of Directors authorized a $ 250.0 million share repurchase program (the “2018 Share Repurchase Program”). In November 2021, the 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, the Company 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 a program will depend on a variety of factors, including price, corporate and regulatory requirements, and other market and business conditions. The Company may suspend or discontinue the programs at any time and may thereafter reinstitute purchases, all without prior announcement. As of April 30, 2022, there was $ 218.6 million remaining under the 2021 Share Repurchase Program. From March 2020 through July 2021, the Company suspended share repurchases, other than to satisfy withholding tax requirements of equity award recipients, due to the COVID-19 pandemic. Pursuant to the Company’s practice, including due to restrictions imposed by the Company’s insider trading policy during black-out periods, the Company withholds and repurchases shares of vesting stock awards and makes payments to taxing 13 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) authorities as required by law to satisfy the withholding tax requirements of all equity award recipients. The Company’s payment of the withholding taxes in exchange for the surrendered shares constitutes a repurchase of its common stock. The Company also acquires shares of its common stock in conjunction with liabilities owed under the Company’s deferred compensation plan, which are held in treasury. The following table summarizes the Company’s share repurchases: Thirteen Weeks Ended April 30, 2022 May 1, 2021 Shares Amount Shares Amount (in thousands) Share repurchases related to: Share repurchase program 665 $ 38,699 29 $ 2,374 Shares acquired and held in treasury 1 $ 69 1 $ 69 In accordance with the FASB ASC 505—Equity, the par value of the shares retired is charged against Common stock and the remaining purchase price is allocated between Additional paid-in capital and Retained earnings. The portion charged against Additional paid-in capital is determined using a pro-rata allocation based on total shares outstanding. For all shares retired in the First Quarter 2022 and First Quarter 2021, $ 25.8 million and $ 1.9 million was charged to Retained earnings, respectively. Dividends In March 2020, the Company announced it had temporarily suspended its dividend payments due to the COVID-19 pandemic. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to approval by the Company’s Board of Directors based on a number of factors, including business and market conditions, the Company’s financial performance, and other investment priorities. 9. STOCK-BASED COMPENSATION The Company generally grants time-vesting stock awards (“Deferred Awards”) and performance-based stock awards (“Performance Awards”) to employees at management levels. The Company also grants Deferred Awards to its non-employee directors. The following table summarizes the Company’s stock-based compensation expense: Thirteen Weeks Ended April 30, 2022 May 1, 2021 (in thousands) Deferred Awards $ 3,425 $ 3,579 Performance Awards 4,137 4,337 Total stock-based compensation expense (1) $ 7,562 $ 7,916 ____________________________________________ (1) Stock-based compensation expense recorded within Cost of sales (exclusive of depreciation and amortization) amounted to $ 0.6 million and $ 1.0 million in the First Quarter 2022 and First Quarter 2021, respectively. All other stock-based compensation expense is included in Selling, general, and administrative expenses. 14 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 10. EARNINGS PER COMMON SHARE The following table reconciles net income and share amounts utilized to calculate basic and diluted earnings per common share: Thirteen Weeks Ended April 30, 2022 May 1, 2021 (in thousands) Net income $ 19,831 $ 45,205 Basic weighted average common shares outstanding 13,621 14,670 Dilutive effect of stock awards 220 332 Diluted weighted average common shares outstanding 13,841 15,002 11. INCOME TAXES The Company computes income taxes using the liability method. This method requires recognition of deferred tax assets and liabilities, measured by enacted rates, attributable to temporary differences between the financial statement and income tax basis of assets and liabilities. The Company’s deferred tax assets and liabilities are comprised largely of differences relating to depreciation and amortization, rent expense, inventory, stock-based compensation, net operating loss carryforwards, tax credits, and various accruals and reserves. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act allows net operating losses (“NOLs”) incurred in taxable years 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to offset 100% of taxable income and to generate a refund of previously paid income taxes. Pursuant to the CARES Act, the Company carried back the taxable year 2020 tax loss of approximately $ 150.0 million to prior years. During the First Quarter 2022, the Company received $ 22.0 million of this income tax refund and the remaining balance of $ 19.1 million as of April 30, 2022, is included within Prepaid expenses and other current assets on the Consolidated Balance Sheets. The Company’s effective income tax rate for the First Quarter 2022 was a benefit of 13.0 %, or $ 2.3 million, compared to a provision of 26.5 %, or $ 16.3 million, during the First Quarter 2021. The decrease in the effective income tax rate for the First Quarter 2022 compared to the First Quarter 2021 was primarily driven by the release of a reserve of $ 6.4 million for unrecognized tax benefits as a result of a settlement with a taxing authority in the First Quarter 2022. The Company accrues interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. The total amount of unrecognized tax benefits was $ 2.3 million, $ 8.7 million, and $ 7.9 million as of April 30, 2022, January 29, 2022, and May 1, 2021, respectively, and is included within non-current liabilities. Additional interest expense recognized in the First Quarter 2022 and First Quarter 2021 related to unrecognized tax benefits was not significant. The Company is subject to tax in the United States and foreign jurisdictions, including Canada and Hong Kong. The Company files a consolidated U.S. income tax return for federal income tax purposes. The Company is no longer subject to income tax examinations by U.S. federal, state and local or foreign tax authorities for tax years 2016 and prior. Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues arise as a result of a tax audit, and are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. 12. SEGMENT INFORMATION In accordance with FASB ASC 280— Segment Reporting , the Company reports segment data based on geography: The Children’s Place U.S. and The Children’s Place International. Each segment includes an e-commerce business located at www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com . Included in The Children’s Place U.S. segment are 15 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) the Company’s U.S. and Puerto Rico-based stores and revenue from the Company’s U.S.-based wholesale business. Included in The Children’s Place International segment are the Company’s Canadian-based stores, revenue from the Company’s Canadian-based wholesale business, and revenue from international franchisees. The Company measures its segment profitability based on operating income, defined as income before interest and taxes. Net sales and direct costs are recorded by each segment. Certain inventory procurement functions, such as production and design, as well as corporate overhead, including executive management, finance, real estate, human resources, legal, and information technology services, are managed by The Children’s Place U.S. segment. Expenses related to these functions, including depreciation and amortization, are allocated to The Children’s Place International segment based primarily on net sales. The assets related to these functions are not allocated. The Company periodically reviews these allocations and adjusts them based upon changes in business circumstances. Net sales to external customers are derived from merchandise sales, and the Company has no customers that individually account for more than 10% of its net sales. As of April 30, 2022, The Children’s Place U.S. had 583 stores and The Children’s Place International had 82 stores. As of May 1, 2021, The Children’s Place U.S. had 624 stores and The Children’s Place International had 100 stores. The following tables provide segment level financial information: Thirteen Weeks Ended April 30, 2022 May 1, 2021 (in thousands) Net sales: The Children’s Place U.S. $ 327,961 $ 399,659 The Children’s Place International (1) 34,389 35,822 Total net sales $ 362,350 $ 435,481 Operating income: The Children’s Place U.S. $ 16,869 $ 63,912 The Children’s Place International 2,385 1,995 Total operating income $ 19,254 $ 65,907 Operating income as a percentage of net sales: The Children’s Place U.S. 5.1 % 16.0 % The Children’s Place International 6.9 % 5.6 % Total operating income as a percentage of net sales 5.3 % 15.1 % Depreciation and amortization: The Children’s Place U.S. $ 12,587 $ 14,311 The Children’s Place International 1,028 1,250 Total depreciation and amortization $ 13,615 $ 15,561 Capital expenditures: The Children’s Place U.S. $ 10,357 $ 6,487 The Children’s Place International 366 239 Total capital expenditures $ 10,723 $ 6,726 ____________________________________________ (1) Net sales from The Children’s Place International are primarily derived from Canadian operations. The Company’s foreign subsidiaries, primarily in Canada, have operating results based in foreign currencies and are thus subject to the fluctuations of the corresponding translation rates into U.S. dollars. 16