Childrens Place, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) October 28, 2023 January 28, 2023 October 29, 2022 (in thousands, except par value) ASSETS Current assets: Cash and cash equivalents $ 13,522 $ 16,689 $ 19,244 Accounts receivable 51,712 49,584 48,820 Inventories 462,411 447,795 548,719 Prepaid expenses and other current assets 69,710 47,875 48,012 Total current assets 597,355 561,943 664,795 Long-term assets: Property and equipment, net 134,639 149,874 154,975 Right-of-use assets 127,863 155,481 160,041 Tradenames, net 70,291 70,891 71,091 Deferred income taxes 35,237 36,616 20,916 Other assets 7,996 11,476 12,799 Total assets $ 973,381 $ 986,281 $ 1,084,617 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Revolving loan $ 358,679 $ 286,990 $ 265,000 Accounts payable 182,594 177,147 221,432 Current portion of operating lease liabilities 66,216 78,576 77,070 Income taxes payable 2,167 6,014 506 Accrued expenses and other current liabilities 96,086 99,658 119,660 Total current liabilities 705,742 648,385 683,668 Long-term liabilities: Long-term debt 49,801 49,752 49,735 Long-term portion of operating lease liabilities 76,641 96,482 104,073 Income taxes payable 9,611 17,199 18,925 Other tax liabilities 3,529 2,757 2,347 Other long-term liabilities 9,986 13,228 13,693 Total liabilities 855,310 827,803 872,441 Commitments and contingencies (see Note 8) 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; 12,549 , 12,292 , and 12,662 issued; 12,476 , 12,225 , and 12,597 outstanding 1,255 1,229 1,266 Additional paid-in capital 140,330 150,956 148,546 Treasury stock, at cost ( 73 , 67 , and 65 shares) ( 3,932 ) ( 3,736 ) ( 3,661 ) Deferred compensation 3,932 3,736 3,661 Accumulated other comprehensive loss ( 17,499 ) ( 16,247 ) ( 17,011 ) Retained earnings (deficit) ( 6,015 ) 22,540 79,375 Total stockholders’ equity 118,071 158,478 212,176 Total liabilities and stockholders’ equity $ 973,381 $ 986,281 $ 1,084,617 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 Thirty-nine Weeks Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 (in thousands, except earnings (loss) per common share) Net sales $ 480,234 $ 509,120 $ 1,147,474 $ 1,252,355 Cost of sales (exclusive of depreciation and amortization) 318,182 332,189 801,111 817,915 Gross profit 162,052 176,931 346,363 434,440 Selling, general, and administrative expenses 104,770 106,631 329,756 330,480 Depreciation and amortization 11,732 12,463 35,534 39,320 Asset impairment charges 583 — 3,115 1,379 Operating income (loss) 44,967 57,837 ( 22,042 ) 63,261 Interest expense ( 7,956 ) ( 3,810 ) ( 21,549 ) ( 8,123 ) Interest income 17 24 68 43 Income (loss) before provision (benefit) for income taxes 37,028 54,051 ( 43,523 ) 55,181 Provision (benefit) for income taxes ( 1,454 ) 11,196 ( 17,818 ) 5,794 Net income (loss) $ 38,482 $ 42,855 $ ( 25,705 ) $ 49,387 Earnings (loss) per common share Basic $ 3.07 $ 3.28 $ ( 2.06 ) $ 3.72 Diluted $ 3.05 $ 3.26 $ ( 2.06 ) $ 3.68 Weighted average common shares outstanding Basic 12,548 13,064 12,481 13,277 Diluted 12,619 13,162 12,481 13,409 See accompanying notes to these consolidated financial statements. 2 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Thirteen Weeks Ended Thirty-nine Weeks Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 (in thousands) Net income (loss) $ 38,482 $ 42,855 $ ( 25,705 ) $ 49,387 Other comprehensive loss: Foreign currency translation adjustment ( 1,535 ) ( 2,397 ) ( 1,252 ) ( 2,825 ) Total comprehensive income (loss) $ 36,947 $ 40,458 $ ( 26,957 ) $ 46,562 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 October 28, 2023 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, July 29, 2023 12,544 $ 1,254 $ 145,117 $ 3,884 $ ( 44,477 ) $ ( 15,964 ) ( 71 ) $ ( 3,884 ) $ 85,930 Vesting of stock awards 7 1 ( 1 ) — Stock-based compensation benefit ( 4,746 ) ( 4,746 ) Purchase and retirement of common stock ( 2 ) — ( 40 ) ( 20 ) ( 60 ) Other comprehensive loss ( 1,535 ) ( 1,535 ) Deferral of common stock into deferred compensation plan 48 ( 2 ) ( 48 ) — Net income 38,482 38,482 Balance, October 28, 2023 12,549 $ 1,255 $ 140,330 $ 3,932 $ ( 6,015 ) $ ( 17,499 ) ( 73 ) $ ( 3,932 ) $ 118,071 Thirty-nine Weeks Ended October 28, 2023 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 28, 2023 12,292 $ 1,229 $ 150,956 $ 3,736 $ 22,540 $ ( 16,247 ) ( 67 ) $ ( 3,736 ) $ 158,478 Vesting of stock awards 462 47 ( 47 ) — Stock-based compensation benefit ( 6,424 ) ( 6,424 ) Purchase and retirement of common stock ( 205 ) ( 21 ) ( 4,155 ) ( 2,850 ) ( 7,026 ) Other comprehensive loss ( 1,252 ) ( 1,252 ) Deferral of common stock into deferred compensation plan 196 ( 6 ) ( 196 ) — Net loss ( 25,705 ) ( 25,705 ) Balance, October 28, 2023 12,549 $ 1,255 $ 140,330 $ 3,932 $ ( 6,015 ) $ ( 17,499 ) ( 73 ) $ ( 3,932 ) $ 118,071 See accompanying notes to these consolidated financial statements. 4 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) Thirteen Weeks Ended October 29, 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, July 30, 2022 13,087 $ 1,309 $ 151,954 $ 3,587 $ 45,532 $ ( 14,614 ) ( 64 ) $ ( 3,587 ) $ 184,181 Vesting of stock awards 9 1 ( 1 ) — Stock-based compensation expense 5,221 5,221 Purchase and retirement of common stock ( 434 ) ( 44 ) ( 8,628 ) ( 9,012 ) ( 17,684 ) Other comprehensive loss ( 2,397 ) ( 2,397 ) Deferral of common stock into deferred compensation plan 74 ( 1 ) ( 74 ) — Net income 42,855 42,855 Balance, October 29, 2022 12,662 $ 1,266 $ 148,546 $ 3,661 $ 79,375 $ ( 17,011 ) ( 65 ) $ ( 3,661 ) $ 212,176 Thirty-nine Weeks Ended October 29, 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 279 28 ( 28 ) — Stock-based compensation expense 19,055 19,055 Purchase and retirement of common stock ( 1,581 ) ( 158 ) ( 30,829 ) ( 47,926 ) ( 78,913 ) Other comprehensive loss ( 2,825 ) ( 2,825 ) Deferral of common stock into deferred compensation plan 218 ( 4 ) ( 218 ) — Net income 49,387 49,387 Balance, October 29, 2022 12,662 $ 1,266 $ 148,546 $ 3,661 $ 79,375 $ ( 17,011 ) ( 65 ) $ ( 3,661 ) $ 212,176 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) Thirty-nine Weeks Ended October 28, 2023 October 29, 2022 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 25,705 ) $ 49,387 Reconciliation of net income (loss) to net cash used in operating activities: Non-cash portion of operating lease expense 58,894 65,046 Depreciation and amortization 35,534 39,320 Non-cash stock-based compensation expense (benefit), net ( 6,424 ) 19,055 Asset impairment charges 3,115 1,379 Deferred income tax provision 1,266 2,186 Other non-cash charges, net 528 58 Changes in operating assets and liabilities: Inventories ( 16,239 ) ( 123,012 ) Accounts receivable and other assets 1,544 ( 28,427 ) Prepaid expenses and other current assets ( 4,947 ) 1,680 Income taxes payable, net of prepayments ( 25,293 ) 18,896 Accounts payable and other current liabilities 3,027 11,764 Lease liabilities ( 64,673 ) ( 75,767 ) Other long-term liabilities ( 3,259 ) 1,470 Net cash used in operating activities ( 42,632 ) ( 16,965 ) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 24,369 ) ( 31,193 ) Change in deferred compensation plan ( 173 ) ( 421 ) Net cash used in investing activities ( 24,542 ) ( 31,614 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit facility 464,320 555,383 Repayments under revolving credit facility ( 392,629 ) ( 465,701 ) Purchase and retirement of common stock, including shares surrendered for tax withholdings and transaction costs ( 7,026 ) ( 75,672 ) Payment of debt issuance costs ( 623 ) — Net cash provided by financing activities 64,042 14,010 Effect of exchange rate changes on cash and cash equivalents ( 35 ) ( 974 ) Net decrease in cash and cash equivalents ( 3,167 ) ( 35,543 ) Cash and cash equivalents, beginning of period 16,689 54,787 Cash and cash equivalents, end of period $ 13,522 $ 19,244 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Net cash paid (received) for income taxes $ 6,008 $ ( 15,680 ) Cash paid for interest 20,389 7,545 SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: Purchases of property and equipment not yet paid 6,196 15,106 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 an omni-channel children’s specialty portfolio of brands with an industry-leading digital-first operating model. Its global retail and wholesale network includes four digital storefronts, more than 500 stores in North America, wholesale marketplaces and distribution in 16 countries through six international franchise partners. The Company designs, contracts to manufacture, and sells fashionable, high-quality apparel, accessories and footwear predominantly at value prices, primarily under the Company’s proprietary brands: “The Children’s Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place”. 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, www.sugarandjade.com, and www.pjplace.com . The Company also has social media channels on Instagram, Facebook, X, formerly known as Twitter, YouTube and Pinterest. Terms that are commonly used in the notes to the Company’s consolidated financial statements are defined as follows: • Third Quarter 2023 — The thirteen weeks ended October 28, 2023 • Third Quarter 2022 — The thirteen weeks ended October 29, 2022 • Year-To-Date 2023 — The thirty-nine weeks ended October 28, 2023 • Year-To-Date 2022 — The thirty-nine weeks ended October 29, 2022 • Fiscal 2023 – The fifty-three weeks ending February 3, 2024 • Fiscal 2022 – The fifty-two weeks ended January 28, 2023 • 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 October 28, 2023, January 28, 2023 and October 29, 2022, 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. 7 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal recurring adjustments necessary for a fair statement of the consolidated financial position of the Company as of October 28, 2023 and October 29, 2022, the results of its consolidated operations, consolidated comprehensive income (loss), and consolidated changes in stockholders’ equity for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022, and consolidated cash flows for the thirty-nine weeks ended October 28, 2023 and October 29, 2022. The consolidated balance sheet as of January 28, 2023 was derived from audited financial statements. Due to the seasonal nature of the Company’s business, the results of operations for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022 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 28, 2023. Certain prior period financial statement disclosures have been conformed to the current period presentation. Fiscal Year The Company’s fiscal year is a fifty-two week or fifty-three week period ending on the Saturday on or nearest to January 31. 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, impairment of indefinite-lived intangible 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’s consolidated financial statements. 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 Thirty-nine Weeks Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 (in thousands) Net sales: South $ 168,623 $ 183,536 $ 416,249 $ 466,276 Northeast 96,052 108,404 220,519 255,913 West 55,567 61,101 144,920 163,644 Midwest 58,331 62,337 131,235 145,168 International and other (1) 101,661 93,742 234,551 221,354 Total net sales $ 480,234 $ 509,120 $ 1,147,474 $ 1,252,355 ____________________________________________ (1) Includes retail and e-commerce sales in Canada and Puerto Rico, wholesale and franchisee sales, and certain amounts earned under the Company’s private label credit card program. 8 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 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 $ 7.6 million, $ 2.9 million, and $ 8.9 million within Accrued expenses and other current liabilities as of October 28, 2023, January 28, 2023, and October 29, 2022, 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 its wholesale business, the Company recognizes revenue, including shipping and handling fees billed to customers, when title of the goods passes to the customer, net of commissions, discounts, operational chargebacks, and cooperative advertising. The allowance for wholesale revenue included within Accounts receivable was $ 8.6 million, $ 5.0 million, and $ 4.9 million as of October 28, 2023, January 28, 2023, and October 29, 2022, respectively. For the sale of goods to retail customers 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 $ 2.5 million, $ 1.0 million, and $ 2.2 million as of October 28, 2023, January 28, 2023, and October 29, 2022, respectively. 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 , www.sugarandjade.com, and www.pjplace.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 and an additional bonus to extend the term of the agreement. These bonuses are 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 term of the agreement. The amount allocated to the reward obligation is recognized on a point-in-time basis as redemptions under the loyalty program occur. 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 recognized quarterly within an annual period when it can be estimated reliably. 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 $ 2.0 million, $ 2.6 million, and $ 2.0 million as of October 28, 2023, January 28, 2023, and October 29, 2022, 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 October 28, 2023, January 28, 2023, and October 29, 2022 was $ 6.3 million, $ 11.1 million, and $ 11.2 million, respectively. During Year-To-Date 2023, the Company recognized Net sales of $ 8.4 million related to the gift card liability balance that existed at January 28, 2023. 9 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 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 recognizes revenue 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. RESTRUCTURING In support of the Company’s ongoing structural transformation from a legacy store operating model to a digital-first retailer, during the second quarter of 2023, the Company voluntarily entered into an early termination of its corporate office lease and implemented a workforce reduction. On May 26, 2023, the Company proactively accelerated the termination of its corporate office lease to capitalize on the prevailing tenant-favorable market conditions. That lease will now expire in May 2024, and the Company is continuing to explore various options for a new lease, including negotiations with the current landlord. During the second quarter of 2023, the Company implemented a plan that encompassed two headcount reductions, which accounted for over 20 % of its salaried workforce, the substantial majority of whom were located at the Company’s corporate offices in Secaucus, New Jersey, with the balance at other domestic and international locations. The voluntary lease termination, combined with the workforce reduction, will enable the Company to reduce its current space configuration and capitalize on lower prevailing market rates than would have been applicable under its existing lease, which included escalations in occupancy costs, and did not expire until 2029. The actions associated with the workforce reduction were substantially completed by the end of the Third Quarter 2023. In addition, the lease for the Company’s distribution center in Toronto, Canada (“TODC”) expires in April 2024. The Company expects to move these operations to the United States to its current distribution center in Alabama, which will result in a further headcount reduction at the TODC. The transition out of the TODC is expected to be substantially completed by the end of the first quarter of 2024. As a result of these strategic actions associated with the voluntary early termination of its corporate office lease, the move from the TODC, and workforce reductions, the Company incurred non-operating charges of $ 1.2 million and $ 11.8 million in restructuring costs during the Third Quarter 2023 and Year-To-Date 2023, respectively on a pretax basis, summarized in the following table: Thirteen Weeks Ended Thirty-nine Weeks Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 (in thousands) Employee-related costs $ 674 $ — $ 6,107 $ — Lease termination costs (1) 454 — 5,401 — Professional fees 82 — 268 — Total restructuring costs (2) $ 1,210 $ — $ 11,776 $ — ___________________________________________ (1) Includes non-cash charges related to accelerated depreciation on certain assets in the corporate office over the reduced term, amounting to $ 0.5 million and $ 1.4 million for the Third Quarter 2023 and Year-To-Date 2023, respectively. The Company expects to record additional accelerated depreciation charges of approximately $ 1.0 million until the expiration of its corporate office lease. (2) Restructuring costs are recorded within Selling, general and administrative expenses, except accelerated depreciation charges noted above, which are recorded within Depreciation and amortization, and are primarily recorded within The Children’s Place U.S. segment. 10 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) The following table summarizes the restructuring costs that have been partially settled with cash payments and the remaining related liability as of October 28, 2023. The remaining related liability is expected to be settled with cash payments in the future and these costs are included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets: Employee-Related Costs Lease Termination Costs Professional Fees Total (in thousands) Balance at April 29, 2023 $ — $ — $ — $ — Provision 5,433 4,040 186 9,659 Cash payments ( 2,602 ) ( 4,040 ) — ( 6,642 ) Balance at July 29, 2023 2,831 — 186 3,017 Provision 674 — 82 756 Cash payments ( 2,652 ) — ( 268 ) ( 2,920 ) Balance at October 28, 2023 $ 853 $ — $ — $ 853 4. INTANGIBLE ASSETS The Company’s intangible assets were as follows: October 28, 2023 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 ( 3,662 ) 338 Total intangible assets $ 73,953 $ ( 3,662 ) $ 70,291 January 28, 2023 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 ( 3,062 ) 938 Customer databases (2) 3 years 3,000 ( 3,000 ) — Total intangible assets $ 76,953 $ ( 6,062 ) $ 70,891 October 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 ( 2,862 ) 1,138 Customer databases (2) 3 years 3,000 ( 3,000 ) — Total intangible assets $ 76,953 $ ( 5,862 ) $ 71,091 ____________________________________________ (1) Included within Tradenames, net on the Consolidated Balance Sheets. (2) Included within Other assets on the Consolidated Balance Sheets. 11 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 5. PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: October 28, 2023 January 28, 2023 October 29, 2022 (in thousands) Property and equipment: Land and land improvements $ 3,403 $ 3,403 $ 3,403 Building and improvements 36,187 36,187 36,187 Material handling equipment 90,362 71,404 69,897 Leasehold improvements 177,203 196,302 196,189 Store fixtures and equipment 199,596 210,413 205,406 Capitalized software 350,318 336,336 336,557 Construction in progress 8,378 23,959 24,676 865,447 878,004 872,315 Less accumulated depreciation and amortization ( 730,808 ) ( 728,130 ) ( 717,340 ) Property and equipment, net $ 134,639 $ 149,874 $ 154,975 At October 28, 2023 and October 29, 2022, 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 recorded asset impairment charges in the Third Quarter 2023 and Year-To-Date 2023 of $ 0.6 million and $ 3.1 million, respectively, inclusive of right-of-use (“ROU”) assets. No impairment charge was recorded in the Third Quarter 2022. The Company recorded asset impairment charges during Year-To-Date 2022 of $ 1.4 million, inclusive of ROU assets. 6. 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 nine 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. The following components of operating lease expense were recognized in the Company’s Consolidated Statements of Operations: Thirteen Weeks Ended Thirty-nine Weeks Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 (in thousands) Fixed operating lease cost $ 21,457 $ 26,437 $ 63,844 $ 73,477 Variable operating lease cost (1) 11,030 12,477 40,115 40,168 Total operating lease cost $ 32,487 $ 38,914 $ 103,959 $ 113,645 ____________________________________________ (1) Includes short term leases with lease periods of less than 12 months. As of October 28, 2023, the weighted-average remaining operating lease term was 3.1 years, and the weighted-average discount rate for operating leases was 5.3 %. Cash paid for amounts included in the measurement of operating lease liabilities during Year-To-Date 2023 was $ 64.7 million. ROU assets obtained in exchange for new operating lease liabilities were $ 51.5 million during Year-To-Date 2023. 12 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) As of October 28, 2023, the maturities of operating lease liabilities were as follows: October 28, 2023 (in thousands) Remainder of 2023 $ 27,097 2024 57,778 2025 31,770 2026 14,361 2027 9,984 Thereafter 13,454 Total operating lease payments 154,444 Less: imputed interest ( 11,587 ) Present value of operating lease liabilities $ 142,857 7. DEBT On November 16, 2021, the Company completed the refinancing of its previous $ 360.0 million asset-based revolving credit facility and previous $ 80.0 million 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 (as amended from time to time, the “Credit Agreement”). The refinanced debt consisted of a $ 350.0 million asset-based revolving credit facility (the “ABL Credit Facility”) and a $ 50.0 million term loan (the “Term Loan”). On June 5, 2023, the Company entered into a fifth amendment to its Credit Agreement, pursuant to which, among other things, (i) PNC Bank, National Association (“PNC Bank”) was added as a new lender, (ii) the ABL Credit Facility was increased to $ 445.0 million, (iii) the London InterBank Offered Rate (“LIBOR”) was replaced by the Secured Overnight Financing Rate (“SOFR”) as the interest rate benchmark, and (iv) the pricing grid for applicable margins on borrowings was updated. All other material terms and conditions of the Credit Agreement remained unchanged. As previously disclosed in the Company’s Form 8-K dated October 30, 2023, the Company became aware of an inadvertent calculation error contained in the June, July and August 2023 borrowing base certificates provided to the lenders under its Credit Agreement, all of which have since been remedied. While the lenders determined the calculation error resulted in certain technical defaults under the Credit Agreement (including the Company not being in compliance with certain debt covenants), the Company and the lenders entered into a Waiver and Amendment Agreement (the “Waiver Agreement”) on October 24, 2023, pursuant to which the lenders waived all of the defaults and the Company agreed to certain temporary enhanced reporting requirements and temporary restrictions on certain payments. These enhanced reporting requirements and restrictions will cease once the Company achieves certain excess availability thresholds. At no time prior to or following entering into the Waiver Agreement was the Company prevented from borrowing under the Credit Agreement in the ordinary course. ABL Credit Facility and Term Loan The Company and certain of its subsidiaries maintain 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 (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. The ABL Credit Facility includes a $ 25.0 million Canadian sublimit and a $ 50.0 million sublimit for standby and documentary letters of credit. Under the ABL Credit Facility, based on the amount of the Company’s average daily excess availability under the facility, borrowings outstanding bear interest, at the Company’s option, at: (i) the prime rate per annum, plus a margin of 1.250 % or 1.500 %; or 13 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (ii) the SOFR per annum, plus a margin of 2.000 % or 2.250 %. The Company is charged a fee of 0.200 % on the unused portion of the commitments. Letter of credit fees range from 1.000 % to 1.125 % for commercial letters of credit and range from 1.500 % to 1.750 % for standby letters of credit. Letter of credit fees are determined based on the amount of the Company’s average daily 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. Once the Company achieves a consolidated EBITDA of at least $ 200.0 million across four consecutive fiscal quarters, and based on the amount of the Company’s average daily excess availability under the facility, borrowings outstanding under the ABL Credit Facility would bear interest, at the Company’s option, at: (i) the prime rate per annum, plus a margin of 0.625 % or 0.875 %; or (ii) the SOFR per annum, plus a margin of 1.375 % or 1.625 %. 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 are determined based on the amount of the Company’s average daily excess availability under the facility. For the Third Quarter 2023 and Year-To-Date 2023, the Company recognized $ 7.2 million and $ 18.0 million, respectively, in interest expense related to the ABL Credit Facility. For the Third Quarter 2022 and Year-To-Date 2022, the Company recognized $ 3.0 million and $ 6.9 million, respectively, in interest expense related to the ABL Credit Facility. 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, and a fixed-charge coverage ratio covenant, which only becomes effective in the event that borrowings and other uses of credit exceed the maximum borrowing availability (as reflected in the table below), based on the Company’s ability to maintain a certain amount of excess availability for borrowings (the “excess availability threshold”). 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. 14 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) The table below presents the components of the Company’s ABL Credit Facility: October 28, 2023 January 28, 2023 October 29, 2022 (in millions) Total borrowing base availability, net of the excess availability threshold, as applicable $ 394.7 $ 363.8 $ 463.9 Credit facility maximum, net of the excess availability threshold, as applicable 400.5 315.0 350.0 Maximum borrowing availability (1) 394.7 315.0 350.0 Outstanding borrowings 358.7 287.0 265.0 Letters of credit outstanding—standby 7.4 7.4 7.4 Utilization of credit facility at end of period 366.1 294.4 272.4 Availability (2) $ 28.6 $ 20.6 $ 77.6 Interest rate at end of period 8.0 % 5.9 % 4.8 % Year-To-Date 2023 Fiscal 2022 Year-To-Date 2022 (in millions) Average end of day loan balance during the period $ 327.6 $ 274.9 $ 273.1 Highest end of day loan balance during the period $ 379.4 $ 297.7 $ 297.6 Average interest rate 7.0 % 3.7 % 3.0 % ____________________________________________ (1) Lower of the credit facility maximum and the total borrowing base availability, both net of the excess availability threshold. (2) The sub-limit availability for letters of credit was $ 42.6 million at October 28, 2023, January 28, 2023, and October 29, 2022. The Term Loan bears interest, payable monthly, at (a) the SOFR per annum plus 2.750 % for any portion that is a SOFR loan, or (b) the base rate per annum plus 2.000 % 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. For the Third Quarter 2023 and Year-To-Date 2023, the Company recognized $ 0.4 million, and $ 2.4 million, respectively, in interest expense related to the Term Loan. For the Third Quarter 2022 and Year-To-Date 2022, the Company recognized $ 0.6 million, and $ 1.5 million, respectively, 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. As of October 28, 2023, unamortized deferred financing costs amounted to $ 2.4 million, of which $ 2.2 million related to our ABL Credit Facility. 15 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 8. COMMITMENTS AND CONTINGENCIES 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. 9. STOCKHOLDERS’ EQUITY Share Repurchase Program In November 2021, the Board of Directors authorized a $ 250.0 million share repurchase program (the “Share Repurchase Program”). Under this program, 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 the 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 program at any time and may thereafter reinstitute purchases, all without prior announcement. Currently, pursuant to the Waiver Agreement described above, the Company is temporarily restricted from repurchasing any shares. As of October 28, 2023, there was $ 157.3 million remaining availability under the Share Repurchase Program. 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 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. 16 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) The following table summarizes the Company’s share repurchases: Thirty-nine Weeks Ended October 28, 2023 October 29, 2022 Shares Amount Shares Amount (in thousands) Share repurchases related to: Share repurchase program 205 $ 7,026 1,581 $ 78,913 Shares acquired and held in treasury 6 $ 196 4 $ 218 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 (deficit). 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 Year-To-Date 2023 and Year-To-Date 2022, $ 2.9 million and $ 47.9 million was charged to Retained earnings (deficit), respectively. Dividends 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. Currently, pursuant to the Waiver Agreement described above, the Company is temporarily restricted from issuing any cash dividends. 10. 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 (benefit): Thirteen Weeks Ended Thirty-nine Weeks Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 (in thousands) Deferred Awards $ 1,193 $ 1,885 $ 5,383 $ 7,481 Performance Awards (1) ( 5,939 ) 3,336 ( 11,807 ) 11,574 Total stock-based compensation expense (benefit) (2) $ ( 4,746 ) $ 5,221 $ ( 6,424 ) $ 19,055 ___________________________________________ (1) Included within the Performance Awards benefit for the Third Quarter 2023 was a combination of ongoing expense associated with existing grants and $ 6.2 million of credits resulting from a change in estimate based on revised expectations of the attainment levels for performance metrics of certain awards. Included within the Performance Awards benefit for Year-To-Date 2023 was a combination of ongoing expense associated with existing grants and $ 12.9 million of credits resulting from (a) a change in estimate based on revised expectations of the attainment levels for performance metrics of certain awards, and (b) the reversal of unvested expense related to forfeited awards for employees no longer with the Company. (2) Stock-based compensation expense (benefit) recorded within Cost of sales (exclusive of depreciation and amortization) amounted to $ 0.1 million and $ 0.3 million in the Third Quarter 2023 and Third Quarter 2022, respectively, and $ 1.2 million in Year-To-Date 2022. The stock-based compensation expense (benefit) recorded within Cost of sales (exclusive of depreciation and amortization) in Year-To-Date 2023 nets to zero . All other stock-based compensation expense (benefit) is included in Selling, general, and administrative expenses. 17 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 11. EARNINGS (LOSS) PER COMMON SHARE The following table reconciles net income (loss) and share amounts utilized to calculate basic and diluted earnings (loss) per common share: Thirteen Weeks Ended Thirty-nine Weeks Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 (in thousands) Net income (loss) $ 38,482 $ 42,855 $ ( 25,705 ) $ 49,387 Basic weighted average common shares outstanding 12,548 13,064 12,481 13,277 Dilutive effect of stock awards 71 98 — 132 Diluted weighted average common shares outstanding 12,619 13,162 12,481 13,409 Anti-dilutive shares excluded from diluted earnings (loss) per common share calculation — — 124 — 12. 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. The Company’s provision for income taxes during interim reporting periods has historically been calculated by applying an estimate of the annual effective tax rate for the full fiscal year to pretax income (loss) excluding unusual or infrequently occurring discrete items for the reporting period. For the Third Quarter 2023, and in accordance with ASC 740-270-30-18 “Income Taxes - Interim Reporting - Initial Measurement,” and paragraph 82 of FASB interpretation No. 18, “Accounting for Income Taxes in Interim Periods” (“FIN 18”), the Company computed its provision for income taxes based on the actual effective tax rate for the year-to-date period by applying the discrete method. The Company determined that the historical method would not provide a reliable estimate for the Third Quarter 2023 because small changes in estimated ordinary income for Fiscal 2023 would result in a significant change in the estimated annual effective tax rate. We believe that, at this time, the use of this discrete method represents the best estimate of our annual effective tax rate. The Company’s effective income tax rate for the Third Quarter 2023 was a benefit of ( 3.9 )%, or $ 1.5 million, compared to a provision of 20.7 %, or $ 11.2 million, during the Third Quarter 2022. The change in the effective income tax rate and income tax provision (benefit) for the Third Quarter 2023 compared to the Third Quarter 2022 was primarily driven by the utilization of the discrete tax provision methodology discussed above in the Third Quarter 2023, and the impact of certain non-deductible executive compensation. The Company’s effective income tax rate for Year-To-Date 2023 was a benefit of ( 40.9 )%, or $ 17.8 million, compared to a provision of 10.5 %, or $ 5.8 million, for Year-To-Date 2022. The change in the effective income tax rate for Year-To-Date 2023 compared to Year-To-Date 2022 was primarily driven by the Year-To-Date 2023 pretax loss as compared to pretax income for Year-To-Date 2022, jurisdictional earnings mix, the impact of certain non-deductible executive compensation, and the release of a reserve in the first quarter of Fiscal 2022 of $ 6.4 million for unrecognized tax benefits as a result of a settlement with a taxing authority which was nonrecurring, in addition to the utilization of the discrete tax provision methodology. 18 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 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 $ 150.0 million to prior years. During the first quarter of Fiscal 2022, the Company received $ 22.0 million of this income tax refund and the remaining balance of $ 19.1 million as of October 28, 2023 is included within Prepaid expenses and other current assets on the Consolidated Balance Sheets. 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 $ 4.8 million, $ 3.6 million, and $ 2.3 million as of October 28, 2023, January 28, 2023, and October 29, 2022, respectively, and is included within long-term liabilities. Interest expense recognized in Year-To-Date 2023 and Year-To-Date 2022 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 taxes in the period such resolution occurs. 13. 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, www.sugarandjade.com, and www.pjplace.com. Included in The Children’s Place U.S. segment are 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 one U.S. wholesale customer that individually accounted for more than 10% of its net sales, amounting to $ 54.5 million and $ 116.0 million for the Third Quarter 2023 and Year-To-Date 2023, respectively, and accounts for a majority of the Company’s accounts receivable. As of October 28, 2023, The Children’s Place U.S. had 520 stores and The Children’s Place International had 71 stores. As of October 29, 2022, The Children’s Place U.S. had 577 stores and The Children’s Place International had 81 stores. 19 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) The following table provides segment level financial information: Thirteen Weeks Ended Thirty-nine Weeks Ended October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 (in thousands) Net sales: The Children’s Place U.S. $ 441,865 $ 457,508 $ 1,048,568 $ 1,126,692 The Children’s Place International (1) 38,369 51,612 98,906 125,663 Total net sales $ 480,234 $ 509,120 $ 1,147,474 $ 1,252,355 Operating income (loss): The Children’s Place U.S. $ 38,551 $ 51,460 $ ( 26,216 ) $ 54,385 The Children’s Place International 6,416 6,377 4,174 8,876 Total operating income (loss) $ 44,967 $ 57,837 $ ( 22,042 ) $ 63,261 Operating income (loss) as a percentage of net sales: The Children’s Place U.S. 8.7 % 11.2 % ( 2.5 %) 4.8 % The Children’s Place International 16.7 % 12.4 % 4.2 % 7.1 % Total operating income (loss) as a percentage of net sales 9.4 % 11.4 % ( 1.9 %) 5.1 % Depreciation and amortization: The Children’s Place U.S. $ 10,868 $ 11,592 $ 32,852 $ 36,441 The Children’s Place International 864 871 2,682 2,879 Total depreciation and amortization $ 11,732 $ 12,463 $ 35,534 $ 39,320 Capital expenditures: The Children’s Place U.S. $ 6,217 $ 12,342 $ 24,359 $ 30,311 The Children’s Place International — 86 10 882 Total capital expenditures $ 6,217 $ 12,428 $ 24,369 $ 31,193 ____________________________________________ (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. 20