What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-05-06 compared with 2023-03-28 · 188 added, 126 removed, 208 unchanged (60% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with our audited financial statements and notes thereto included in Part IV, Item 15.Exhibits and Financial Statement Schedules.

The following discussion should be read in conjunction with our audited financial statements and notes thereto included in Part IV, Item 15.

Exhibits and Financial Statement Schedules.

This Annual Report on Form 10-K contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives and results of operations, including adjusted net income (loss) per diluted share.

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Some of these risks and uncertainties are described in the Company’s filings with the Securities and Exchange Commission, including in Part I, Item 1A.

Risk Factors of this Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by changes in economic conditions (including inflation), the risks related to the COVID-19 pandemic, including the impact of the COVID-19 pandemic on our business or the economy in general, the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions, disruptions and higher costs in the Company’s global supply chain, including resulting from COVID-19 or other disease outbreaks, foreign sources of supply in less developed countries, more politically unstable countries, or countries where vendors fail to comply with industry standards or ethical business practices, including the use of forced, indentured or child labor, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases in inputs through value engineering or price increases, various types of litigation, including class action litigations brought under consumer protection, employment, and privacy and information security laws and regulations, the imposition of regulations affecting the importation of foreign-produced merchandise, including duties and tariffs, and the uncertainty of weather patterns.

Risk Factors of this Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unable to achieve operating results at levels sufficient to fund and/or finance the Company’s current level of operations and repayment of indebtedness, the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by changes in economic conditions (including inflation), the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions, disruptions and higher costs in the Company’s global supply chain, including resulting from disease outbreaks, foreign sources of supply in less developed countries, more politically unstable countries, or countries where vendors fail to comply with industry standards or ethical business practices, including the use of forced, indentured or child labor, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, various types of litigation, including class action litigations brought under securities, consumer protection, employment, and privacy and information security laws and regulations, the imposition of regulations affecting the importation of foreign-produced merchandise, including duties and tariffs, risks related to the existence of a controlling shareholder, and the uncertainty of weather patterns.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made.

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Other terms that are commonly used in our Management’s Discussion and Analysis of Financial Condition and Results of Operations are defined as follows:

• Fiscal 2022 — The fifty-two weeks ended January 28, 2023

• Fiscal 2023 — The fifty-three weeks ended February 3, 2024

• Fiscal 2022 — The fifty-two weeks ended January 28, 2023

• Fiscal 2021 — The fifty-two weeks ended January 29, 2022

• Fiscal 2023 — Our next fiscal year representing the fifty-three weeks ending February 3, 2024

• Fiscal 2024 — Our next fiscal year representing the fifty-two weeks ending February 1, 2025

Securities and Exchange Commission

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However, stores that temporarily close will be excluded from Comparable Retail Sales until the store is re-opened for a full fiscal month

Comparable Retail Sales do not exclude any temporarily closed stores impacted by the COVID-19 pandemic.

• Gross Margin — Gross profit expressed as a percentage of net sales

• SG&A — Selling, general, and administrative expenses

We are the largest pure-play children’s specialty apparel retailer in North America.

We design, contract to manufacture, sell at retail and wholesale, and license to sell, trend right, high quality merchandise predominantly at value prices, primarily under our proprietary “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place” brand names.

As of January 28, 2023, we had 613 stores across North America, our e-commerce business at www.childrensplace.com, www.gymboree.com , www.sugarandjade.com, and www.pjplace.com, and had 220 international points of distribution with our five franchise partners in 15 countries.

We are an omni-channel children’s specialty portfolio of brands with an industry-leading digital-first operating model.

We design, contract to manufacture, and sell fashionable, high quality apparel, accessories and footwear predominantly at value prices, primarily under our proprietary brands:

“The Children’s Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place”.

As of February 3, 2024, we had 523 stores across North America, our e-commerce business at www.childrensplace.com and www.gymboree.com , social media channels on Instagram, Facebook, X, formerly known as Twitter, YouTube and Pinterest, and 225 international points of distribution with our six franchise partners in 16 countries.

Segment Reporting

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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 .

Each segment includes an e-commerce business located at www.childrensplace.com and www.gymboree.com .

Included in The Children’s Place U.S.

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We periodically review these allocations and adjust them based upon changes in business circumstances.

Net sales to external customers are derived from merchandise sales, and we have no customers that individually account for more than 10% of our net sales.

COVID-19 Pandemic

As a result of the impact of the COVID-19 pandemic, we continue to experience disruptions in our business and we have experienced, and will likely continue to experience, disruptions in our global supply chain, which have caused delays in the production and transportation of our products, which we are mitigating through shifting production schedules.

Net sales to external customers are derived from merchandise sales, and we have no customers that individually accounted for more than 10% of our net sales.

Recent Developments

Recent macroeconomic conditions have increased the cost of goods and services necessary to produce, import, and distribute our products, including cotton and other materials used in production, as well as labor, transportation, fuel and energy.

The same inflationary pressures have adversely affected our core customer, resulting in a decrease in discretionary apparel purchases during Fiscal 2022.

We expect these increased product input costs, transportation costs and inflationary pressures to continue to impact Fiscal 2023.

Macroeconomic conditions in Fiscal 2023 increased the cost of goods and services necessary to produce, import, and distribute our products, including due to increased costs of labor that reflected increases in wage rates.

Inflationary pressures have also adversely affected our core customer, resulting in a decrease in discretionary apparel purchases during Fiscal 2023.

We expect these macroeconomic conditions, including but not limited to increased product input costs, transportation costs, distribution costs, labor costs, and other inflationary pressures, to continue to have an impact during Fiscal 2024.

In October 2023, we became aware of an inadvertent calculation error contained in the June, July and August 2023 borrowing base certificates provided to the Credit Agreement Lenders under our Credit Agreement, all of which have since been remedied.

While the Credit Agreement Lenders determined the calculation error resulted in certain technical defaults under the Credit Agreement (including us not being in compliance with certain debt covenants), we and the Credit Agreement Lenders entered into a Waiver and Amendment Agreement (the “Waiver Agreement”) on October 24, 2023, pursuant to which the Credit Agreement Lenders waived all of the defaults and we agreed to certain temporary enhanced reporting requirements and temporary restrictions on certain payments.

These enhanced reporting requirements and restrictions will cease once we achieve certain excess availability thresholds.

At no time prior to or following entering into the Waiver Agreement were we prevented from borrowing under the Credit Agreement in the ordinary course in accordance with its terms.

As of February 12, 2024, Mithaq had acquired more than 50% of our outstanding shares of common stock.

Mithaq’s acquisition of our common stock resulted in a change of control of the Company, thereby triggering an event of default under the Credit Agreement.

As a result of this event of default, we became subject to cash dominion by the Credit Agreement Lenders.

On February 29, 2024, we and the Credit Agreement Lenders entered into a forbearance agreement, pursuant to which, among other things, the Credit Agreement Lenders agreed to forbear from enforcing certain rights and remedies (other than cash dominion and increasing the interest rate payable on borrowings outstanding under the Credit Agreement to the default interest rate) under the Credit Agreement during a limited forbearance period, and which contemplated a permanent waiver of the change of control default upon the satisfaction of certain conditions.

Also on February 29, 2024, we and certain of our subsidiaries entered into an interest-free unsecured subordinated promissory note with Mithaq, providing for up to $78.6 million in term loans (the “Initial Mithaq Term Loan”).

We received $30 million on February 29, 2024 and $48.6 million on March 8, 2024.

The Initial Mithaq Term Loan matures on February 15, 2027.

In addition, on February 29, 2024, we and Mithaq entered into a letter agreement for purposes of, among other things, ensuring an orderly transition of the governance of the Company following the change of control.

As of the date of filing of this Annual Report on Form 10-K, the size of our Board of Directors has been reduced from ten to six, and other than our Chief Executive Officer, all other then members of the Board of Directors have resigned and have been replaced by designees of Mithaq.

On April 16, 2024, we and certain of our subsidiaries entered into a new financing agreement with Mithaq for a Shariah-compliant unsecured and subordinated $90 million term loan (the “New Mithaq Term Loan”).

The New Mithaq Term Loan matures on April 16, 2027, and requires monthly payments equivalent to interest charged at the Secured Overnight Financing Rate (“SOFR”) plus 4.000% per annum, with such monthly payments to Mithaq deferred until April 30, 2025.

We received the funds from the New Mithaq Term Loan on April 18, 2024 and a portion of those funds were used to repay our $50 million term loan under the Credit Agreement.

Also on April 16, 2024, we and certain of our subsidiaries entered into a seventh amendment to the Credit Agreement (the “Seventh Amendment”) with the Credit Agreement Lenders that, among other things, provided a permanent waiver of the change of control event of default.

The Seventh Amendment reduced the ABL Credit Facility to $433.0 million and, until we achieve certain excess availability thresholds, preserved the temporary enhanced reporting requirements under the Waiver Agreement and continued to impose cash dominion.

The Seventh Amendment also modified certain existing requirements to restrict certain payments, including the repurchase of shares and the payment of dividends.

On May 2, 2024, we entered into a commitment letter with Mithaq for a Shariah-compliant $40.0 million senior unsecured credit facility (the “Mithaq Credit Facility”).

Under the Mithaq Credit Facility, we may request for advances at any time up to July 1, 2025.

If any debt is incurred under the Mithaq Credit Facility, it shall require monthly payments equivalent to interest charged at the SOFR plus 5.000% per annum.

Additionally, such debt shall require no mandatory prepayments and shall mature no earlier than July 1, 2025.

In addition, the lease for our distribution center in Toronto, Canada (“TODC”) expired in April 2024.

We moved these operations to the United States to our current distribution center in Alabama as of the end of the first quarter of Fiscal 2024.

Also, as of February 2024, a purported class action was filed against us, pending in the United States District Court of New Jersey.

The complaint purports to assert claims under the federal securities laws, alleging that we made materially false and/or misleading statements, and failed to disclose material adverse facts to our investors, which the complaint alleges led to a drop in the price of the Company’s common stock.

Legal Proceedings” of this Form 10-K for further information.

Operating Highlights

Net sales decreased $206.9 million, or 10.8%, to $1.708 billion during Fiscal 2022 from $1.915 billion during Fiscal 2021.

The decrease in net sales was primarily due to lapping the COVID-19 stimulus relief program and enhanced child tax credits last year, the impact of a slowdown in consumer demand resulting from the unprecedented inflation impacting our customer, an increase in promotional activity across the sector and the impact of permanent store closures.

Net sales decreased $106.0 million, or 6.2%, to $1.603 billion during Fiscal 2023 from $1.708 billion during Fiscal 2022, primarily due to reductions in retail sales due to lower store count and traffic declines to stores, partially offset by continued strength in e-commerce and an increase in wholesale revenue.

During Fiscal 2023, we closed 90 stores and did not open any new stores.

Comparable retail sales decreased 4.7% for Fiscal 2023.

Gross profit decreased $68.9 million, or 13.4%, to $445.3 million during Fiscal 2023 from $514.2 million during Fiscal 2022.

Gross margin decreased 230 basis points to 27.8% during Fiscal 2023 from 30.1% during Fiscal 2022.

The decrease in gross margin resulted primarily from higher cotton and inbound supply chain costs, lower merchandise margins due to a highly promotional environment, higher distribution expenses, increased shipping costs due to rate increases and higher levels of split customer shipments, and the deleverage of fixed expenses resulting from the decline in net sales.

Operating income (loss) decreased $277.1 million to a loss of $1.5 million during Fiscal 2022 from income of $275.6 million during Fiscal 2021.

The decrease was primarily the result of lower retail revenue attributed to reduced store count and traffic declines and the related lower merchandise margins on those sales.

Additionally, gross profit margin was impacted by a significantly larger wholesale business which operates at a lower gross margin rate but is accretive to operating margin.

Gross profit was also impacted by higher than planned distribution and fulfillment costs due to growth in our e-commerce business and the deleveraging of fixed expenses resulting from the decline in net sales.

Operating loss increased $(82.3) million to a loss of $(83.8) million during Fiscal 2023 from a loss of $(1.5) million during Fiscal 2022.

Operating loss was impacted by an impairment charge of $29.0 million on the Gymboree tradename, primarily due to an increase in the discount rate used to value the tradename and reductions in Gymboree sales forecasts, and $5.6 million of impairment charges to stores during the year.

Operating margin deleveraged 510 basis points to (5.2)% of net sales.

Net income (loss) decreased $188.3 million to a loss of $1.1 million, or $(0.09) per diluted share, during Fiscal 2022, compared to income of $187.2 million, or $12.59 per share, during Fiscal 2021.

While we continue to face a challenging macroeconomic environment, including increases in the cost of goods and services necessary to produce, import, and distribute our products, including cotton and other inputs, as well as labor, transportation, fuel and energy and continuing uncertainty regarding the future impact of the COVID-19 pandemic, we continue to focus on our key strategic growth initiatives – superior product, digital transformation, alternative channels of distribution, and fleet optimization.

Net loss increased $(153.4) million to a loss of $(154.5) million, or $(12.36) per diluted share, during Fiscal 2023, compared to a loss of $(1.1) million, or $(0.09) per diluted share, during Fiscal 2022, primarily due to the factors discussed above, in addition to higher interest expense due to higher borrowings and higher average interest rates associated with our revolving credit facility and term loan, and the establishment of a valuation allowance against our net deferred tax assets in the fourth quarter of Fiscal 2023.

While we continue to face a challenging macroeconomic environment, including increases in the cost of goods and services necessary to produce, import, and distribute our products, we continue to focus on our key strategic growth initiatives – superior product, digital transformation, alternative channels of distribution, and fleet optimization.

Digital remains our top priority and we continue to expand our digital capabilities.

We have migrated to a new responsive site and mobile application, and we have expanded our partnerships with our outside providers to help us monitor and reallocate our marketing budgets in a more efficient and timely manner to drive acquisition, retention and reactivation.

Starting in the second half of Fiscal 2022, the results from our new marketing strategies have been very encouraging and we are positioning marketing as a key growth lever in Fiscal 2023 and beyond.

As our digital business continues to expand, we continue to strengthen our partnership with our third party logistics providers in an effort to provide our customer with a best-in-class digital experience.

We continue to evaluate our store fleet through our fleet optimization initiative.

We have expanded our partnerships with our outside providers to help us monitor and reallocate our marketing budgets in a more efficient and timely manner to drive acquisition, retention and reactivation.

The results from our new marketing strategies have been very encouraging and we continue to position marketing as a key growth lever in Fiscal 2024 and beyond.

As our digital business continues to expand, we continue to strengthen our partnership with our third party logistics providers in an effort to provide our customers with a best-in-class digital experience.

We have closed 676 stores since the announcement of our fleet optimization initiative in 2013, including 90 during Fiscal 2023.

With over 75% of our store fleet coming up for lease action in the next 24 months, we continue to maintain meaningful financial flexibility in our lease portfolio.

In March 2018, our Board of Directors authorized a $250.0 million share repurchase program (the “2018 Share Repurchase Program”).

In November 2021, our Board of Directors approved another $250.0 million share repurchase program (the “2021 Share Repurchase Program”), which added to the then remaining availability under the 2018 Share Repurchase Program.

During Fiscal 2022, we repurchased approximately 2.0 million shares of our common stock for $92.9 million, consisting of shares surrendered to cover tax withholdings associated with the vesting of equity awards and shares acquired in the open market.

As of January 28, 2023, the 2018 Share Repurchase Program was exhausted, and there was $164.4 million remaining under the 2021 Share Repurchase Program.

The average unexpired lease term for our stores is approximately 1.8 years in the United States, Puerto Rico, and Canada.

In November 2021, our Board of Directors authorized a $250.0 million share repurchase program (the “Share Repurchase Program”).

Currently, pursuant to the terms of our Credit Agreement as amended by its Seventh Amendment described above, we are not expecting to repurchase any shares in Fiscal 2024, except as described above in “Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”, pursuant to our practice as a result of our insider trading policy.

During Fiscal 2023, we repurchased approximately 0.2 million shares of our common stock for $7.1 million, consisting of shares surrendered to cover tax withholdings associated with the vesting of equity awards.

As of February 3, 2024, there was $157.2 million remaining availability under the Share Repurchase Program.

We have subsidiaries whose operating results are based in foreign currencies and are thus subject to the fluctuations of the corresponding translation rates into U.S.

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Hong Kong dollar 0.1277 0.1277 0.1286

Chinese renminbi 0.1432 0.1548 0.1459

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Consequently, actual results could differ materially from our estimates.

Basis of Presentation and Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.

Basis of Presentation and Summary of Significant Accounting Policies” of the Consolidated Financial Statements, “Item 8.

Financial Statements and Supplementary Data” of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.

The accounting estimates discussed below include those that we believe are the most critical to aid in fully understanding and evaluating our financial results.

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We periodically review our long-lived assets for impairment when events indicate that their carrying value may not be recoverable.

Such events include a historical or projected trend of cash flow losses or a future expectation that we will sell or

dispose of an asset significantly before the end of its previously estimated useful life.

Such events include a historical or projected trend of cash flow losses or a future expectation that we will sell or dispose of an asset significantly before the end of its previously estimated useful life.

In reviewing for impairment, we group our long-lived assets at the lowest possible level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

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The assumptions used to assess impairment consider external and internal factors.

External factors comprise the local environment in which the store resides, including mall traffic, competition, and their effect on sales trends, as well as macroeconomic factors, such as inflationary pressures impacting our customer, and changes in product input costs, transportation costs, distribution costs and wage rates.

Internal factors include our ability to gauge the fashion taste of our customers, control over variable costs such as cost of sales and payroll, and in certain cases, our ability to renegotiate lease costs.

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If macroeconomic conditions deteriorate, if interest rates increase, or if actual sales should differ from our projections, changes in these estimates can have a significant impact on the assessment of fair value, which could result in material impairment charges.

We performed our annual impairment assessment of the Gymboree tradename as of December 31, 2022 and determined there was no impairment to the tradename.

Based on the impairment assessment, the fair value of the Gymboree tradename exceeded the carrying value by approximately $10.0 million.

We performed our annual impairment assessment of the Gymboree tradename as of December 31, 2023.

Based on this assessment, we recorded an impairment charge of $29.0 million on the tradename, primarily due to an increase in the discount rate used to value the tradename and reductions in Gymboree sales forecasts, which reduced the carrying value to its fair value of $41.0 million.

The discount rate used in our annual impairment testing was 15.0%, which was developed with the assistance of an independent third-party valuation specialist.

Unfavorable changes in certain of our key assumptions may affect future testing results.

For example, keeping all other assumptions constant, a 100-basis point increase in the discount rate would cause the estimated fair value of the Gymboree tradename to decrease by approximately $8.0 million.

In addition, keeping all other assumptions constant, a 10% reduction in revenue growth rates across the discrete forecast period would cause the estimated fair value of our Gymboree tradename to decrease by approximately $8.0 million.

In each of the examples above, the estimated fair value of the Gymboree tradename would approximate its carrying value.

For example, keeping all other assumptions constant, a 100-basis point increase in the discount rate would result in further impairment charges of approximately $3.0 million or a 10% decrease in forecasted revenue would result in further impairment charges of approximately $4.0 million.

We utilize the liability method of accounting for income taxes as set forth in FASB ASC 740— Income Taxes .

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Actual operating results in future years could differ from our current assumptions, judgments and estimates.

If, in the future, we determine that we would not be able to

realize our recorded deferred tax assets, an increase in the valuation allowance would decrease earnings in the period in which such determination is made.

If we determine that we would not be able to realize our recorded deferred tax assets, an increase in the valuation allowance would decrease earnings in the period in which such determination is made.

As of February 3, 2024, we believe it is not more likely than not that future taxable income will be sufficient to allow us to recover substantially all of the value assigned to our deferred tax assets.

Thus, in Fiscal 2023, we increased our valuation allowance to $69.9 million, primarily related to assets in the U.S.

We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances, and information available at the reporting date.

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We account for stock-based compensation according to the provisions of FASB ASC 718— Compensation-Stock Compensation .

We grant time-vesting and performance-based stock awards to employees at various management levels.

We grant time-vesting and performance-based stock awards to employees at senior management levels.

We also grant time-vesting stock awards to our non-employee directors.

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With the approval of the Human Capital & Compensation Committee, we may settle vested Deferred Awards and Performance Awards in shares, in a cash amount equal to the market value of such shares at the time all requirements for delivery of the award have been met, or in part shares and cash.

For Performance Awards granted in Fiscal 2022, employees may earn from 0% to 200% of their Target Shares, for Performance Awards granted in Fiscal 2021, employees earn from 0% to 300% of their Target Shares, and for Performance Awards granted in Fiscal 2020, employees may earn from 0% to 250% of their Target Shares, based on the terms of the award and our achievement of certain performance goals established at the beginning of the applicable service period.

For Performance Awards granted in Fiscal 2023 and Fiscal 2022, employees may earn from 0% to 200% of their Target Shares, and for Performance Awards granted in Fiscal 2021, employees may earn from 0% to 300% of their Target Shares, based on the terms of the award and our achievement of certain performance goals established at the beginning of the applicable service period.

Performance Awards cliff vest, if earned, after completion of the applicable service period, which is generally three years.

The expense recognized for Performance Awards throughout the service period and the number of shares that are projected to ultimately vest, are based on the estimated degree to which the related performance metrics are expected to be achieved.

Actual performance may differ from such projections, which would impact the number of shares that vest and the total amount of expense recognized for the related Performance Awards, which could have a material impact on our consolidated financial statements.

The expense (benefit) recognized for Performance Awards throughout the service period and the number of shares that are projected to ultimately vest, are based on the estimated degree to which the related performance metrics are expected to be achieved.

Actual performance may differ from such projections, which would impact the number of shares that vest and the total amount of expense (benefit) recognized for the related Performance Awards, which could have a material impact on our consolidated financial statements.

As discussed in “Note 18.

Subsequent Events” of the Consolidated Financial Statements, “Item 8.

Financial Statements and Supplementary Data” of this Form 10-K, there was a change of control of the Company in February 2024, which triggered a conversion of all Performance Awards into service-based Performance Awards.

As a result, the Fiscal 2023, Fiscal 2022 and Fiscal 2021 Performance Awards are all expected to vest at their Target Shares on their respective vesting dates without regard to the achievement of any of the performance metrics associated with those awards.

Inventory Valuation

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Recently Issued Accounting Standards

Refer to “Item 8.

Financial Statements and Supplementary Data – Note 1.

Basis of Presentation and Summary of Significant Accounting Policies” for discussion regarding the impact of recently issued accounting standards on our consolidated financial statements.

Refer to “Note 1.

Basis of Presentation and Summary of Significant Accounting Policies” of the Consolidated Financial Statements, “Item 8.

Financial Statements and Supplementary Data” of this Form 10-K for discussion regarding the impact of recently issued accounting standards on our consolidated financial statements.

RESULTS OF OPERATIONS

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Accordingly, we believe that consolidated omni-channel reporting presents the most meaningful and appropriate measure of our performance, including net sales.

The following table sets forth, for the periods indicated, selected data from Statements of Operations expressed as a percentage of net sales.

The following table sets forth, for the periods indicated, selected data from our Statements of Operations expressed as a percentage of Net sales.

We primarily evaluate the results of our operations as a percentage of Net sales rather than in terms of absolute dollar increases or decreases by analyzing the year over year change in our business expressed as a percentage of Net sales (i.e., “basis points”).

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Accordingly, to the extent that our sales have increased at a faster rate than our costs (i.e., “leveraging”), the more efficiently we have utilized the investments we have made in our business.

Conversely, if our sales decrease or if our costs grow at a faster pace than our sales (i.e., “deleveraging”), we have less efficiently utilized the investments we have made in our business.

Conversely, if our sales decrease or if our costs grow at a faster pace than our sales (i.e., “deleveraging”), we have utilized the investments we have made in our business less efficiently.

Fiscal Years Ended

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Operating income (loss) (5.2) (0.1) 14.4

Interest expense, net (1.9) (0.8) (1.0)

Income (loss) before provision (benefit) for income taxes (7.1) (0.9) 13.4

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Fiscal 2023 Compared to Fiscal 2022

Net sales decreased $206.9 million, or 10.8%, to $1.708 billion during Fiscal 2022 from $1.915 billion during Fiscal 2021.

The decrease was primarily due to lapping the COVID-19 stimulus relief program and enhanced child tax credits last year, the impact of a slowdown in consumer demand resulting from the unprecedented inflation impacting our customer, an increase in promotional activity across the sector and the impact of permanent store closures.

Comparable retail sales decreased 4.7% for Fiscal 2023.

The Children’s Place U.S.

Net sales decreased $76.7 million, or 5.0%, to $1.457 billion during Fiscal 2023, compared to $1.534 billion during Fiscal 2022.

The decrease was primarily due to reductions in retail sales due to lower store count and traffic declines to stores, partially offset by continued strength in e-commerce and an increase in wholesale revenue.

The Children’s Place International net sales decreased $29.3 million, or 16.8%, to $145.2 million during Fiscal 2023, compared to $174.5 million during Fiscal 2022.

The decrease was primarily driven by the impact of unprecedented inflation on our customer and permanent store closures.

Total e-commerce sales, which include postage and handling, wer e 47.7% of net retail sales and 44.0% of net sales during Fiscal 2022, compared to 46.6% and 44.8%, respectively, during Fiscal 2021.

The decrease was primarily due to reductions in retail sales due to lower store count and traffic declines to stores.

Total e-commerce sales, which include postage and handling, were 53.9% of net retail sales and 48.3% of net sales during Fiscal 2023, compared to 47.7% and 44.0%, respectively, during Fiscal 2022.

Gross profit decreased $68.9 million, or 13.4%, to $445.3 million during Fiscal 2023 from $514.2 million during Fiscal 2022.

Gross margin decreased 1,140 basis points to 30.1% during Fiscal 2022 from 41.5% during Fiscal 2021.

Fiscal 2022 results included a one-time reversal of expense due to fleet optimization of $0.6 million.

Fiscal 2021 included incremental expenses, including personal protective equipment and incentive pay for our associates of $1.4 million.

Excluding the impact of

these charges, gross margin deleveraged 1,150 basis points to 30.1% of net sales, primarily due to higher cotton and inbound supply chain costs, lower merchandise margins due to a highly promotional environment, higher distribution expenses, increased shipping costs due to rate increases and higher levels of split customer shipments, and the deleverage of fixed expenses resulting from the decline in net sales.

Gross margin decreased 230 basis points to 27.8% of net sales during Fiscal 2023 from 30.1% during Fiscal 2022.

Adjusted gross profit decreased $68.3 million to $445.3 million during Fiscal 2023, compared to $513.5 million during Fiscal 2022.

The decrease was primarily the result of lower retail revenue attributed to reduced store count and traffic declines and the related lower merchandise margins on those sales.

Additionally, gross profit margin was impacted by a significantly larger wholesale business which operates at a lower gross margin rate but is accretive to operating margin.

Gross profit as a percentage of net sales is dependent upon a variety of factors, including changes in the relative sales mix among distribution channels, changes in the mix of products sold, the timing and level of promotional activities, changes in foreign currency exchange rates, and fluctuations in material costs.

These factors, among others, may cause gross profit as a percentage of net sales to fluctuate from period to period.

Selling, general, and administrative expenses increased $1.8 million, or 0.4%, to $461.0 million during Fiscal 2022 from $459.2 million during Fiscal 2021.

Selling, general, and administrative expenses decreased $13.6 million, or 3.0%, to $447.3 million during Fiscal 2023 from $461.0 million during Fiscal 2022.

As a percentage of net sales, SG&A increased 90 basis points to 27.9% during Fiscal 2023 from 27.0% during Fiscal 2022.

Fiscal 2023 results included incremental operating expenses, including restructuring costs of $10.5 million, fleet optimization costs of $3.1 million, a reserve of $3.0 million for a customer lawsuit, contract termination costs of $3.0 million, professional and consulting fees of $1.8 million, offset by a settlement payment received of $6.5 million.

Fiscal 2022 results included incremental expenses, including restructuring costs of $1.9 million, fleet optimization costs of $1.8 million, professional and consulting fees of $0.7 million, a provision for foreign settlement of $0.4 million, and a provision for legal settlement of $0.4 million.

Fiscal 2021 results included incremental expenses, including personal protective equipment and incentive pay for our associates of $1.6 million, restructuring costs, primarily related to severance costs for corporate and store associates, of $2.3 million, fleet optimization costs of $2.4 million, and contract termination costs of $0.8 million.

Excluding the impact of these charges, SG&A expenses deleveraged 310 basis points to 26.7% of net sales, primarily as a result of the deleverage of fixed expenses resulting from the decline in net sales as well as inflationary pressures and higher planned marketing spend, partially offset by lower incentive compensation.

Asset impairment charges were $3.3 million during Fiscal 2022, inclusive of ROU assets, compared to $1.5 million during Fiscal 2021.

These charges were related to underperforming stores identified in our ongoing store portfolio evaluation primarily as a result of decreased net sales and cash flow projections.

Excluding the impact of these charges, SG&A expenses deleveraged 30 basis points to 27.0% of net sales, compared to 26.7%, primarily as a result of the deleveraging of fixed expenses resulting from the decline in net sales and higher planned marketing spending, partially offset by permanent reductions in store payroll and home office payroll, and reductions in variable performance-based equity compensation.

Asset impairment charges were $34.5 million during Fiscal 2023 for long-lived assets, inclusive of property and equipment and ROU assets, of $5.6 million and the Gymboree tradename of $29.0 million.

Asset impairment charges were $3.3 million during Fiscal 2022 for long-lived assets, inclusive of property and equipment and ROU assets.

The impairment of the Gymboree tradename in Fiscal 2023 was primarily due to an increase in the discount rate used to value the tradename and reductions in Gymboree sales forecasts.

The remaining impairment charges were related to underperforming stores identified in our ongoing store portfolio evaluation.

Depreciation and amortization was $47.2 million during Fiscal 2023, compared to $51.5 million during Fiscal 2022.

This decrease was primarily driven by reduced depreciation of capitalized software, the permanent closure of 59 stores during Fiscal 2022, and a decrease in net book value as a result of the impairment charges recorded in Fiscal 2022.

Operating income (loss) decreased $277.1 million to a loss of $1.5 million during Fiscal 2022 from income of $275.6 million during Fiscal 2021.

This decrease was primarily driven by reduced depreciation of capitalized software, the permanent closure of 90 stores during Fiscal 2023, and a decrease in net book value as a result of the impairment charges recorded in Fiscal 2023, partially offset by the accelerated depreciation related to the voluntary early termination of the corporate office lease.

Operating loss increased $(82.3) million to $(83.8) million during Fiscal 2023 from $(1.5) million during Fiscal 2022.

Operating margin deleveraged 510 basis points to (5.2)% of net sales in Fiscal 2023.

Operating loss was impacted by an impairment charge of $29.0 million on the Gymboree tradename, primarily due to an increase in the discount rate used to value the tradename and reductions to future Gymboree sales forecasts, and $5.6 million of impairment charges to stores during the year.

Fiscal 2023 and Fiscal 2022 results included incremental operating expenses of $51.3 million and $8.6 million, respectively, as described above, and included all asset impairment charges recorded.

Excluding the impact of these incremental charges, operating margin deleveraged 1,470 basis points to 0.4% of net sales.

Excluding the impact of these incremental charges, adjusted operating loss was $(32.5) million during Fiscal 2023, compared to adjusted operating income of $7.1 million during Fiscal 2022, and deleveraged 240 basis points to (2.0)% of net sales.

Interest expense, net was $30.0 million during Fiscal 2023, compared to $13.2 million during Fiscal 2022.

The decrease in interest expense was driven by the combination of the elimination of fees and lower average interest rates associated with the refinancing of the revolving credit facility and term loan in the prior year, partially offset by increases in the floating interest rate on the Company’s revolving credit facility in Fiscal 2022 and higher average borrowings.

Provision (benefit) for income taxes was a benefit of $13.6 million during Fiscal 2022, compared to an expense of $69.9 million during Fiscal 2021.

Our effective tax rate was a benefit of 92.3% and an expense of 27.2% during Fiscal 2022 and Fiscal 2021, respectively.

The change in the effective tax rate for Fiscal 2022 compared to Fiscal 2021 resulted from a favorable mix of earnings compared to prior year and the release of a reserve for unrecognized tax benefits as a result of a settlement with a taxing authority in the first quarter of Fiscal 2022.

Net income (loss) decreased to a loss of $1.1 million, or $(0.09) per diluted share, during Fiscal 2022, compared to income of $187.2 million, or $12.59 per share, during Fiscal 2021, due to the factors discussed above.

The increase was largely driven by higher borrowings and higher average interest rates associated with our revolving credit facility and term loan due to continued market-based rate increases.

Provision (benefit) for income taxes was a provision of $40.7 million during Fiscal 2023, compared to a benefit of $(13.6) million during Fiscal 2022.

Our effective tax rate was a provision of 35.8% and a benefit of (92.3)% during Fiscal 2023 and Fiscal 2022, respectively.

The change in the provision (benefit) for income taxes was primarily driven by the establishment of a valuation allowance against our net deferred tax assets in the fourth quarter of Fiscal 2023 and by the release of a reserve for unrecognized tax benefits as a result of a settlement with a taxing authority in Fiscal 2022.

The change in the effective tax rate for Fiscal 2023 compared to Fiscal 2022 was primarily driven by a larger pretax loss compared to the prior year, along with the items noted immediately above.

Net loss increased $(153.4) million to $(154.5) million, or $(12.36) per diluted share, during Fiscal 2023, compared to $(1.1) million, or $(0.09) per diluted share, during Fiscal 2022, due to the factors discussed above.

Adjusted net loss was $(103.3) million, or $(8.26) per diluted share during Fiscal 2023, compared to $(1.1) million, or $(0.08) per diluted share, during Fiscal 2022.

Fiscal 2022 Compared to Fiscal 2021

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Our working capital needs typically follow a seasonal pattern, peaking during the third fiscal quarter based on seasonal inventory purchases.

Our primary uses of cash are for working capital requirements, which are principally inventory purchases, the financing of capital projects, including investments in new systems, and for the capital return program.

On November 16, 2021, we completed the refinancing of the previous $360.0 million asset-based revolving credit facility (the “Previous ABL Credit Facility”) and our previous $80.0 million term loan (the “Previous Term Loan”) with a new lending group led by an affiliate of Wells Fargo by entering into the Fourth Amendment to our Credit Agreement with the lenders party thereto.

The new debt consists of a $350.0 million asset-based revolving credit facility (the “ABL Credit Facility”) and a $50.0 million term loan (the “Term Loan”).

Our primary uses of cash are for working capital requirements, which are principally inventory purchases;

the payment of interest expense on our ABL Credit Facility and, prior to it being repaid in full as of the effective date of the Seventh Amendment, the term loan under the Credit Agreement;

and the financing of capital projects.

On November 16, 2021, we completed the refinancing of our previous $360.0 million asset-based revolving credit facility and our previous $80.0 million term loan with a new lending group led by an affiliate of Wells Fargo Bank, National Association by entering into a fourth amendment to our Credit Agreement.

The refinanced debt consisted of a $350.0 million ABL Credit Facility and a $50.0 million term loan (the “Term Loan”).

Subsequently, on June 5, 2023, we entered into a fifth amendment to our Credit Agreement, pursuant to which, among other things, our ABL Credit Facility was increased to $445.0 million.

See “ABL Credit Facility and Term Loan” below for further information.

Our working capital deficit increased $76.1 million to $86.4 million at January 28, 2023, compared to $10.3 million at January 29, 2022, primarily reflecting higher outstanding borrowings under our ABL Credit Facility and a decrease in our cash balance, partially offset by higher receivables and lower payables balances, and a higher inventory balance, reflecting higher average unit costs, higher inbound transportation costs, and amounts on hand to support growth initiatives.

During Fiscal 2022, we repurchased approximately 2.0 million shares for $92.9 million.

During Fiscal 2021, we repurchased approximately 1.0 million shares for $85.6 million.

At January 28, 2023, we had $287.0 million of outstanding borrowings under our $350.0 million asset-based revolving credit facility.

As of January 28, 2023, we had total liquidity of $37.3 million, including $20.6 million of availability under our ABL Credit Facility (after factoring in our excess availability requirement), and $16.7 million of cash on hand.

In addition, at January 28, 2023, we had $7.4 million of outstanding letters of credit with an additional $42.6 million available for issuing letters of credit under our ABL Credit Facility.

While the Credit Agreement Lenders determined the calculation error resulted in certain technical defaults under the Credit Agreement (including us not being in compliance with certain debt covenants), we and the Credit Agreement Lenders entered into a Waiver Agreement on October 24, 2023, pursuant to which the Credit Agreement Lenders waived all of the defaults and we agreed to certain temporary enhanced reporting requirements and temporary restrictions on certain payments.

These enhanced reporting requirements and restrictions will cease once we achieve certain excess availability thresholds.

At no time prior to or following entering into the Waiver Agreement were we prevented from borrowing under the Credit Agreement in the ordinary course in accordance with its terms.

During the first quarter of Fiscal 2024, we entered into financing agreements with our new majority shareholder, Mithaq, for a $78.6 million Initial Mithaq Term Loan and a $90 million New Mithaq Term Loan.

On April 16, 2024, we and certain of our subsidiaries entered into a Seventh Amendment to the Credit Agreement with the Credit Agreement Lenders that, among other things, provided a permanent waiver of the change of control event of default that was caused by Mithaq’s acquisition of more than 50% of our outstanding shares of common stock.

As of the effective date of the Seventh Amendment, the ABL Credit Facility was reduced to $433.0 million and the Term Loan was fully repaid, and until we achieve certain excess availability thresholds, the Seventh Amendment preserved the temporary enhanced reporting requirements under the Waiver Agreement and continued to impose cash dominion.

On May 2, 2024, we entered into a commitment letter with Mithaq for the $40.0 million Mithaq Credit Facility.

See “Recent Developments” above for further information.

Our working capital deficit increased $77.9 million to $164.3 million at February 3, 2024, compared to $86.4 million at January 28, 2023, primarily reflecting a lower inventory balance, driven by lower average unit costs and improved inventory management, as well as a decrease in receivables and an increase in accounts payable, partially offset by lower outstanding borrowings under our ABL Credit Facility.

During Fiscal 2023, we repurchased approximately 0.2 million shares for $7.1 million, consisting of shares surrendered to cover tax withholding associated with the vesting of equity awards.

During Fiscal 2022, we repurchased approximately 2.0 million shares for $92.9 million, consisting of shares repurchased on the open market and shares surrendered to cover tax withholding associated with the vesting of equity awards.

At February 3, 2024, we had $226.7 million of outstanding borrowings under our ABL Credit Facility.

As of February 3, 2024, we had total liquidity of $37.9 million, including $24.3 million of availability under our ABL Credit Facility (after factoring in our excess availability requirement), and $13.6 million of cash on hand.

At February 3, 2024, we had $7.4 million of outstanding letters of credit with an additional $42.6 million available for issuing letters of credit under our ABL Credit Facility.

At April 30, 2024, we had $204.1 million of outstanding borrowings under our ABL Credit Facility.

As of April 30, 2024, we had total liquidity of $48.8 million, including $44.8 million of availability under our ABL Credit Facility (after factoring in our excess availability requirement), and $4.0 million of cash on hand.

At April 30, 2024, we had $12.2 million of outstanding letters of credit with an additional $37.8 million available for issuing letters of credit under our ABL Credit Facility.

We expect to be able to meet our working capital and capital expenditure requirements for the foreseeable future by using our cash on hand, cash flows from operations, and availability under our ABL Credit Facility.

ABL Credit Facility and Term Loan

We and certain of our subsidiaries maintain a $350.0 million ABL Credit Facility and a $50.0 million Term Loan with Wells Fargo Bank, National Association (“Wells Fargo”), Truist Bank, Bank of America, N.A., HSBC Business Credit (USA) Inc., and JPMorgan Chase Bank, N.A., as lenders (collectively, the “Lenders”) and Wells Fargo, as Administrative Agent, Collateral Agent, Swing Line Lender and Term Agent.

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 $25.0 million Canadian sublimit and a $50.0 million sublimit for standby and documentary letters of credit.

Borrowings outstanding under the ABL Credit Facility bear interest, at our option, at:

(i) the prime rate plus a margin of 0.375% or 0.625% based on the amount of our average excess availability under the facility;

(ii) the London InterBank Offered Rate, or “LIBOR”, for an interest period of one, three, or six months, as selected by us, plus a margin of 1.125% or 1.375% based on the amount of our average excess availability under the facility.

For Fiscal 2022, Fiscal 2021, and Fiscal 2020, we recognized $10.2 million, $7.0 million, and $8.2 million, respectively, in interest expense related to the ABL Credit Facility and Previous ABL Credit Facility.

We are charged an unused line fee of 0.20% on the unused portion of the commitments.

Letter of credit fees range from 0.563% to 0.683% for commercial letters of credit and range from 0.625% to 0.875% for standby letters of credit.

Letter of credit fees are determined based on the amount of our average excess availability under the facility.

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.

As of February 3, 2024, we and certain of our subsidiaries maintained the $445.0 million ABL Credit Facility and the $50.0 million Term Loan with Wells Fargo, Truist Bank, Bank of America, N.A., HSBC Business Credit (USA) Inc., JPMorgan Chase Bank, N.A., and PNC Bank as lenders and Wells Fargo, as Administrative Agent, Collateral Agent, Swing Line Lender and Term Agent.

Both the ABL Credit Facility and the Term Loan would mature in November 2026.

The ABL Credit Facility included a $25.0 million Canadian sublimit and a $50.0 million sublimit for standby and documentary letters of credit.

Under the ABL Credit Facility, based on the amount of our average daily excess availability under the facility, borrowings outstanding bore interest, at our option, at:

(i) the prime rate per annum, plus a margin of 1.250% or 1.500%;

(ii) the SOFR per annum, plus a margin of 2.000% or 2.250%.

We were charged a fee of 0.200% on the unused portion of the commitments.

Letter of credit fees ranged from 1.000% to 1.125% for commercial letters of credit and ranged from 1.500% to 1.750% for standby letters of credit.

Letter of credit fees were determined based on the amount of our average daily excess availability under the facility.

The amount available for loans and letters of credit under the ABL Credit Facility was determined by a borrowing base consisting of certain credit card receivables, certain trade receivables, certain inventory, and the fair market value of certain real estate, subject to certain reserves.

Once we achieve a consolidated EBITDA of at least $200.0 million across four consecutive fiscal quarters, and based on the amount of our average daily excess availability under the facility, borrowings outstanding under the ABL Credit Facility would bear interest, at our option, at:

(i) the prime rate per annum, plus a margin of 0.625% or 0.875%;

(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 would be determined based on the amount of our average daily excess availability under the facility.

For Fiscal 2023, Fiscal 2022, and Fiscal 2021, we recognized $24.2 million, $10.2 million, and $7.0 million, respectively, in interest expense related to the ABL Credit Facility.

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.

We are not subject to any early termination fees.

The ABL Credit Facility contains covenants, which include conditions on stock buybacks and the payment of cash dividends or similar payments, and a fixed-charge coverage ratio covenant, which only becomes effective in the event that borrowings exceed $315.0 million.

These covenants also limit our ability to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, or dispositions, or to change the nature of our business.

Credit extended under the ABL Credit Facility is secured by a first priority security interest in substantially all of our U.S.

We were not subject to any early termination fees.

The ABL Credit Facility contained covenants, which include conditions on stock buybacks and the payment of cash dividends or similar payments, and a fixed-charge coverage ratio covenant, which only would become effective in the event that borrowings and other uses of credit exceeded the maximum borrowing availability (as reflected in the table below), based on our ability to maintain a certain amount of excess availability for borrowings (the “excess availability threshold”).

These covenants also limited our ability to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, or dispositions or to change the nature of our business.

Credit extended under the ABL Credit Facility was secured by a first priority security interest in substantially all of our U.S.

and Canadian assets other than intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in our intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock.

The table below presents the components of our ABL Credit Facility and Previous ABL Credit Facility:

The table below presents the components of our ABL Credit Facility as of the end of Fiscal 2023 and Fiscal 2022:

2024 January 28,

(in millions)

Credit facility maximum $ 350.0 $ 350.0

Borrowing base (1)

Total borrowing base availability, net of the excess availability threshold, as applicable $ 258.4 $ 363.8

Credit facility maximum, net of the excess availability threshold, as applicable 400.5 315.0

Maximum borrowing availability (1)

Outstanding borrowings 226.7 287.0

4 unchanged sentences

Interest rate at end of period 8.1% 5.9%

Fiscal Years Ended

2024 January 28,

(in millions)

Average end of day loan balance during the period $ 315.5 $ 274.9

2 unchanged sentences

____________________________________________

(1) Lower of the credit facility maximum or the total borrowing base collateral.

(2) The sub-limit availability for the letters of credit was $42.6 million at January 28, 2023 and January 29, 2022.

(3) The ABL Credit Facility contains an excess availability requirement which would effectively reduce this amount to $20.6 million.

The Term Loan bears interest, payable monthly, at (a) the LIBOR Rate plus 2.50% for any portion that is a LIBOR loan, or (b) the base rate plus 1.75% for any portion that is a base rate loan.

The Term Loan is pre-payable at any time without penalty, and does not require amortization.

For Fiscal 2022, Fiscal 2021, and Fiscal 2020, we recognized $2.3 million, $5.9 million and $2.6 million, respectively, in interest expense related to the Term Loan and the Previous Term Loan.

The Term Loan is secured by a first priority security interest in our intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the collateral securing the ABL Credit Facility on a first-priority basis.

The Term Loan is guaranteed by each of our subsidiaries that guarantees the ABL Credit Facility and contains substantially the same covenants as provided in the ABL Credit Facility.

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 January 28, 2023 and January 29, 2022, unamortized deferred financing costs amounted to $2.3 million and $2.9 million, respectively, of which $2.0 million and $2.6 million, respectively, related to our asset-based revolving credit facility.

(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 February 3, 2024, January 28, 2023, and January 29, 2022.

The Term Loan bore interest, payable monthly, at (a) the SOFR per annum plus 2.750% for any portion that was a SOFR loan, or (b) the base rate per annum plus 2.000% for any portion that was a base rate loan.

The Term Loan was pre-payable at any time without penalty, and did not require amortization.

For Fiscal 2023, Fiscal 2022, and Fiscal 2021, we recognized $4.0 million, $2.3 million, and $5.9 million, respectively, in interest expense related to the Term Loan.

The Term Loan was secured by a first priority security interest in our intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the collateral securing the ABL Credit Facility on a first-priority basis.

The Term Loan was guaranteed by each of our subsidiaries that guaranteed the ABL Credit Facility and contained substantially the same covenants as provided in the ABL Credit Facility.

Both the ABL Credit Facility and the Term Loan contained customary events of default, which included (subject in certain cases to customary grace and cure periods) nonpayment of principal or interest, breach of covenants, failure to pay certain other indebtedness, and certain events of bankruptcy, insolvency or reorganization, such as a change of control.

As of February 3, 2024 and January 28, 2023, unamortized deferred financing costs amounted to $2.4 million and $2.3 million, of which $2.2 million and $2.0 million related to our ABL Credit Facility.

During the first quarter of Fiscal 2024, we entered into financing agreements with our new majority shareholder, Mithaq, and on April 16, 2024, among other things, we and certain of our subsidiaries entered into a Seventh Amendment to the Credit Agreement with the Credit Agreement Lenders.

As of the effective date of the Seventh Amendment, the ABL Credit Facility was reduced to $433.0 million and the Term Loan was fully repaid.

See “Recent Developments” above for further information.

Cash Flows and Capital Expenditures

Cash used in operating activities was $8.2 million during Fiscal 2022, compared to $133.3 million of cash generated from operating activities during Fiscal 2021.

Cash used in operating activities during Fiscal 2022 was primarily the result of a higher inventory balance, reflecting higher average unit costs, higher inbound transportation costs, and amounts on hand to support growth initiatives, as well as other planned changes in working capital, partially offset by the receipt of a net income tax

refund of $15.0 million.

Cash generated from operating activities during Fiscal 2021 was primarily the result of earnings generated during the period, partially offset by planned changes in working capital, which brought our vendor payables in line with historical payment terms.

Cash provided by operating activities was $92.8 million during Fiscal 2023, compared to $8.2 million of cash used in operating activities during Fiscal 2022.

Cash provided by operating activities during Fiscal 2023 was primarily the result of a lower inventory balance, reflecting lower average unit costs, and improved inventory management, as well as an increase in

accounts payable and other planned changes in working capital.

Cash used in investing activities was $27.8 million during Fiscal 2023, compared to $45.9 million during Fiscal 2022.

The increase was driven by capital expenditures primarily related to digital and supply chain fulfillment initiatives.

Cash provided by financing activities was $17.1 million during Fiscal 2022, compared to cash used in financing activities of $112.7 million during Fiscal 2021.

Cash provided by financing activities during Fiscal 2022 primarily resulted from additional net borrowings under our ABL Credit Facility, partially offset by increased repurchases of our common stock during Fiscal 2022 compared to Fiscal 2021.

The decrease was driven by lower capital expenditures incurred during the year.

Cash used in financing activities was $68.3 million during Fiscal 2023, compared to cash provided by financing activities of $17.1 million during Fiscal 2022.

The increase primarily resulted from higher net payments under our ABL Credit Facility.

Our ability to continue to meet our capital requirements in Fiscal 2024 depends on our cash on hand, our ability to generate cash flows from operations, and available borrowings under our ABL Credit Facility.

Cash flows generated from operations depends on our ability to achieve our financial plans.

We believe that our existing cash on hand, cash generated from operations, and funds available to us through our ABL Credit Facility will be sufficient to fund our capital and other cash requirements for the foreseeable future.

We believe that our cash on hand, cash generated from operations, and funds available to us through our ABL Credit Facility will be sufficient to fund our capital and other cash requirements for the foreseeable future.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

For a discussion of our contractual obligations and commercial commitments, see “Item 8.

Financial Statements and Supplementary Data” – “Note 7.

For a discussion of our contractual obligations and commercial commitments, see “Note 8.

Leases”, “Note 9.

Debt”, and “Note 10.

Commitments and Contingencies.”

Commitments and Contingencies” of the Consolidated Financial Statements, “Item 8.

Financial Statements and Supplementary Data” of this Form 10-K.

Off-Balance Sheet Arrangements

5 unchanged sentences

The quarterly statement of operations data set forth below reflect, in our opinion, all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the results of operations for these fiscal quarters (unaudited):

Fiscal Year Ended January 28, 2023

Fiscal Year Ended February 3, 2024

Quarter Second

1 unchanged sentence

Quarter Fourth

(in thousands, except earnings per share)

(in thousands, except diluted earnings (loss) per common share)

Net sales $ 321,640 $ 345,599 $ 480,234 $ 455,034

4 unchanged sentences

Operating income (loss) (30,067) (36,941) 44,967 (61,757)

Interest expense, net (5,903) (7,641) (7,939) (8,518)

Income (loss) before provision (benefit) for income taxes (35,970) (44,582) 37,028 (70,275)

1 unchanged sentence

Net income (loss) $ (28,834) $ (35,355) $ 38,482 $ (128,836)

Diluted earnings (loss) per share $ 1.43 $ (1.01) $ 3.26 $ (4.10)

Diluted earnings (loss) per common share $ (2.33) $ (2.82) $ 3.05 $ (10.26)

Diluted weighted average common shares outstanding 12,374 12,522 12,619 12,556

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis