What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-12-06 compared with 2024-09-11 · 144 added, 152 removed, 195 unchanged (60% of the section changed)

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These forward-looking statements are based upon the Company ’ s current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially.

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 its 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 changes in the Company ’ s plans and strategies with respect to pricing, capital allocation, capital structure, investor communications and/or operations may have a negative effect on the Company ’ s business, the risk that the Company ’ s strategic initiatives to increase sales and margin, improve operational efficiencies, enhance operating controls, decentralize operational authority and reshape the Company ’ s culture 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.

Some of these risks and uncertainties are described in the Company ’ s filings with the Securities and Exchange Commission, including in the "Risk Factors" section of its 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 changes in the Company ’ s plans and strategies with respect to pricing, capital allocation, capital structure, investor communications and/or operations may have a negative effect on the Company ’ s business, the risk that the Company ’ s strategic initiatives to increase sales and margin, improve operational efficiencies, enhance operating controls, decentralize operational authority and reshape the Company ’ s culture 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 litigation 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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Terms that are commonly used in our Management’s Discussion and Analysis of Financial Condition and Results of Operations are defined as follows:

• Third Quarter 2024 — The thirteen weeks ended November 2, 2024

• Third Quarter 2023 — The thirteen weeks ended October 28, 2023

• Second Quarter 2024 — The thirteen weeks ended August 3, 2024

• Second Quarter 2023 — The thirteen weeks ended July 29, 2023

• First Quarter 2024 — The thirteen weeks ended May 4, 2024

• Year-To-Date 2024 — The twenty-six weeks ended August 3, 2024

• Year-To-Date 2023 — The twenty-six weeks ended July 29, 2023

• Year-To-Date 2024 — The thirty-nine weeks ended November 2, 2024

• Year-To-Date 2023 — The thirty-nine weeks ended October 28, 2023

• Fiscal 2024 — The fifty-two weeks ending February 1, 2025

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

As of August 3, 2024, we had 515 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 202 international points of distribution with our five franchise partners in 15 countries.

Our global retail and wholesale network includes two digital storefronts, more than 500 stores in North America, wholesale marketplaces, 199 international points of distribution in 15 countries through six international franchise partners, and social media channels on Instagram, Facebook, X, formerly known as Twitter, YouTube and Pinterest.

Segment Reporting

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Net sales to external customers are derived from merchandise sales, and we have one U.S.

wholesale customer that individually accounted for more than 10% of our net sales for the Second Quarter 2024 and Year-To-Date 2024.

wholesale customer that individually accounted for more than 10% of our net sales for the Third Quarter 2024 and Year-To-Date 2024.

Recent Developments

Macroeconomic conditions, including inflationary pressures, higher interest rates, and other domestic and geo-political factors, continue to adversely affect our core customer, resulting in a decrease in discretionary apparel purchases during the Second Quarter 2024.

These macroeconomic conditions are expected to continue to have an adverse impact during the remainder of Fiscal 2024.

On May 20, 2024, our Board of Directors (the “Board”) appointed Muhammad Umair, who is currently a Board member, as President and Interim Chief Executive Officer of the Company.

Umair succeeded Jane Elfers, who departed as our President and Chief Executive Officer and as a member of the Board pursuant to a mutual agreement with the Company effective as of May 20, 2024.

On August 23, 2024, we appointed Claudia Lima-Guinehut as Brand President, effective as of September 9, 2024.

Lima-Guinehut succeeded Maegan Markee, who departed pursuant to a mutual agreement with the Company effective as of June 14, 2024.

On September 18, 2024, we entered into a lease agreement for office space in Lahore, Pakistan, with the lease term commencing on December 1, 2024 and expiring on November 30, 2034.

We expect to utilize this office space primarily for back-office support, sourcing services and other business and corporate matters as needed.

On October 3, 2024, we announced Sheamus Toal will be leaving his positions as Chief Operating Officer and Chief Financial Officer, effective December 13, 2024.

On October 30, 2024, we announced our partnership with global fashion and lifestyle online retailer, SHEIN.

This collaboration brings our apparel to SHEIN’s platform, opening up opportunities for us to reach customers that would not typically be found in our customer file.

This partnership marks a significant step forward, combining our heritage and value with SHEIN’s global reach.

On November 19, 2024, we opened our first Gymboree store at the Garden State Plaza in Paramus, New Jersey.

Also, as previously disclosed, we entered into a letter agreement with our majority shareholder, Mithaq Capital SPC, a Cayman segregated portfolio company (“Mithaq”), on February 29, 2024 (the “Letter Agreement”), pursuant to which, among other things, we are required to use reasonable best efforts to prepare, file, and cause to be effective a registration statement, prospectus and other materials required under applicable law to permit, and to then commence and complete, a rights offering.

In furtherance of our efforts to comply with such pre-existing contractual obligation, and following the determination of the disinterested directors on our current Board of Directors (the “Disinterested Directors”) that a rights offering is in the best interests of the Company and its stockholders and would, among other things, provide us with an opportunity to raise capital and deleverage and more generally strengthen our balance sheet, on September 25, 2024, the Disinterested Directors unanimously approved the commencement and completion of a rights offering.

On October 15, 2024, we filed a preliminary prospectus with the SEC for the rights offering on Form S-1.

On December 3, 2024, the Disinterested Directors unanimously approved that the record date for the rights offering would be December 13, 2024.

Operating Highlights

Net sales decreased $25.9 million, or 7.5%, to $319.7 million during the Second Quarter 2024 from $345.6 million during the Second Quarter 2023, primarily due to an anticipated decrease in e-commerce revenue, as we proactively rationalized our unprofitable promotional strategies, inflated marketing spend and “free shipping” offers to significantly improve profitability, which was successful during the Second Quarter 2024.

These efforts not only improved the profitability of our e-commerce business, despite the lower revenue, but also benefited the brick-and-mortar channel as the stores business experienced a positive comparable store sales for the first time in ten fiscal quarters.

The wholesale business also rebounded with double-digit growth after a decline in the First Quarter 2024.

During the Second Quarter 2024, we closed three stores and did not open any new stores.

Comparable retail sales decreased 7.2% for the Second Quarter 2024, largely driven by the planned decrease in e-commerce as this business decreased by a double-digit percentage, as we proactively sacrificed unprofitable sales to improve profitability.

Stores experienced a positive comparable store sales result for the first time since the post COVID-19 period of 2021, driven by stronger units per transaction and conversion metrics, and improving traffic trends.

Gross profit increased $24.0 million to $111.8 million or 35.0% of net sales during the Second Quarter 2024 from $87.8 million or 25.4% of net sales during the Second Quarter 2023.

The 960 basis point increase was caused by a combination of factors, including reductions in product input costs, including cotton and supply chain costs, which negatively impacted margins in the prior year.

These improvements were combined with the success of our rationalization of profit-draining promotional strategies and shipping offers, which resulted in a significant improvement in the leverage of e-commerce freight costs due to our new shipping threshold for free shipping.

Operatin g loss decreased $15.1 million to $(21.8) million during the Second Quarter 2024 compared to a loss of $(36.9) million during the Second Quarter 2023.

Operating loss was impacted by incremental expenses of $36.0 million, which included an impairment charge of $28.0 million on the Gymboree tradename, primarily due to reductions in Gymboree sales forecasts and a reduction in the royalty rate used to value the tradename, and restructuring costs of $6.1 million due to recent changes in our senior leadership team.

Operating margin leveraged 390 basis points to (6.8)% of net sales.

Net loss decreased $3.3 million to $(32.1) million, or $(2.51) per diluted share, during the Second Quarter 2024 compared to $(35.4) million, or $(2.82) per diluted share, during the Second Quarter 2023, due to the factors discussed above.

Net sales decreased $90.0 million, or 18.8%, to $390.2 million during the Third Quarter 2024 from $480.2 million during the Third Quarter 2023, driven by a combination of the anticipated decrease in e-commerce revenue, as we proactively rationalized our unprofitable promotional strategies, inflated marketing spend and “free shipping” offers to improve profitability, in addition to decreased brick and mortar revenue due to a lower store count and lower transactions.

These efforts were successful during the Third Quarter 2024 in driving profitability despite having lower sales.

During the Third Quarter 2024, we closed five stores and did not open any new stores.

Comparable retail sales decreased 17.1% for the Third Quarter 2024, largely driven by the planned decrease in e-commerce revenue, as we proactively sacrificed unprofitable sales to improve profitability.

Gross profit decreased $23.8 million to $138.3 million during the Third Quarter 2024, compared to $162.1 million during the Third Quarter 2023.

Gross margin, however, increased 180 basis points to 35.5% of net sales in the Third Quarter 2024, compared to 33.7% of net sales in the Third Quarter 2023.

The increase in gross margin was caused by a combination of factors, including reductions in product input costs, including cotton and supply chain costs, which negatively impacted margins in the prior year.

These improvements in input costs were combined with the success of our strategies to rationalize profit-draining promotions and limit unprofitable shipping offers, which resulted in a significant improvement in the leverage of e-commerce freight costs.

Operatin g income was $29.3 million during the Third Quarter 2024 compared to $45.0 million during the Third Quarter 2023.

Operating margin deleveraged 190 basis points to 7.5% of net sales.

Net income was $20.1 million, or $1.57 per diluted share, during the Third Quarter 2024 compared to $38.5 million, or $3.05 per diluted share, during the Third Quarter 2023, due to the factors discussed above.

While we continue to face a challenging macroeconomic environment, including inflationary pressures, higher interest rates, and other domestic and geo-political concerns, 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.

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

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

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 684 stores since the announcement of our fleet optimization initiative in 2013, including three during the Second Quarter 2024.

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.

The average unexpired lease term for our stores is approximately 1.5 years in the United States, Puerto Rico, and Canada.

As we continue to focus on our digital business, 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.

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

Currently, given the terms of our credit agreement, dated as of May 9, 2019 (as amended from time to time, the “Credit Agreement”), by and among the Company and certain of its subsidiaries, and the lenders party thereto (collectively, the “Credit Agreement Lenders”), as amended by the seventh amendment to the Credit Agreement (the “Seventh Amendment”), we are not expecting to repurchase any shares in Fiscal 2024, except pursuant to our practice as a result of our insider trading policy.

As of August 3, 2024, there was $156.7 million remaining availability under the Share Repurchase Program.

As of November 2, 2024, there was $156.7 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.

The table below summarizes the average translation rates that most significantly impact our operating results:

Thirteen Weeks Ended Twenty-six Weeks Ended

2024 July 29,

2023 August 3,

2024 July 29,

Thirteen Weeks Ended Thirty-nine Weeks Ended

2024 October 28,

2023 November 2,

2024 October 28,

Average Translation Rates (1)

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(1) The average translation rates are the average of the monthly translation rates used during each period to translate the respective statements of operations.

(1) The average translation rates are the average of the monthly translation rates during each period to translate the respective statement of operations.

Each rate represents the U.S.

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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 our Statements of Operations expressed as a percentage of Net sales.

The following table sets forth, for the periods indicated, selected data from our Consolidated 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”).

For example, SG&A decreased 230 basis points to 30.1% of Net sales during the Second Quarter 2024 from 32.4% during the Second Quarter 2023.

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.

Thirteen Weeks Ended Twenty-six Weeks Ended

2024 July 29,

2023 August 3,

2024 July 29,

For example, SG&A increased 380 basis points to 25.6% of Net sales during the Third Quarter 2024 from 21.8% during the Third Quarter 2023.

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

Thirteen Weeks Ended Thirty-nine Weeks Ended

2024 October 28,

2023 November 2,

2024 October 28,

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

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Asset impairment charges — 0.1 2.9 0.3

Operating loss (6.8) (10.7) (8.5) (10.0)

Interest expense, net (2.9) (2.2) (2.9) (2.0)

Loss before provision (benefit) for income taxes (9.7) (12.9) (11.4) (12.1)

Operating income (loss) 7.5 9.4 (2.1) (1.9)

Related party interest expense (0.5) — (0.5) —

Other interest expense, net (2.1) (1.7) (2.3) (1.9)

Income (loss) before provision (benefit) for income taxes 4.9 7.7 (4.9) (3.8)

Provision (benefit) for income taxes (0.2) (0.3) 0.2 (1.6)

Net loss (10.0) % (10.2) % (11.9) % (9.6) %

Net income (loss) 5.1 % 8.0 % (5.1) % (2.2) %

Number of Company stores, end of period 510 591 510 591

The following table sets forth net sales by segment, for the periods indicated:

Thirteen Weeks Ended Twenty-six Weeks Ended

2024 July 29,

2023 August 3,

2024 July 29,

Thirteen Weeks Ended Thirty-nine Weeks Ended

2024 October 28,

2023 November 2,

2024 October 28,

(in thousands)

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Total net sales $ 390,173 $ 480,234 $ 977,706 $ 1,147,474

Second Quarter 2024 Compared to Second Quarter 2023

Net sales decreased $25.9 million or 7.5%, to $319.7 million during the Second Quarter 2024 from $345.6 million during the Second Quarter 2023, primarily due to an anticipated decrease in e-commerce revenue, as we proactively rationalized our unprofitable promotional strategies, inflated marketing spend and “free shipping” offers to significantly improve profitability, which was successful during the Second Quarter 2024.

The wholesale business also rebounded with double-digit growth after a decline in the First Quarter 2024.

Third Quarter 2024 Compared to Third Quarter 2023

Net sales decreased $90.0 million or 18.8%, to $390.2 million during the Third Quarter 2024 from $480.2 million during the Third Quarter 2023, driven by a combination of the anticipated decrease in e-commerce revenue, as we proactively rationalized our unprofitable promotional strategies, inflated marketing spend and “free shipping” offers to improve profitability, in addition to decreased brick and mortar revenue due to a lower store count and lower transactions.

These efforts were successful during the Third Quarter 2024 in driving profitability despite having lower sales.

During the Third Quarter 2024, we closed five stores and did not open any new stores.

The Children’s Place U.S.

net sales decreased $20.8 million or 6.6%, to $292.4 million in the Second Quarter 2024, compared to $313.2 million in the Second Quarter 2023.

This decrease was primarily due to an anticipated decrease in e-commerce revenue, as we proactively rationalized our unprofitable promotional strategies, inflated marketing spend and “free shipping” offers to significantly improve profitability.

The wholesale business also rebounded with double-digit growth after a decline in the First Quarter 2024.

The Children’s Place International net sales decreased $5.1 million or 15.8%, to $27.3 million in the Second Quarter 2024, compared to $32.4 million in the Second Quarter 2023.

Total e-commerce sales, which include postage and handling, were 49.3% of net retail sales and 41.7% of net sales during the Second Quarter 2024, compared to 50.8% and 44.3%, respectively, during the Second Quarter 2023.

Gross profit increased $24.0 million to $111.8 million in the Second Quarter 2024, compared to $87.8 million in the Second Quarter 2023.

Gross margin increased 960 basis points to 35.0% of net sales in the Second Quarter 2024.

net sales decreased $85.7 million or 19.4%, to $356.2 million in the Third Quarter 2024, compared to $441.9 million in the Third Quarter 2023, driven by a combination of the anticipated decrease in e-commerce revenue, as we proactively rationalized our unprofitable promotional strategies, inflated marketing spend and “free shipping” offers to improve profitability, in addition to decreased brick and mortar revenue due to a lower store count and lower transactions.

The Children’s Place International net sales decreased $4.4 million or 11.4%, to $34.0 million in the Third Quarter 2024, compared to $38.4 million in the Third Quarter 2023, driven by a combination of the anticipated decrease in e-commerce revenue, as we proactively rationalized our unprofitable promotional strategies, inflated marketing spend and “free shipping” offers to improve profitability.

Total e-commerce sales, which include postage and handling, were 55.3% of net retail sales and 46.5% of net sales during the Third Quarter 2024, compared to 57.0% and 50.0%, respectively, during the Third Quarter 2023.

Gross profit decreased $23.8 million to $138.3 million in the Third Quarter 2024, compared to $162.1 million in the Third Quarter 2023.

Gross margin, however, increased 180 basis points to 35.5% of net sales in the Third Quarter 2024, compared to 33.7% of net sales in the Third Quarter 2023.

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, foreign currency exchange rates, and fluctuations in shipping and 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 decreased $15.9 million to $96.1 million during the Second Quarter 2024 from $112.0 million during the Second Quarter 2023.

SG &A leveraged 230 basis points to 30.1% of net sales in the Second Quarter 2024.

The Second Quarter 2024 results included incremental operating expenses of $7.8 million, including restructuring costs of $6.1 million and credit agreement lender-required consulting costs of $1.1 million.

Th e Second Quarter 2023 results included incremental operating expenses of $10.3 million, including restructuring costs of $9.7 million.

Excluding the impact of these incremental charges, SG&A leveraged 180 basis points to 27.6% of net sales, primarily as a result of significant reductions in store payroll and home office payroll, and the elimination of inflated and unprofitable marketing costs.

This represents the lowest level of Adjusted selling, general, and administrative expenses in over 15 years for the second quarter of a fiscal year.

Depreciation and amortization was $9.5 million during the Second Quarter 2024, compared to $12.0 million during the Second Quarter 2023.

Selling, general, and administrative expenses were well-controlled at $99.8 million during the Third Quarter 2024, compared to $104.8 million during the Third Quarter 2023 .

The Third Quarter 2024 results included incremental operating expenses of $6.0 million, including restructuring costs of $4.8 million, primarily due to recent changes in our senior leadership team, lender required consulting fees of $0.5 million, broken financing deal fees of $0.3 million, other professional and consulting fees of $0.2 million, and fleet optimization costs of $0.1 million.

The Third Quarter 2023 results included incremental operating expenses of $1.9 million, including restructuring costs of $0.8 million, credit agreement amendment costs of $0.8 million, and fleet optimization costs of $0.4 million.

Excluding the impact of these incremental charges, Adjusted SG&A expenses were $93.8 million during the Third Quarter 2024, compared to $102.9 million during the Third Quarter 2023, and deleveraged 260 basis points to 24.0% of net sales, given the planned lower sales.

We were successful in reducing Adjusted SG&A expenses by $9.1 million despite the reversal of $12.6 million in incentive compensation and equity compensation accruals in the prior year.

This decrease was due to significant reductions in marketing expenses, as we eliminated inflated and unprofitable marketing costs and to a lesser extent, due to reductions in store payroll and home office payroll, partially offset by the impact of the change in incentive compensation and equity compensation accruals.

This represents the lowest level of Adjusted selling, general, and administrative expenses in over 15 years for the third quarter of a fiscal year.

Depreciation and amortization was $9.3 million during the Third Quarter 2024, compared to $11.7 million during the Third Quarter 2023.

The decrease was primarily driven by reduced depreciation of capitalized software and the permanent closure of 81 stores during the past twelve months.

Asset impairment charges were $28.0 million during the Second Quarter 2024 due to the reduction in fair value of the Gymboree tradename, which was primarily due to reductions in Gymboree sales forecasts and a reduction in the royalty rate used to value the tradename.

Asset impairment charges were $0.8 million during the Second Quarter 2023 , inclusive of right-of-use (“ROU”) assets.

Asset impairment charges were $0.6 million during the Third Quarter 2023 , inclusive of right-of-use (“ROU”) assets.

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

Operating loss decreased $15.1 million to $(21.8) million during the Second Quarter 2024, compared to $(36.9) million during the Second Quarter 2023.

Operating loss was impacted by incremental expenses of $36.0 million, which included an impairment charge of $28.0 million on the Gymboree tradename, and restructuring costs of $6.1 million due to recent changes in our senior leadership team.

These charges have been classified as non-GAAP adjustments, leading to a shift back to profitability with an adjusted operating income of $14.2 million in the Second Quarter 2024, or an improvement of $39.2 million compared to an adjusted operating loss of $(25.0) million in the Second Quarter 2023, and leveraged 1,170 basis points to 4.5% of net sales.

Net interest expense was $9.2 million during the Second Quarter 2024, compared to $7.6 million during the Second Quarter 2023.

The increase in interest expense was primarily driven by higher average interest rates associated with our revolving credit facility due to the impact of refinancings and continued market-based rate increases, partially offset by continued benefits associated with certain non-interest bearing loans from our majority shareholder, Mithaq Capital SPC, a Cayman segregated portfolio company (“Mithaq”).

Provision (benefit) for income taxes was a provision of $1.1 million during the Second Quarter 2024, compared to a benefit of $(9.2) million during the Second Quarter 2023.

Our effective tax rate was a provision of (3.6)% and a benefit of 20.7% in the Second Quarter 2024 and Second Quarter 2023, respectively.

The change in our effective tax rate and income tax provision (benefit) for the Second Quarter 2024 compared to the Second Quarter 2023 was primarily driven by the establishment of a valuation allowance against our net deferred tax assets in Fiscal 2023.

Net loss , which included certain non-cash impairment charges and non-operating restructuring charges, decreased $3.3 million to $(32.1) million, or $(2.51) per diluted share during the Second Quarter 2024, compared to $(35.4) million, or $(2.82) per diluted share during the Second Quarter 2023, due to the factors discussed above .

Adjusted net income shifted back to profitability after two years of losses during the Second Quarter 2024, improving by $30.4 million to $3.9 million, or $0.30 per diluted share, compared to an adjusted net loss of $(26.5) million, or $(2.12) per diluted share during the Second Quarter 2023.

There were no asset impairment charges during the Third Quarter 2024 .

Operating income was $29.3 million during the Third Quarter 2024, compared to $45.0 million during the Third Quarter 2023.

The Third Quarter 2024 results were impacted by incremental operating expenses of $6.0 million, as described within SG&A expenses above.

The Third Quarter 2023 results were impacted by incremental operating expenses of $2.9 million, including SG&A expenses of $1.9 million, as described above, asset impairment charges of $0.6 million, and accelerated depreciation of $0.5 million.

Excluding the impact of these incremental charges, Adjusted operating income was $35.3 million in the Third Quarter 2024, compared to $47.9 million in the Third Quarter 2023, and deleveraged 100 basis points to 9.0% of net sales.

The Children’s Place International operating margin was negatively impacted during the Third Quarter 2024 due to the closure of our distribution center in Toronto, Canada, and is expected to be partially offset by potential duty drawback claims in the future.

Related party interest expense was $2.1 million during the Third Quarter 2024, due to interest-bearing borrowings from loans entered into with Mithaq during Fiscal 2024.

There was no related party interest expense during the Third Quarter 2023.

Other interest expense, net was $8.0 million during the Third Quarter 2024, compared to $7.9 million during the Third Quarter 2023.

The increase in interest expense was primarily driven by higher average interest rates associated with our revolving credit facility due to the impact of refinancings, partially offset by lower average borrowings.

Provision (benefit) for income taxes was a benefit of $(0.9) million during the Third Quarter 2024, compared to $(1.5) million during the Third Quarter 2023.

Our effective tax rate was a benefit of (4.7)% and (3.9)% in the Third Quarter 2024 and Third Quarter 2023, respectively.

The change in our effective tax rate and income tax provision (benefit) for the Third Quarter 2024 compared to the Third Quarter 2023 was primarily driven by the establishment of a valuation allowance against our net deferred tax assets in Fiscal 2023, partially offset by a favorable shift in the jurisdictional earnings mix in Fiscal 2024.

In the comparable period last year, we calculated the provision (benefit) for income taxes based on the actual effective tax rate for Year-To-Date 2023 by applying the discrete method.

Net income was $20.1 million, or $1.57 per diluted share during the Third Quarter 2024, compared to $38.5 million, or $3.05 per diluted share during the Third Quarter 2023, due to the factors discussed above .

Year-To-Date 2024 Compared to Year-To-Date 2023

Net sales decreased $79.7 million or 11.9% , to $587.5 million during Year-To-Date 2024 from $667.2 million during Year-To-Date 2023, primar ily due to reductions in retail sales due to lower store count, and anticipated declines in e-commerce demand due to the rationalization of promotions, reductions in inflated and unprofitable marketing spend, and the strategic decision to change “free shipping” offers, as we proactively sacrificed unprofitable sales in an effort to improve profitability.

Comparable retail sales decreased 9.4% during Year-To-Date 2024.

Net sales decreased $169.8 million or 14.8% , to $977.7 million during Year-To-Date 2024 from $1.147 billion during Year-To-Date 2023, primar ily due to reductions in retail sales due to a lower store count, and anticipated declines in e-commerce demand due to the rationalization of promotions, reductions in inflated and unprofitable marketing spend, and the strategic decision to change “free shipping” offers, as we proactively sacrificed unprofitable sales in an effort to improve profitability.

Comparable retail sales decreased 12.6% during Year-To-Date 2024, largely due to the planned decrease in e-commerce revenue.

The Children’s Place U.S.

net sales decreased $68.1 million or 11.2%, to $538.6 million during Year-To-Date 2024, compared to $606.7 million during Year-To-Date 2023.

This decrease was primarily due to lower store count, and anticipated declines in e-commerce demand due to the rationalization of promotions, reductions in inflated and unprofitable marketing spend, and the strategic decision to change “free shipping” offers, as we proactively sacrificed unprofitable sales in an effort to improve profitability.

The Children’s Place International net sales decreased $11.5 million or 19.1%, to $49.0 million during Year-To-Date 2024, compared to $60.5 million during Year-To-Date 2023.

net sales decreased $153.8 million or 14.7%, to $894.7 million during Year-To-Date 2024, compared to $1.049 billion during Year-To-Date 2023, primarily due to a lower store count, and anticipated declines in e-commerce demand due to the rationalization of promotions, reductions in inflated and unprofitable marketing spend, and the strategic decision to change “free shipping” offers, as we proactively sacrificed unprofitable sales in an effort to improve profitability.

The Children’s Place International net sales decreased $15.9 million or 16.1%, to $83.0 million during Year-To-Date 2024, compared to $98.9 million during Year-To-Date 2023, primarily due to anticipated declines in e-commerce demand due to the rationalization of promotions, reductions in inflated and unprofitable marketing spend, and the strategic decision to change “free shipping” offers, as we proactively sacrificed unprofitable sales in an effort to improve profitability.

Total e-commerce sales, which include postage and handling, were 52.8% of net retail sales and 45.7% of net sales during Year-To-Date 2024, compared to 52.1% and 46.2%, respectively, during Year-To-Date 2023.

Gross profit increased $20.3 million to $204.5 million during Year-To-Date 2024, compared to $184.2 million during Year-To-Date 2023.

Gross margin leveraged 720 basis points to 34.8% of net sales during Year-To-Date 2024.

The increase was primarily due to reductions in product input costs, including cotton and supply chain costs, which negatively impacted margins in the prior year.

Gross profit decreased $3.5 million to $342.9 million during Year-To-Date 2024, compared to $346.4 million during Year-To-Date 2023.

Gross margin, however, leveraged 490 basis points to 35.1% of net sales during Year-To-Date 2024, compared to 30.2% during Year-To-Date 2023.

The increase in gross margin was primarily due to reductions in product input costs, including cotton and supply chain costs, which negatively impacted margins in the prior year.

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

Selling, general, and administrative expenses decreased $19.7 million to $205.2 million during Year-To-Date 2024 from $224.9 million during Year-To-Date 2023.

SG&A deleveraged 120 basis points to 34.9% of net sales during Year-To-Date 2024.

The Year-To-Date 2024 results included incremental operating expenses, including costs associated with our change of control of $13.7 million, financing related charges of $6.7 million, restructuring costs of $6.4 million, and credit agreement lender-required consulting costs of $1.9 million, partially offset by the reversal of a legal settlement accrual of $2.3 million.

The Year-To-Date 2023 results included incremental operating expenses, including restructuring costs of $9.9 million, contract termination fees of $3.0 million, and fleet optimization costs of $1.2 million.

Excluding the impact of these incremental charges, SG&A leveraged 150 basis points to 30.1% of net sales, primarily as a result of significant reductions in store payroll and home office payroll, and the elimination of inflated and unprofitable marketing costs.

This represents the lowest level of Adjusted selling, general, and administrative expenses in over 15 years for the first two quarters of a fiscal year.

Selling, general, and administrative expenses were $305.0 million during Year-To-Date 2024, compared to $329.8 million during Year-To-Date 2023.

The Year-To-Date 2024 results included incremental operating expenses of $34.2 million, including restructuring costs of $11.2 million, primarily due to changes in our senior leadership team, non-cash equity compensation charges of $9.9 million and other fees of $3.8 million associated with the change of control, financing-related charges of $7.0 million, lender required consulting fees of $2.4 million, fleet optimization costs of $0.9 million, costs associated with the closure of our Canada distribution center of $0.8 million, and other professional and consulting fees of $0.6 million, partially offset by the reversal of a legal settlement accrual of $2.3 million.

The Year-To-Date 2023 results included incremental operating expenses of $15.9 million, including restructuring costs of $10.7 million, contract termination fees of $3.0 million, fleet optimization costs of $1.5 million, and credit agreement amendment costs of $0.8 million.

Excluding the impact of these incremental charges, Adjusted SG&A expenses were $270.8 million during Year-To-Date 2024, compared to $313.8 million during Year-To-Date 2023, and deleveraged 40 basis points to 27.7% of net sales, given the planned lower sales.

We were successful in reducing Adjusted SG&A expenses by $43.0 million despite the reversal of $18.7 million in incentive compensation and equity compensation accruals in the prior year.

This decrease was due to significant reductions in marketing expenses, as we eliminated inflated and unprofitable marketing costs and to a lesser extent, due to reductions in store payroll, home office payroll and professional fees, partially offset by the impact of the change in incentive compensation and equity compensation accruals.

This represents the lowest level of Adjusted selling, general, and administrative expenses in over 15 years for the first three quarters of a fiscal year.

Depreciation and amortization was $30.4 million during Year-To-Date 2024, compared to $35.5 million during Year-To-Date 2023.

The decrease was primarily driven by reduced depreciation of capitalized software and the permanent closure of 81 stores during the past twelve months, partially offset by the accelerated depreciation related to the voluntary early termination of the corporate office lease.

Asset impairment charges were $28.0 million during Year-To-Date 2024 due to the reduction in fair value of the Gymboree tradename, which was primarily due to reductions in Gymboree sales forecasts and a reduction in the royalty rate used to value the tradename.

The decrease was primarily driven by reduced depreciation of capitalized software and the permanent closure of 81 stores during the past twelve months.

Asset impairment charges were $28.0 million during Year-To-Date 2024 due to the reduction in fair value of the Gymboree tradename during the Second Quarter 2024, which was primarily due to reductions in Gymboree sales forecasts and a reduction in the royalty rate used to value the tradename.

Asset impairment charges were $3.1 million during Year-To-Date 2023, inclusive of ROU assets.

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

Operating loss decreased $17.2 million to $(49.8) million during Year-To-Date 2024, compared to $(67.0) million during Year-To-Date 2023.

Operating loss was impacted by incremental expenses of $58.9 million, which included an impairment charge of $28.0 million on the Gymboree tradename, primarily due to reductions in Gymboree sales forecasts and a reduction in the royalty rate used to value the tradename, restructuring costs of $6.4 million primarily due to recent changes in our senior leadership team, and several charges due to our recent change of control, due to the investment in us by Mithaq, and several new financing initiatives, which include $10.8 million of non-cash equity compensation charges and $3.8 million in other fees associated with the change of control, and $6.7 million of financing-related charges.

These charges have been classified as non-GAAP adjustments, leading to a shift back to profitability with an adjusted operating income of $9.2 million during Year-To-Date 2024, or an improvement of $58.7 million compared to an adjusted operating loss of $(49.5) million during Year-To-Date 2023, and leveraged 900 basis points to 1.6% of net sales.

Net interest expense was $17.0 million during Year-To-Date 2024, compared to $13.5 million during Year-To-Date 2023.

The increase was primarily driven by higher average interest rates associated with our revolving credit facility due to the impact of refinancings and continued market-based rate increases, partially offset by continued benefits associated with certain non-interest bearing loans from our majority shareholder, Mithaq.

Operating loss was $(20.5) million during Year-To-Date 2024, compared to $(22.0) million during Year-To-Date 2023.

The Year-To-Date 2024 results were impacted by incremental operating expenses of $64.9 million, including SG&A expenses of $34.2 million, as described above, an impairment charge of $28.0 million on the Gymboree tradename, accelerated depreciation of $1.8 million, and additional change in control charges impacting gross margin of $0.9 million.

The Year-To-Date 2023 results were impacted by incremental operating expenses of $20.4 million, including SG&A expenses of $15.9 million, as described above, asset impairment charges of $3.1 million, and accelerated depreciation of $1.4 million.

Excluding the impact of these incremental charges, Adjusted operating income was $44.4 million during Year-To-Date 2024, or an improvement of $46.0 million compared to an Adjusted operating loss of $(1.6) million during Year-To-Date 2023, and leveraged 460 basis points to 4.5% of net sales.

The Children’s Place International operating margin was negatively impacted during Year-To-Date 2024 due to the closure of our distribution center in Toronto, Canada, and is expected to be partially offset by potential duty drawback claims in the future.

Related party interest expense was $4.6 million during Year-To-Date 2024, due to interest-bearing borrowings from loans entered into with Mithaq during Fiscal 2024.

There was no related party interest expense during Year-To-Date 2023.

Other interest expense, net was $22.5 million during Year-To-Date 2024, compared to $21.5 million during Year-To-Date 2023.

The increase was primarily driven by higher average interest rates associated with our revolving credit facility due to the impact of refinancings, partially offset by lower average borrowings.

Provision (benefit) for income taxes was a provision of $2.3 million during Year-To-Date 2024 compared to a benefit of $(17.8) million during Year-To-Date 2023.

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The change in our effective tax rate and income tax provision (benefit) for Year-To-Date 2024 compared to Year-To-Date 2023 was primarily driven by the establishment of a valuation allowance against our net deferred tax assets in Fiscal 2023.

Net loss , which included certain non-cash impairment charges and non-operating restructuring charges, increased $(5.7) million to $(69.9) million , or $(5.50) per diluted share during Year-To-Date 2024, compared to $(64.2) million , or $(5.16) per diluted share during Year-To-Date 2023 , due to the factors discussed above.

Adjusted net loss, which was driven by losses in the First Quarter 2024 and partially offset by profits in the Second Quarter 2024, was $(11.0) million, or $(0.87) per diluted share during Year-To-Date 2024 , compared to $(51.2) million, or $(4.12) per diluted share during Year-To-Date 2023.

Net loss , which included certain non-cash impairment charges, restructuring charges, and charges due to our change in control, as described above, was $(49.8) million , or $(3.91) per diluted share during Year-To-Date 2024, compared to $(25.7) million , or $(2.06) per diluted share during Year-To-Date 2023 , due to the factors discussed abov e.

Adjusted net income was $15.1 million, or $1.18 per diluted share during Year-To-Date 2024, compared to an Adjusted net loss of $(10.6) million, or $(0.85) per diluted share during Year-To-Date 2023.

LIQUIDITY AND CAPITAL RESOURCES

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 payment of interest expense on our revolving credit facility and interest-equivalent expenses on our term loans, and the financing of capital projects.

Our working capital deficit decreased $74.9 million to $71.2 million at August 3, 2024, compared to $146.1 million at July 29, 2023, primarily reflecting a decrease in borrowings on our $433.0 million asset-based revolving credit facility (the “ABL Credit Facility”) under our Credit Agreement and in our accounts payable balances, partially offset by an increase in accounts receivable balances.

At August 3, 2024, we had $316.7 million of outstanding borrowings under our $433.0 million ABL Credit Facility and no borrowings under our $40.0 million senior unsecured credit facility with Mithaq (the “Mithaq Credit Facility”).

Our primary uses of cash are for working capital requirements, which are principally inventory purchases, the payment of interest expense on our revolving credit facility, and the financing of capital projects.

Our working capital deficit decreased $62.1 million to $46.3 million at November 2, 2024, compared to $108.4 million at October 28, 2023, primarily reflecting a decrease in our accounts payable balances and an increase in our accounts receivable balances.

At November 2, 2024, we had $362.4 million of outstanding borrowings under our $433.0 million asset-based revolving credit facility (the “ABL Credit Facility”) under our Credit Agreement and no borrowings under our $40.0 million senior unsecured credit facility with Mithaq (the “Mithaq Credit Facility”).

We had total liquidity of $94.0 million, including $48.3 million of availability under our ABL Credit Facility, $40.0 million of availability under our Mithaq Credit Facility, and $5.7 million of cash on hand.

At August 3, 2024, we had $12.2 million of outstanding letters of credit, with an additional $12.8 million available for issuing letters of credit under our ABL Credit Facility.

We expect to be able to meet our working capital, capital expenditure, and debt service requirements for at least the next twelve months from the date that our consolidated financial statements for the Second Quarter 2024 were issued, by using our cash on hand, cash flows from operations, and availability under our ABL Credit Facility and Mithaq Credit Facility.

This liquidity may be further supplemented with proceeds from a future rights offering, if any, that we are currently contemplating.

At November 2, 2024, we had $12.2 million of outstanding letters of credit, with an additional $12.8 million available for issuing letters of credit under our ABL Credit Facility.

We expect to be able to meet our working capital, capital expenditure, and debt service requirements for at least the next twelve months from the date that our consolidated financial statements for the Third Quarter 2024 were issued, by using our cash on hand, cash flows from operations, and availability under our ABL Credit Facility and Mithaq Credit Facility.

This liquidity may be further supplemented with proceeds from the rights offering, that we are currently contemplating, and for which a preliminary prospectus has been filed with the SEC on Form S-1 on October 15, 2024.

ABL Credit Facility and 2021 Term Loan

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

For the Second Quarter 2024 and Year-To-Date 2024, we recognized $6.3 million and $12.0 million, respectively, in interest expense related to the ABL Credit Facility.

For the Second Quarter 2023 and Year-To-Date 2023, we recognized $6.1 million and $10.8 million, respectively, in interest expense related to the ABL Credit Facility.

For the Third Quarter 2024 and Year-To-Date 2024, we recognized $7.1 million and $19.1 million, respectively, in interest expense related to the ABL Credit Facility.

For the Third Quarter 2023 and Year-To-Date 2023, we recognized $7.2 million and $18.0 million, respectively, in interest expense related to the ABL Credit Facility.

Prior to April 18, 2024, when the 2021 Term Loan was fully repaid, credit extended under the ABL Credit Facility was secured by a first priority security interest in substantially all of our U.S.

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The ABL Credit Facility contains 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, such as a change of control.

In October 2023, we became aware of inadvertent calculation errors 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.

As the Credit Agreement Lenders determined that the calculation errors 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.

During the First Quarter 2024, Mithaq became the controlling shareholder of the Company and this change of control triggered an event of default under the Credit Agreement, thus subjecting us to cash dominion by the Credit Agreement Lenders.

Subsequently, the Credit Agreement Lenders agreed to forbear from enforcing certain other rights and remedies during a limited forbearance period.

On April 16, 2024, we and certain of our subsidiaries entered into the 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.

As of April 18, 2024, the ABL Credit Facility was reduced from $445.0 million to $433.0 million, and until we achieved certain excess availability thresholds, the Seventh Amendment preserved the temporary enhanced reporting requirements under the Waiver Agreement and continued to impose cash dominion.

As of August 29, 2024, we are no longer under cash dominion and we have reverted to the standard reporting requirements under the Credit Agreement.

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

The tables below present the components of our ABL Credit Facility:

2024 February 3,

2024 July 29,

2024 October 28,

(in millions)

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Interest rate at end of period 8.1% 8.1% 8.0%

____________________________________________

(1) In Fiscal 2023, the total borrowing base availability and credit facility availability were both calculated net of the excess availability threshold under the Credit Agreement, as prior to the Seventh Amendment, crossing that threshold would have resulted in cash dominion, which would have triggered a fixed charge coverage ratio covenant test and would likely have led to a default under the Credit Agreement.

As of the Seventh Amendment, the fixed charge coverage ratio covenant has been removed from the Credit Agreement, and entering into cash dominion by crossing the excess availability threshold no longer poses the same risk of default under the Credit Agreement.

(2) The lower of the credit facility availability and the total borrowing base availability.

(3) The sub-limit availability for letters of credit was $12.8 million at November 2, 2024, and $42.6 million at February 3, 2024 and October 28, 2023.

Year-To-Date 2024 Fiscal 2023 Year-To-Date 2023

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Average interest rate 9.0% 7.5% 7.0%

____________________________________________

(1) In the Second Quarter 2024, given that we were under cash dominion, the excess availability threshold was not applicable to the total borrowing base availability.

As of August 29, 2024, we are no longer under cash dominion.

In Fiscal 2023, the total borrowing base availability was calculated net of the excess availability threshold under the Credit Agreement, as prior to the Seventh Amendment, crossing that threshold would have resulted in cash dominion, which would have triggered a fixed charge coverage ratio covenant test and would likely have led to a default under the Credit Agreement.

As of the Seventh Amendment, the fixed charge coverage ratio covenant has been removed from the Credit Agreement.

(2) In the Second Quarter 2024, given that we were under cash dominion, the excess availability threshold was not applicable to the determination of the credit facility availability.

As of August 29, 2024, we are no longer under cash dominion.

In Fiscal 2023, the credit facility availability was calculated net of the excess availability threshold, as prior to the Seventh Amendment, crossing that threshold would have resulted in cash dominion, which would have triggered a fixed charge coverage ratio covenant test and would likely have led to a default under the Credit Agreement.

As of the Seventh Amendment, the fixed charge coverage ratio covenant has been removed from the Credit Agreement.

(3) The lower of the credit facility availability and the total borrowing base availability.

(4) The sub-limit availability for letters of credit was $12.8 million at August 3, 2024, and $42.6 million at February 3, 2024 and July 29, 2023.

The 2021 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.

1 unchanged sentence

We recognized $1.1 million in interest expense related to the 2021 Term Loan during Year-To-Date 2024.

For the Second Quarter 2023 and Year-To-Date 2023, we recognized $1.0 million and $1.9 million, respectively, in interest expense related to the 2021 Term Loan.

For the Third Quarter 2023 and Year-To-Date 2023, we recognized $0.4 million and $2.4 million, respectively, in interest expense related to the 2021 Term Loan.

As of April 18, 2024, the 2021 Term Loan was fully repaid.

As of August 3, 2024, unamortized deferred financing costs amounted to $2.4 million related to our ABL Credit Facility.

As of November 2, 2024, unamortized deferred financing costs amounted to $4.3 million related to our ABL Credit Facility.

Mithaq Term Loans

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The New Mithaq Term Loan is guaranteed by each of our subsidiaries that guarantee our ABL Credit Facility.

For the Second Quarter 2024 and Year-To-Date 2024, we recognized $2.1 million and $2.5 million, respectively, in deferred interest-equivalent expense related to the New Mithaq Term Loan.

For the Third Quarter 2024 and Year-To-Date 2024, we recognized $2.1 million and $4.6 million, respectively, in deferred interest-equivalent expense related to the New Mithaq Term Loan.

The Mithaq Term Loans are subject to an amended and restated subordination agreement (as amended from time to time, the “Subordination Agreement”), dated as of April 16, 2024, by and among us and certain of our subsidiaries, Wells Fargo and Mithaq, pursuant to which the Mithaq Term Loans are subordinated in payment priority to our obligations under the Credit Agreement.

3 unchanged sentences

The Mithaq Term Loans contain certain customary events of default, which include (subject in certain cases to customary grace periods), nonpayment of principal, breach of other covenants of the Mithaq Term Loans, inaccuracy in representations or warranties, acceleration of certain other indebtedness (including under the Credit Agreement), certain events of bankruptcy, insolvency or reorganization, such as a change of control, and invalidity of any part of the Mithaq Term Loans.

As of August 3, 2024 unamortized deferred financing costs amounted to $3.2 million related to the Mithaq Term Loans.

Maturities of our principal debt payments as of August 3, 2024 are as follows:

August 3, 2024

As of November 2, 2024 unamortized deferred financing costs amounted to $2.9 million related to the Mithaq Term Loans.

Maturities of our principal debt payments on the Mithaq Term Loans as of November 2, 2024 are as follows:

November 2, 2024

(in thousands)

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Additionally, such debt shall require no mandatory prepayments and shall mature no earlier than July 1, 2026.

As of August 3, 2024, no debt had been incurred under the Mithaq Credit Facility.

As of November 2, 2024, no debt had been incurred under the Mithaq Credit Facility.

Cash Flows and Capital Expenditures

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Cash used in operating activities during Year-To-Date 2024 was primarily the result of higher inventory purchases and a lower accounts payable balance compared to Fiscal 2023.

Cash used in investing activities was $12.5 million during Year-To-Date 2024, compared to $18.3 million during the Year-To-Date 2023, driven by lower capital expenditures.

Cash used in investing activities was $15.9 million during Year-To-Date 2024, compared to $24.5 million during Year-To-Date 2023, driven by lower capital expenditures.

Cash provided by financing activities was $248.0 million during Year-To-Date 2024, compared to $64.0 million during Year-To-Date 2023.

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

We believe that our cash on hand, cash generated from operations, and funds available to us through our ABL Credit Facility and Mithaq Credit Facility will be sufficient to fund our capital and other cash requirements for at least the next twelve months from the date that our consolidated financial statements for the Second Quarter 2024 were issued.

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-Q

Item 2. Management’s Discussion and Analysis