Childrens Place, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) November 2, 2024 February 3, 2024 October 28, 2023 (in thousands, except par value) ASSETS Current assets: Cash and cash equivalents $ 5,749 $ 13,639 $ 13,522 Accounts receivable 62,214 33,219 51,712 Inventories 491,619 362,099 462,411 Prepaid expenses and other current assets 43,109 43,169 69,710 Total current assets 602,691 452,126 597,355 Long-term assets: Property and equipment, net 105,486 124,750 134,639 Right-of-use assets 159,374 175,351 127,863 Tradenames, net 13,000 41,123 70,291 Deferred income taxes — — 35,237 Other assets 8,242 6,958 7,996 Total assets $ 888,793 $ 800,308 $ 973,381 LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY Current liabilities: Revolving loan $ 362,375 $ 226,715 $ 358,679 Accounts payable 125,912 225,549 182,594 Current portion of operating lease liabilities 65,151 69,235 66,216 Income taxes payable 2,413 5,297 2,167 Accrued expenses and other current liabilities 93,142 89,608 96,086 Total current liabilities 648,993 616,404 705,742 Long-term liabilities: Long-term debt — 49,818 49,801 Related party long-term debt 165,664 — — Long-term portion of operating lease liabilities 108,390 118,073 76,641 Income taxes payable — 9,486 9,611 Other tax liabilities 5,061 4,664 3,529 Other long-term liabilities 10,259 10,882 9,986 Total liabilities 938,367 809,327 855,310 Commitments and contingencies (see Note 8) Stockholders’ (deficit) equity: Preferred stock, $ 1.00 par value, 1,000 shares authorized, 0 shares issued and outstanding — — — Common stock, $ 0.10 par value, 100,000 shares authorized; 12,779 , 12,585 , and 12,549 issued; 12,776 , 12,529 , and 12,476 outstanding 1,278 1,259 1,255 Additional paid-in capital 151,359 141,083 140,330 Treasury stock, at cost ( 3 , 56 , and 73 shares) ( 110 ) ( 2,909 ) ( 3,932 ) Deferred compensation 110 2,909 3,932 Accumulated other comprehensive loss ( 17,517 ) ( 16,496 ) ( 17,499 ) Accumulated deficit ( 184,694 ) ( 134,865 ) ( 6,015 ) Total stockholders’ (deficit) equity ( 49,574 ) ( 9,019 ) 118,071 Total liabilities and stockholders’ (deficit) equity $ 888,793 $ 800,308 $ 973,381 See accompanying notes to these consolidated financial statements. 1 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Thirteen Weeks Ended Thirty-nine Weeks Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 (in thousands, except earnings (loss) per common share) Net sales $ 390,173 $ 480,234 $ 977,706 $ 1,147,474 Cost of sales 251,832 318,182 634,830 801,111 Gross profit 138,341 162,052 342,876 346,363 Selling, general, and administrative expenses 99,817 104,770 304,976 329,756 Depreciation and amortization 9,266 11,732 30,406 35,534 Asset impairment charges — 583 28,000 3,115 Operating income (loss) 29,258 44,967 ( 20,506 ) ( 22,042 ) Related party interest expense ( 2,078 ) — ( 4,554 ) — Other interest expense ( 8,014 ) ( 7,956 ) ( 22,515 ) ( 21,549 ) Interest income 14 17 39 68 Income (loss) before provision (benefit) for income taxes 19,180 37,028 ( 47,536 ) ( 43,523 ) Provision (benefit) for income taxes ( 900 ) ( 1,454 ) 2,293 ( 17,818 ) Net income (loss) $ 20,080 $ 38,482 $ ( 49,829 ) $ ( 25,705 ) Earnings (loss) per common share Basic $ 1.57 $ 3.07 $ ( 3.91 ) $ ( 2.06 ) Diluted $ 1.57 $ 3.05 $ ( 3.91 ) $ ( 2.06 ) Weighted average common shares outstanding Basic 12,779 12,548 12,731 12,481 Diluted 12,800 12,619 12,731 12,481 See accompanying notes to these consolidated financial statements. 2 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Thirteen Weeks Ended Thirty-nine Weeks Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 (in thousands) Net income (loss) $ 20,080 $ 38,482 $ ( 49,829 ) $ ( 25,705 ) Other comprehensive loss: Foreign currency translation adjustment ( 282 ) ( 1,535 ) ( 1,021 ) ( 1,252 ) Total comprehensive income (loss) $ 19,798 $ 36,947 $ ( 50,850 ) $ ( 26,957 ) See accompanying notes to these consolidated financial statements. 3 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY (Unaudited) Thirteen Weeks Ended November 2, 2024 Accumulated Additional Other Total Common Stock Paid-In Deferred Accumulated Comprehensive Treasury Stock Stockholders’ (in thousands) Shares Amount Capital Compensation Deficit Loss Shares Amount (Deficit) Balance, August 3, 2024 12,779 $ 1,278 $ 151,859 $ 2,975 $ ( 204,774 ) $ ( 17,235 ) ( 61 ) $ ( 2,975 ) $ ( 68,872 ) Vesting of stock awards — — — — — — — — — Stock-based compensation expense — — 21 — — — — — 21 Stock issuance costs — — ( 521 ) — — — — — ( 521 ) Other comprehensive loss — — — — — ( 282 ) — — ( 282 ) Distribution of common stock from deferred compensation plan — — — ( 2,865 ) — — 58 2,865 — Net income — — — — 20,080 — — — 20,080 Balance, November 2, 2024 12,779 $ 1,278 $ 151,359 $ 110 $ ( 184,694 ) $ ( 17,517 ) ( 3 ) $ ( 110 ) $ ( 49,574 ) Thirty-nine Weeks Ended November 2, 2024 Accumulated Additional Other Total Common Stock Paid-In Deferred Accumulated Comprehensive Treasury Stock Stockholders’ (in thousands) Shares Amount Capital Compensation Deficit Loss Shares Amount (Deficit) Balance, February 3, 2024 12,585 $ 1,259 $ 141,083 $ 2,909 $ ( 134,865 ) $ ( 16,496 ) ( 56 ) $ ( 2,909 ) $ ( 9,019 ) Vesting of stock awards 265 26 ( 26 ) — — — — — — Stock-based compensation expense — — 11,382 — — — — — 11,382 Purchase and retirement of common stock ( 71 ) ( 7 ) ( 559 ) — — — — — ( 566 ) Stock issuance costs — — ( 521 ) — — — — — ( 521 ) Other comprehensive loss — — — — — ( 1,021 ) — — ( 1,021 ) Distribution of common stock from deferred compensation plan, net of deferrals — — — ( 2,799 ) — — 53 2,799 — Net loss — — — — ( 49,829 ) — — — ( 49,829 ) Balance, November 2, 2024 12,779 $ 1,278 $ 151,359 $ 110 $ ( 184,694 ) $ ( 17,517 ) ( 3 ) $ ( 110 ) $ ( 49,574 ) See accompanying notes to these consolidated financial statements. 4 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) Thirteen Weeks Ended October 28, 2023 Accumulated Additional Retained Other Total Common Stock Paid-In Deferred Earnings Comprehensive Treasury Stock Stockholders’ (in thousands) Shares Amount Capital Compensation (Deficit) Loss Shares Amount Equity Balance, July 29, 2023 12,544 $ 1,254 $ 145,117 $ 3,884 $ ( 44,477 ) $ ( 15,964 ) ( 71 ) $ ( 3,884 ) $ 85,930 Vesting of stock awards 7 1 ( 1 ) — — — — — — Stock-based compensation benefit — — ( 4,746 ) — — — — — ( 4,746 ) Purchase and retirement of common stock ( 2 ) — ( 40 ) — ( 20 ) — — — ( 60 ) Other comprehensive loss — — — — — ( 1,535 ) — — ( 1,535 ) Deferral of common stock into deferred compensation plan — — — 48 — — ( 2 ) ( 48 ) — Net income — — — — 38,482 — — — 38,482 Balance, October 28, 2023 12,549 $ 1,255 $ 140,330 $ 3,932 $ ( 6,015 ) $ ( 17,499 ) ( 73 ) $ ( 3,932 ) $ 118,071 Thirty-nine Weeks Ended October 28, 2023 Accumulated Additional Retained Other Total Common Stock Paid-In Deferred Earnings Comprehensive Treasury Stock Stockholders’ (in thousands) Shares Amount Capital Compensation (Deficit) Loss Shares Amount Equity Balance, January 28, 2023 12,292 $ 1,229 $ 150,956 $ 3,736 $ 22,540 $ ( 16,247 ) ( 67 ) $ ( 3,736 ) $ 158,478 Vesting of stock awards 462 47 ( 47 ) — — — — — — Stock-based compensation benefit — — ( 6,424 ) — — — — — ( 6,424 ) Purchase and retirement of common stock ( 205 ) ( 21 ) ( 4,155 ) — ( 2,850 ) — — — ( 7,026 ) Other comprehensive loss — — — — — ( 1,252 ) — — ( 1,252 ) Deferral of common stock into deferred compensation plan — — — 196 — — ( 6 ) ( 196 ) — Net loss — — — — ( 25,705 ) — — — ( 25,705 ) Balance, October 28, 2023 12,549 $ 1,255 $ 140,330 $ 3,932 $ ( 6,015 ) $ ( 17,499 ) ( 73 ) $ ( 3,932 ) $ 118,071 See accompanying notes to these consolidated financial statements. 5 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Thirty-nine Weeks Ended November 2, 2024 October 28, 2023 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 49,829 ) $ ( 25,705 ) Reconciliation of net loss to net cash used in operating activities: Non-cash portion of operating lease expense 58,738 58,894 Depreciation and amortization 30,406 35,534 Non-cash stock-based compensation expense (benefit), net 11,382 ( 6,424 ) Asset impairment charges 28,000 3,115 Deferred income tax provision — 1,266 Other non-cash charges, net 1,922 528 Changes in operating assets and liabilities: Inventories ( 130,436 ) ( 16,239 ) Accounts receivable and other assets ( 29,856 ) 1,544 Prepaid expenses and other current assets ( 14,086 ) ( 4,947 ) Income taxes payable, net of prepayments 2,841 ( 25,293 ) Accounts payable and other current liabilities ( 90,857 ) 3,027 Lease liabilities ( 56,513 ) ( 64,673 ) Other long-term liabilities ( 628 ) ( 3,259 ) Net cash used in operating activities ( 238,916 ) ( 42,632 ) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 15,924 ) ( 24,369 ) Change in deferred compensation plan — ( 173 ) Net cash used in investing activities ( 15,924 ) ( 24,542 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit facility 1,032,881 464,320 Repayments under revolving credit facility ( 897,221 ) ( 392,629 ) Purchase and retirement of common stock, including shares surrendered for tax withholdings and transaction costs ( 566 ) ( 7,026 ) Proceeds from issuance of related party term loans 168,600 — Repayment of term loan ( 50,000 ) — Payment of debt issuance costs ( 5,133 ) ( 623 ) Payment of stock issuance costs ( 521 ) — Net cash provided by financing activities 248,040 64,042 Effect of exchange rate changes on cash and cash equivalents ( 1,090 ) ( 35 ) Net decrease in cash and cash equivalents ( 7,890 ) ( 3,167 ) Cash and cash equivalents, beginning of period 13,639 16,689 Cash and cash equivalents, end of period $ 5,749 $ 13,522 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Net cash (received) paid for income taxes $ ( 688 ) $ 6,008 Cash paid for interest 20,428 20,389 SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: Purchases of property and equipment not yet paid 2,176 6,196 See accompanying notes to these consolidated financial statements. 6 Table of Contents THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION Description of Business The Children’s Place, Inc. and its subsidiaries (collectively, the “Company”) operate an omni-channel children’s specialty portfolio of brands. Its global retail and wholesale network includes two digital storefronts, more than 500 stores in North America, wholesale marketplaces and distribution in 15 countries through six international franchise partners. The Company designs, contracts to manufacture, and sells fashionable, high-quality apparel, accessories and footwear predominantly at value prices, primarily under the Company’s proprietary brands: “The Children’s Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place”. The Company classifies its business into two segments: The Children’s Place U.S. and The Children’s Place International. Included in The Children’s Place U.S. segment are the Company’s U.S. and Puerto Rico-based stores and revenue from its U.S.-based wholesale business. Included in The Children’s Place International segment are its Canadian-based stores, revenue from the Company’s Canadian-based wholesale business, as well as revenue from international franchisees. Each segment includes an e-commerce business located at www.childrensplace.com and www.gymboree.com. The Company also has social media channels on Instagram, Facebook, X, formerly known as Twitter, YouTube and Pinterest. Terms that are commonly used in the notes to the Company’s consolidated financial statements are defined as follows: • Third Quarter 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 • First Quarter 2024 — The thirteen weeks ended May 4, 2024 • 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 • Fiscal 2023 — The fifty-three weeks ended February 3, 2024 • Fiscal 2022 — The fifty-two weeks ended January 28, 2023 • SEC — U.S. Securities and Exchange Commission • U.S. GAAP — Generally Accepted Accounting Principles in the United States • FASB — Financial Accounting Standards Board • FASB ASC — FASB Accounting Standards Codification, which serves as the source for authoritative U.S. GAAP, except that rules and interpretive releases by the SEC are also sources of authoritative U.S. GAAP for SEC registrants Basis of Presentation The unaudited consolidated financial statements and accompanying notes to consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. As of November 2, 2024, February 3, 2024 and October 28, 2023, the Company did not have any investments in unconsolidated affiliates. FASB ASC 810— Consolidation is considered when determining whether an entity is subject to consolidation. 7 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal recurring adjustments necessary for a fair statement of the consolidated financial position of the Company as of November 2, 2024 and October 28, 2023, the results of its consolidated operations, consolidated comprehensive income (loss), and consolidated changes in stockholders’ (deficit) equity for the thirteen weeks and thirty-nine weeks ended November 2, 2024 and October 28, 2023, and consolidated cash flows for the thirty-nine weeks ended November 2, 2024 and October 28, 2023. The consolidated balance sheet as of February 3, 2024 was derived from audited financial statements. Due to the seasonal nature of the Company’s business, the results of operations for the thirteen weeks and thirty-nine weeks ended November 2, 2024 and October 28, 2023 are not necessarily indicative of operating results for a full fiscal year. These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2024. Liquidity The Company incurred net losses during Year-To-Date 2024, and in Fiscal 2023 and Fiscal 2022. As of November 2, 2024, the Company had an Accumulated deficit of $ 184.7 million and a working capital deficit of $ 46.3 million, which included borrowings of $ 362.4 million under its asset-based revolving credit facility (the “ABL Credit Facility”), which will mature in November 2026, pursuant to its credit agreement, dated as of May 9, 2019, (as amended from time to time, the “Credit Agreement”), by and among the Company, certain of its subsidiaries and the lenders party thereto. As of November 2, 2024, the Company had availability under its ABL Credit Facility of $ 48.3 million. The Company also has access to a senior unsecured credit facility of up to $ 40.0 million (the “Mithaq Credit Facility”), pursuant to a commitment letter, dated as of May 2, 2024, entered into between the Company and its majority shareholder, Mithaq Capital SPC, a Cayman segregated portfolio company (“Mithaq”), as amended on September 10, 2024. The Mithaq Credit Facility will be available to draw on at any time prior to July 1, 2026 to augment the Company’s liquidity position, if needed. The Company plans to address its ongoing liquidity needs with additional financing as necessary, including but not limited to the rights offering that the Company is currently contemplating, and for which a preliminary prospectus has been filed with the SEC on Form S-1 on October 15, 2024. The Company has determined that its existing cash on hand, expected cash generated from operations, and availability under its ABL Credit Facility and the Mithaq Credit Facility, will be sufficient to fund its capital and other cash requirements for at least the next twelve months from the date that the Company’s consolidated financial statements for the Third Quarter 2024 were issued. For more information about the ABL Credit Facility and the Mithaq Credit Facility, see “Note 7. Debt” of the consolidated financial statements. Fiscal Year The Company’s fiscal year is a fifty-two week or fifty-three week period ending on the Saturday on or nearest to January 31. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and amounts of revenues and expenses reported during the period. Actual results could differ from the assumptions used and estimates made by management, which could have a material impact on the Company’s financial position or results of operations. Critical accounting estimates inherent in the preparation of the consolidated financial statements include impairment of long-lived assets, impairment of indefinite-lived intangible assets, income taxes, stock-based compensation, and inventory valuation. Recent Accounting Standards Updates In November 2023, the FASB issued Accounting Standards Update No. 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” (“ASU 2023-07”). The amendments in ASU 2023-07 are designed to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses during interim and annuals periods. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company expects the adoption of ASU 2023-07 to expand its disclosures, but does not expect it to have a material impact on its consolidated financial statements. 8 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) In December 2023, the FASB issued Accounting Standards Update No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” (“ASU 2023-09”). The amendments in ASU 2023-09 are designed to enhance the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation, and income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements. 2. REVENUES Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The following table presents the Company’s revenues disaggregated by geography: Thirteen Weeks Ended Thirty-nine Weeks Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 (in thousands) Net sales: South $ 127,050 $ 168,623 $ 355,945 $ 416,249 Northeast 78,891 96,052 183,571 220,519 West 42,310 55,567 115,063 144,920 Midwest 42,510 58,331 103,001 131,235 International and other (1) 99,412 101,661 220,126 234,551 Total net sales $ 390,173 $ 480,234 $ 977,706 $ 1,147,474 ____________________________________________ (1) Includes retail and e-commerce sales in Canada and Puerto Rico, wholesale and franchisee sales, and certain amounts earned under the Company’s private label credit card program. The Company recognizes revenue, including shipping and handling fees billed to customers, upon purchase at the Company’s retail stores or when received by the customer if the product was purchased via e-commerce, net of coupon redemptions and anticipated sales returns. The Company deferred sales of $ 9.3 million, $ 3.1 million, and $ 7.6 million within Accrued expenses and other current liabilities as of November 2, 2024, February 3, 2024, and October 28, 2023, respectively, based upon estimated time of delivery, at which point control passes to the customer. Sales tax collected from customers is excluded from revenue. For its wholesale business, the Company recognizes revenue, including shipping and handling fees billed to customers, when title of the goods passes to the customer, net of commissions, discounts, operational chargebacks, and cooperative advertising. The allowance for wholesale revenue included within Accounts receivable was $ 14.1 million, $ 9.0 million, and $ 8.6 million as of November 2, 2024, February 3, 2024, and October 28, 2023, respectively. For the sale of goods to retail customers with a right of return, the Company recognizes revenue for the consideration it expects to be entitled to and calculates an allowance for estimated sales returns based upon the Company’s sales return experience. Adjustments to the allowance for estimated sales returns in subsequent periods have not been material based on historical data, thereby reducing the uncertainty inherent in such estimates. The allowance for estimated sales returns, which is recorded in Accrued expenses and other current liabilities, was $ 1.9 million, $ 1.7 million, and $ 2.5 million as of November 2, 2024, February 3, 2024, and October 28, 2023, respectively. 9 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) The Company’s private label credit card is issued to customers for use exclusively at The Children’s Place stores and online at www.childrensplace.com and www.gymboree.com , and credit is extended to such customers by a third-party financial institution on a non-recourse basis to the Company. The private label credit card includes multiple performance obligations for the Company, including marketing and promoting the program on behalf of the bank and the operation of the loyalty rewards program. Included in the agreement with the third-party financial institution was an upfront bonus paid to the Company and an additional bonus to extend the term of the agreement. These bonuses are recognized as revenue and allocated between brand and reward obligations. As the license of the Company’s brand is the predominant item in the performance obligation, the amount allocated to the brand obligation is recognized on a straight-line basis over the term of the agreement. The amount allocated to the reward obligation is recognized on a point-in-time basis as redemptions under the loyalty program occur. In measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer, the Company takes into account the related elements of variable consideration, such as additional bonuses, including profit-sharing, over the life of the private label credit card program. Similar to the upfront bonus, the usage-based royalties and bonuses are recognized as revenue and allocated between the brand and reward obligations. The amount allocated to the brand obligation is recognized on a straight-line basis over the initial term. The amount allocated to the reward obligation is recognized on a point-in-time basis as redemptions under the loyalty program occur. In addition, the annual profit-sharing amount is recognized quarterly within an annual period when it can be estimated reliably. The additional bonuses are amortized over the contract term based on anticipated progress against future targets and level of risk associated with achieving the targets. The Company has a points-based customer loyalty program in which customers earn points based on purchases and other promotional activities. These points can be redeemed for coupons to discount future purchases. A contract liability is estimated based on the standalone selling price of benefits earned by customers through the program and the related redemption experience under the program. The value of each point earned is recorded as deferred revenue and is included within Accrued expenses and other current liabilities. The total contract liabilities related to this program were $ 3.8 million, $ 1.7 million, and $ 2.0 million as of November 2, 2024, February 3, 2024, and October 28, 2023, respectively. The Company’s policy with respect to gift cards is to record revenue as and when the gift cards are redeemed for merchandise. The Company recognizes gift card breakage income in proportion to the pattern of rights exercised by the customer when the Company expects to be entitled to breakage and the Company determines that it does not have a legal obligation to remit the value of the unredeemed gift card to the relevant jurisdiction as unclaimed or abandoned property. Gift card breakage is recorded within Net sales. Prior to their redemption, gift cards are recorded as a liability within Accrued expenses and other current liabilities. The liability is estimated based on expected breakage that considers historical patterns of redemption. The gift card liability balance as of November 2, 2024, February 3, 2024, and October 28, 2023 was $ 4.5 million, $ 6.8 million, and $ 6.3 million, respectively. During Year-To-Date 2024, the Company recognized Net sales of $ 4.7 million related to the gift card liability balance that existed at February 3, 2024. The Company has an international program of territorial agreements with franchisees. The Company generates revenues from the franchisees from the sale of product and, in certain cases, sales royalties. The Company recognizes revenue on the sale of product to franchisees when the franchisee takes ownership of the product. The Company records net sales for royalties when the applicable franchisee sells the product to its customers. Under certain agreements, the Company receives a fee from each franchisee for exclusive territorial rights and based on the opening of new stores. The Company records these territorial fees as deferred revenue and amortizes the fee into Net sales over the life of the territorial agreement. 3. RESTRUCTURING As a result of the strategic actions associated with the voluntary early termination and subsequent renewal of the Company’s corporate office lease, the move of its distribution center operations from Toronto, Canada (“TODC”) to Alabama in the United States, and workforce reductions, the Company incurred $ 2.5 million in restructuring costs during Year-To-Date 2024, and $ 1.2 million and $ 11.8 million in restructuring costs during the Third Quarter 2023 and Year-To-Date 2023, respectively, on a pretax basis, summarized in the following table: 10 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Thirteen Weeks Ended Thirty-nine Weeks Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 (in thousands) Employee-related costs $ — $ 674 $ — $ 6,107 Lease termination costs (1) — 454 701 5,401 TODC costs (2) — — 1,848 — Professional fees — 82 — 268 Total restructuring costs (3) $ — $ 1,210 $ 2,549 $ 11,776 _______________________________________ (1) Includes non-cash charges related to accelerated depreciation on certain assets in the corporate office over the reduced term, amounting to $ 0.7 million during Year-To-Date 2024. (2) Includes non-cash charges related to accelerated depreciation on TODC assets, amounting to $ 1.1 million during Year-To-Date 2024. (3) Restructuring costs are recorded within Selling, general, and administrative expenses, except accelerated depreciation charges noted above, which are recorded within Depreciation and amortization. TODC costs are recorded within The Children’s Place International segment. The remaining restructuring costs are primarily recorded within The Children’s Place U.S. segment. The following table summarizes the restructuring costs that have been settled with cash payments. There is no remaining liability as of November 2, 2024. Employee-Related Costs TODC Costs Total (in thousands) Balance at February 3, 2024 $ 1,666 $ — $ 1,666 Provision — 751 751 Cash Payments ( 1,114 ) ( 247 ) ( 1,361 ) Balance at May 4, 2024 552 504 1,056 Cash Payments ( 304 ) ( 185 ) ( 489 ) Balance at August 3, 2024 248 319 567 Provision ( 248 ) ( 319 ) ( 567 ) Balance at November 2, 2024 $ — $ — $ — Employee-Related Costs Lease Termination Costs Professional Fees Total (in thousands) Balance at April 29, 2023 $ — $ — $ — $ — Provision 5,433 4,040 186 9,659 Cash Payments ( 2,602 ) ( 4,040 ) — ( 6,642 ) Balance at July 29, 2023 2,831 — 186 3,017 Provision 674 — 82 756 Cash Payments ( 2,652 ) — ( 268 ) ( 2,920 ) Balance at October 28, 2023 853 — — 853 Provision 1,275 — — 1,275 Cash Payments ( 462 ) — — ( 462 ) Balance at February 3, 2024 $ 1,666 $ — $ — $ 1,666 11 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 4. INTANGIBLE ASSETS On April 4, 2019, the Company acquired certain intellectual property and related assets of Gymboree Group, Inc. and related entities, which included the worldwide rights to the names “Gymboree” and “Crazy 8” and other intellectual property, including trademarks, domain names, copyrights, and customer databases. These intangible assets, inclusive of acquisition costs, are recorded in the long-term assets section of the Consolidated Balance Sheets. The Company recorded an impairment charge on the Gymboree tradename of $ 29.0 million in Fiscal 2023, which reduced the carrying value to its fair value of $ 41.0 million. The Company recorded a further impairment charge on the Gymboree tradename of $ 28.0 million in the Second Quarter 2024, which reduced the carrying value to its fair value of $ 13.0 million. The Company did not record an impairment charge in the Third Quarter 2024. The Company’s intangible assets were as follows: November 2, 2024 Useful Life Gross Amount Accumulated Amortization Net Amount (in thousands) Gymboree tradename Indefinite $ 13,000 $ — $ 13,000 Total intangible assets $ 13,000 $ — $ 13,000 February 3, 2024 Useful Life Gross Amount Accumulated Amortization Net Amount (in thousands) Gymboree tradename Indefinite $ 41,000 $ — $ 41,000 Crazy 8 tradename 5 years 4,000 ( 3,877 ) 123 Total intangible assets $ 45,000 $ ( 3,877 ) $ 41,123 October 28, 2023 Useful Life Gross Amount Accumulated Amortization Net Amount (in thousands) Gymboree tradename Indefinite $ 69,953 $ — $ 69,953 Crazy 8 tradename 5 years 4,000 ( 3,662 ) 338 Total intangible assets $ 73,953 $ ( 3,662 ) $ 70,291 12 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 5. PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: November 2, 2024 February 3, 2024 October 28, 2023 (in thousands) Property and equipment: Land and land improvements $ 3,403 $ 3,403 $ 3,403 Building and improvements 36,418 36,187 36,187 Material handling equipment 89,427 90,637 90,362 Leasehold improvements 164,335 162,898 177,203 Store fixtures and equipment 168,414 173,667 199,596 Capitalized software 336,320 333,953 350,318 Construction in progress 3,956 3,386 8,378 802,273 804,131 865,447 Less: accumulated depreciation and amortization ( 696,787 ) ( 679,381 ) ( 730,808 ) Property and equipment, net $ 105,486 $ 124,750 $ 134,639 At November 2, 2024 and October 28, 2023, the Company reviewed its store related long-lived assets for indicators of impairment, and performed a recoverability test if indicators were identified. Based on the results of the analyses performed, the Company did no t record asset impairment charges in the Third Quarter 2024 and Year-To-Date 2024. The Company recorded asset impairment charges in the Third Quarter 2023 and Year-To-Date 2023 of $ 0.6 million and $ 3.1 million, respectively, inclusive of right of use (“ROU”) assets. 6. LEASES The Company has operating leases for retail stores, corporate offices, distribution facilities, and certain equipment. The Company’s leases have remaining lease terms ranging from less than one year up to thirteen years , some of which include options to extend the leases for up to five years , and some of which include options to terminate the lease early. The Company records all occupancy costs in Cost of sales, except costs for administrative office buildings, which are recorded in Selling, general, and administrative expenses. As of the periods presented, the Company’s finance leases were not material to the Consolidated Balance Sheets, Consolidated Statements of Operations, or Consolidated Statements of Cash Flows. The following components of operating lease expense were recognized in the Company’s Consolidated Statements of Operations: Thirteen Weeks Ended Thirty-nine Weeks Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 (in thousands) Fixed operating lease cost $ 22,684 $ 21,457 $ 68,326 $ 63,844 Variable operating lease cost (1) 5,281 11,030 19,224 40,115 Total operating lease cost $ 27,965 $ 32,487 $ 87,550 $ 103,959 ____________________________________________ (1) Includes short term leases with lease periods of less than 12 months. As of November 2, 2024, the weighted-average remaining operating lease term was 4.4 years, and the weighted-average discount rate for operating leases was 8.0 %. Cash paid for amounts included in the measurement of operating lease liabilities during Year-To-Date 2024 was $ 59.8 million. ROU assets obtained in exchange for new operating lease liabilities were $ 51.1 million during Year-To-Date 2024. 13 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) As of November 2, 2024, the maturities of operating lease liabilities were as follows: November 2, 2024 (in thousands) Remainder of 2024 $ 22,526 2025 70,981 2026 41,657 2027 19,495 2028 14,795 Thereafter 41,743 Total operating lease payments 211,197 Less: imputed interest ( 37,656 ) Present value of operating lease liabilities $ 173,541 7. DEBT ABL Credit Facility and 2021 Term Loan The Company and certain of its subsidiaries maintain the $ 433.0 million ABL Credit Facility and, before it was fully repaid, maintained a $ 50.0 million term loan (the “2021 Term Loan”) under its Credit Agreement with Wells Fargo Bank, National Association (“Wells Fargo”), Truist Bank, Bank of America, N.A., HSBC Business Credit (USA) Inc., JPMorgan Chase Bank, N.A., and PNC Bank, National Association, as the lenders party thereto (collectively, the “Credit Agreement Lenders”) and Wells Fargo, as Administrative Agent, Collateral Agent, Swing Line Lender and, before the 2021 Term Loan was fully repaid, Term Agent. The ABL Credit Facility will mature and, before it was fully repaid, the 2021 Term Loan would have matured, in November 2026. As of April 18, 2024, which is the effective date of the seventh amendment to the Credit Agreement (the “Seventh Amendment”), the ABL Credit Facility includes a $ 25.0 million Canadian sublimit and a $ 25.0 million sublimit for standby and documentary letters of credit. Under the ABL Credit Facility, borrowings outstanding bear interest, at the Company’s option, at: (i) the prime rate per annum, plus a margin of 2.000 %; or (ii) the Secured Overnight Financing Rate (“SOFR”) per annum, plus 0.100 %, plus a margin of 3.000 %. Prior to April 18, 2024, the Company was charged a fee of 0.200 % on the unused portion of the commitments. As of April 18, 2024, based on the size of the unused portion of the commitments, the Company is charged a fee ranging from 0.250 % to 0.375 %. Letter of credit fees are at 1.125 % for commercial letters of credit and 1.750 % for standby letters of credit. 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 and an availability block. From and after February 4, 2025 and on the first day of each fiscal quarter thereafter, based on the amount of the Company’s average daily excess availability under the facility, borrowings outstanding under the ABL Credit Facility will bear interest, at the Company’s option, at: (i) the prime rate per annum, plus a margin of 1.750 % or 2.000 %; or (ii) the SOFR per annum, plus 0.100 %, plus a margin of 2.750 % or 3.000 %. Letter of credit fees will range from 1.000 % to 1.125 % for commercial letters of credit and will range from 1.500 % to 1.750 % for standby letters of credit. Letter of credit fees will be determined based on the amount of the Company’s average daily excess availability under the facility. 14 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) For the Third Quarter 2024 and Year-To-Date 2024, the Company 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, the Company 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 the Company’s U.S. and Canadian assets other than intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the Company’s intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock. As of April 18, 2024, the ABL Credit Facility is secured on a first priority basis by all of the foregoing collateral. The outstanding obligations under the ABL Credit Facility may be accelerated upon the occurrence of certain customary events of default, as described below. The Company is not subject to any early termination fees. The ABL Credit Facility contains covenants, which include conditions on stock buybacks and the payment of cash dividends or similar payments. These covenants also limit the ability of the Company and its subsidiaries to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, or dispositions or to change the nature of its business. Pursuant to the Seventh Amendment, the requisite payment condition thresholds for some of these covenants have been heightened, resulting in certain actions such as the repurchase of shares and payment of cash dividends becoming more difficult to perform. Additionally, if the Company is unable to maintain a certain amount of excess availability for borrowings (the “excess availability threshold”), the Company may be subject to cash dominion. 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. The tables below present the components of the Company’s ABL Credit Facility: November 2, 2024 February 3, 2024 October 28, 2023 (in millions) Total borrowing base availability (1) $ 422.9 $ 258.4 $ 394.7 Credit facility availability (1) 433.0 400.5 400.5 Maximum borrowing availability (2) 422.9 258.4 394.7 Outstanding borrowings 362.4 226.7 358.7 Letters of credit outstanding—standby 12.2 7.4 7.4 Utilization of credit facility at end of period 374.6 234.1 366.1 Availability (3) $ 48.3 $ 24.3 $ 28.6 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, 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. 15 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Year-To-Date 2024 Fiscal 2023 Year-To-Date 2023 (in millions) Average end of day loan balance during the period $ 280.9 $ 315.5 $ 327.6 Highest end of day loan balance during the period $ 366.9 $ 379.4 $ 379.4 Average interest rate 9.0 % 7.5 % 7.0 % 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. The 2021 Term Loan was pre-payable at any time without penalty, and did not require amortization. The Company recognized $ 1.1 million in interest expense related to the 2021 Term Loan during Year-To-Date 2024. For the Third Quarter 2023 and Year-To-Date 2023, the Company recognized $ 0.4 million and $ 2.4 million, respectively, in interest expense related to the 2021 Term Loan. As of April 18, 2024, the 2021 Term Loan was fully repaid. As of November 2, 2024, unamortized deferred financing costs amounted to $ 4.3 million related to the Company’s ABL Credit Facility. Mithaq Term Loans The Company and certain of its subsidiaries maintain an interest-free, unsecured and subordinated promissory note with Mithaq for a $ 78.6 million term loan (the “Initial Mithaq Term Loan”), consisting of (a) a first tranche in an aggregate principal amount of $ 30.0 million (the “First Tranche”) and (b) a second tranche in an aggregate principal amount of $ 48.6 million (the “Second Tranche”). The Company received the First Tranche on February 29, 2024 and the Second Tranche on March 8, 2024. The Initial Mithaq Term Loan matures on February 15, 2027. The Initial Mithaq Term Loan is guaranteed by each of the Company’s subsidiaries that guarantee the Company’s ABL Credit Facility. The Company and certain of its subsidiaries also maintain an unsecured and subordinated $ 90.0 million term loan with Mithaq (the “New Mithaq Term Loan”; and together with the Initial Mithaq Term Loan, collectively, the “Mithaq Term Loans”). The New Mithaq Term Loan matures on April 16, 2027, and requires monthly payments equivalent to interest charged at the SOFR plus 4.000 % per annum, with such monthly payments to Mithaq deferred until April 30, 2025. The New Mithaq Term Loan is guaranteed by each of the Company’s subsidiaries that guarantee the Company’s ABL Credit Facility. For the Third Quarter 2024 and Year-To-Date 2024, the Company 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 the Company and certain of its subsidiaries, Wells Fargo and Mithaq, pursuant to which the Mithaq Term Loans are subordinated in payment priority to the obligations of the Company and its subsidiaries under the Credit Agreement. Subject to such subordination terms, the Mithaq Term Loans are prepayable at any time and from time to time without penalty and do not require any mandatory prepayments. The Mithaq Term Loans contain customary affirmative and negative covenants substantially similar to a subset of the covenants set forth in the Credit Agreement, including limits on the ability of the Company and its subsidiaries to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, dispositions or restricted payments, or to change the nature of its business. The Mithaq Term Loans, however, do not provide for any closing, prepayment or exit fees, or other fees typical for transactions of this nature, do not impose additional reserves on borrowings under the Credit Agreement, and do not contain certain other restrictive covenants. 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 November 2, 2024 unamortized deferred financing costs amounted to $ 2.9 million related to the Mithaq Term Loans. 16 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Maturities of the Company’s principal debt payments on the Mithaq Term Loans as of November 2, 2024 are as follows: November 2, 2024 (in thousands) Remainder of 2024 $ — 2025 — 2026 — 2027 168,600 Thereafter — Total related party debt $ 168,600 Mithaq Commitment Letter On May 2, 2024, the Company entered into a commitment letter (“the Commitment Letter”) with Mithaq for a $ 40.0 million Mithaq Credit Facility. Under the Mithaq Credit Facility, the Company had the ability to request for advances at any time prior to July 1, 2025. On September 10, 2024, the Company and Mithaq entered into an Amendment No. 1 to the Commitment Letter, that extended the deadline for requesting advances until July 1, 2026. 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. Such debt shall be unsecured and shall be guaranteed by each of the Company’s subsidiaries that guarantee the Company’s ABL Credit Facility. Similar to the Mithaq Term Loans, such debt shall also be subject to the Subordination Agreement, contain customary affirmative and negative covenants substantially similar to a subset of the covenants set forth in the Credit Agreement, and contain certain customary events of default. Additionally, such debt shall require no mandatory prepayments and shall mature no earlier than July 1, 2026. As of November 2, 2024, no debt had been incurred under the Mithaq Credit Facility. 8. COMMITMENTS AND CONTINGENCIES The Company is a defendant in Rael v. The Children’s Place, Inc. , a purported class action, pending in the U.S. District Court, Southern District of California. In the initial complaint filed in February 2016, the plaintiff alleged that the Company falsely advertised discount prices in violation of California’s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act. The plaintiff filed an amended complaint in April 2016, adding allegations of violations of other state consumer protection laws. In August 2016, the plaintiff filed a second amended complaint, adding an additional plaintiff and removing the other state law claims. The plaintiffs’ second amended complaint sought to represent a class of California purchasers and sought, among other items, injunctive relief, damages, and attorneys’ fees and costs. 17 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) The Company engaged in mediation proceedings with the plaintiffs in December 2016 and April 2017. The parties reached an agreement in principle in April 2017, and signed a definitive settlement agreement in November 2017, to settle the matter on a class basis with all individuals in the U.S. who made a qualifying purchase at The Children’s Place from February 11, 2012 through January 28, 2020, the date of preliminary approval by the court of the settlement. The Company submitted its memorandum in support of final approval of the class settlement on March 2, 2021. On March 29, 2021, the court granted final approval of the class settlement and denied plaintiff’s motion for attorney’s fees, with the amount of attorney’s fees to be decided after the class recovery amount has been determined. The settlement provides merchandise vouchers for qualified class members who submit valid claims, as well as payment of legal fees and expenses and claims administration expenses. Vouchers were distributed to class members on November 15, 2021 and they were eligible for redemption in multiple rounds through November 2023. On February 23, 2024, a hearing on motion for preliminary injunction and permanent injunction and to enforce judgement and settlement agreement was held. Pending receipt of the court’s ruling, upon the court’s order, the plaintiff filed a renewed motion for attorneys’ fees, costs and incentive awards on March 4, 2024, to which the Company filed a statement of non-opposition on April 1, 2024. Because the plaintiff was seeking less than the maximum amount agreed to in the settlement, the Company requested that such difference in amount be distributed as vouchers to authorized class members, pursuant to the settlement agreement. The hearing for the motion for attorneys’ fees, costs, and incentive awards resulted in the court granting the plaintiff’s counsel approximately $ 0.3 million in fees, costs and incentive awards. The balance of funds initially reserved for the plaintiff counsel’s fees and costs will now be issued as a single, final round of merchandise vouchers for qualified class members. In connection with the settlement, the Company recorded a reserve for $ 5.0 million in its consolidated financial statements in the first quarter of 2017. Following the court’s recent decision(s), the Company released $ 2.3 million from its previously established reserve during the First Quarter 2024. Similar to the Rael case above, the Company is also a defendant in Gabriela Gonzalez v. The Children’s Place, Inc. , a purported class action, pending in the U.S. District Court, Central District of California. The plaintiff alleged that the Company had falsely advertised discounts that do not exist, in violation of California’s Unfair Competition Laws, False Advertising Law and the California Consumer Legal Remedies Act. The Company filed a motion to compel arbitration, which the plaintiff did not oppose, and the court granted the motion on August 17, 2022—staying the case pending the outcome of the arbitration. The demand for arbitration was filed on October 4, 2022, in connection with the individual claim of the plaintiff. A mass arbitration firm associated with plaintiff’s counsel then conducted an advertising campaign for claimants to conduct a mass arbitration. In part, to avoid the mass arbitration, the parties stipulated to return the original plaintiff’s claim to court to proceed as a class action. Accordingly, the arbitration would not be proceeding and the Company’s response to the original plaintiff’s complaint in court was filed on July 20, 2023. On August 16, 2023, however, the Company began to receive notices regarding an initial tranche of approximately 1,300 individual demands that were filed with Judicial Arbitration and Mediation Services, Inc. (“JAMS”) as part of a related mass arbitration claim. The parties participated in mediation proceedings on November 15, 2023 and February 9, 2024. The parties agreed to further discuss settlement options in May 2024, which occurred without resolution. In late May, due to the judge’s retirement, the Gonzalez action was transferred and reassigned to a different judge. Deadlines were therefore reset, including the Company’s motion to dismiss. On June 10, 2024, JAMS advised that it would be pausing its administration of the claims until the parties resolve their dispute over which set of arbitration terms apply to the case. The Company’s motion to dismiss was denied in November 2024. As of February 2024, the Company was also a defendant in Randeep Singh Khalsa v. The Children’s Place, Inc. et al. , a purported class action, pending in the United States District Court of New Jersey. The complaint purported to assert claims under the federal securities laws, alleging that between March 16, 2023, and February 8, 2024, the Company made materially false and/or misleading statements, and failed to disclose material adverse facts to its investors, which the complaint alleged led to a drop in the price of the Company’s common stock. As of November 20, 2024, this case has been dismissed in its entirety, with prejudice. The Company is also involved in various legal proceedings arising in the normal course of business. In the opinion of management, any ultimate liability arising out of these proceedings is not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flows. 18 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 9. STOCKHOLDERS’ (DEFICIT) EQUITY Share Repurchase Program In November 2021, the Company’s Board of Directors authorized a $ 250.0 million share repurchase program (the “Share Repurchase Program”). Under this program, the Company may repurchase shares on the open market at current market prices at the time of purchase or in privately negotiated transactions. The timing and actual number of shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, and other market and business conditions. The Company may suspend or discontinue the program at any time and may thereafter reinstitute purchases, all without prior announcement. Currently, given the terms of the Company’s Credit Agreement as amended by its Seventh Amendment described above, the Company is not expecting to repurchase any shares in Fiscal 2024, except as described below, pursuant to our practice as a result of our insider trading policy. As of November 2, 2024, there was $ 156.7 million remaining availability under the Share Repurchase Program. Pursuant to the Company’s practice, including due to restrictions imposed by the Company’s insider trading policy during black-out periods, the Company withholds and repurchases shares of vesting stock awards and makes payments to taxing authorities as required by law to satisfy the withholding tax requirements of all equity award recipients. The Company’s payment of the withholding taxes in exchange for the surrendered shares constitutes a repurchase of its common stock. The Company also acquires shares of its common stock in conjunction with liabilities owed under the Company’s deferred compensation plan, which are held in treasury. The following table summarizes the Company’s share repurchases: Thirty-nine Weeks Ended November 2, 2024 October 28, 2023 Shares Amount Shares Amount (in thousands) Share repurchases related to: Share repurchase program 65 $ 566 205 $ 7,026 Shares acquired and held in treasury 5 $ 66 6 $ 196 In accordance with the FASB ASC 505— Equity , the par value of the shares retired is charged against Common stock and the remaining purchase price is allocated between Additional paid-in capital and Accumulated deficit. The portion charged against Additional paid-in capital is determined using a pro-rata allocation based on total shares outstanding. Dividends Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to approval by the Company’s Board of Directors based on a number of factors, including business and market conditions, the Company’s financial performance, and other investment priorities. Currently, given the terms of the Credit Agreement as amended by the Seventh Amendment as described above, the Company is not expecting to pay any cash dividends in Fiscal 2024. 19 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 10. STOCK-BASED COMPENSATION The Company generally grants time-vesting stock awards (“Deferred Awards”) and performance-based stock awards (“Performance Awards”) to employees at management levels. The Company also grants Deferred Awards to its non-employee directors. The following table summarizes the Company’s stock-based compensation expense (benefit): Thirteen Weeks Ended Thirty-nine Weeks Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 (in thousands) Deferred Awards $ 282 $ 1,193 $ 2,110 $ 5,383 Performance Awards ( 261 ) ( 5,939 ) 9,272 ( 11,807 ) Total stock-based compensation expense (benefit) (1) $ 21 $ ( 4,746 ) $ 11,382 $ ( 6,424 ) ___________________________________________ (1) Stock-based compensation expense (benefit) recorded within Cost of sales amounted to a benefit of $( 0.3 ) million and an expense of $ 0.1 million in the Third Quarter 2024 and Third Quarter 2023, respectively, and an expense of $ 0.9 million in Year-To-Date 2024. All other stock-based compensation expense (benefit) is included in Selling, general, and administrative expenses. During the First Quarter 2024, there was a change of control of the Company, which triggered a conversion of all Performance Awards into service-based Performance Awards in accordance with their terms. As a result, the Fiscal 2023, Fiscal 2022, and fiscal year 2021 Performance Awards will all 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. The fiscal year 2021 Performance Awards vested during the First Quarter 2024. The incremental expense recorded for Performance Awards during Year-To-Date 2024 due to the change of control was $ 9.9 million. 11. EARNINGS (LOSS) PER COMMON SHARE The following table reconciles net income (loss) and common share amounts utilized to calculate basic and diluted earnings (loss) per common share: Thirteen Weeks Ended Thirty-nine Weeks Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 (in thousands) Net income (loss) $ 20,080 $ 38,482 $ ( 49,829 ) $ ( 25,705 ) Basic weighted average common shares outstanding 12,779 12,548 12,731 12,481 Dilutive effect of stock awards 21 71 — — Diluted weighted average common shares outstanding 12,800 12,619 12,731 12,481 Anti-dilutive shares excluded from diluted earnings (loss) per common share calculation — — 44 124 20 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 12. FAIR VALUE MEASUREMENT The Company’s cash and cash equivalents, accounts receivable, investments in the rabbi trust, accounts payable, and revolving loan are all short-term in nature. As such, their carrying amounts approximate fair value. The Company’s deferred compensation plan assets and liabilities fall within Level 1 of the fair value hierarchy. The Company stock included in the deferred compensation plan is not subject to fair value measurement. The fair value of the Company’s Initial Mithaq Term Loan with a carrying value (gross of debt issuance costs) of $ 78.6 million at November 2, 2024, was approximately $ 57.6 million. The fair value of the Company’s New Mithaq Term Loan with a carrying value (gross of debt issuance costs) of $ 90.0 million at November 2, 2024, was approximately $ 79.8 million. The fair value of debt was estimated using a market approach, which considers the Company’s credit risk and market related conditions, and is therefore within Level 2 of the fair value hierarchy. The Company’s non-financial assets measured at fair value on a nonrecurring basis include long-lived assets, such as intangible assets, fixed assets, and ROU assets. The Company reviews the carrying amounts of such assets when events indicate that their carrying amounts may not be recoverable. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurements of the assets are considered to fall within Level 3 of the fair value hierarchy. Impairment of Long-Lived Assets The fair value of the Company’s long-lived assets is primarily calculated using a discounted cash-flow model directly associated with those assets, which consist principally of property and equipment and ROU assets. These assets are tested for impairment when events indicate that their carrying value may not be recoverable. The Company performed periodic quantitative impairment assessments of its long-lived assets and did no t record an impairment charge in the Third Quarter 2024 and Year-To-Date 2024. The Company recorded asset impairment charges in the Third Quarter 2023 and Year-To-Date 2023 of $ 0.6 million and $ 3.1 million, respectively, inclusive of ROU assets. Impairment of Indefinite-Lived Intangible Assets The Company estimates the fair value of its indefinite-lived Gymboree tradename based on an income approach using the relief-from-royalty method. Estimating fair value using this method requires management to estimate future revenues, royalty rates, discount rates, long-term growth rates, and other factors in order to project future cash flows. The Company performs an annual impairment assessment of the Gymboree tradename at the end of December or whenever circumstances indicate that a decline in value may have occurred, in accordance with FASB ASC 350— Intangibles – Goodwill and Other . Based on this assessment, the Company recorded an impairment charge of $ 29.0 million in Fiscal 2023, and a further impairment charge of $ 28.0 million in the Second Quarter 2024, which reduced the carrying value to its fair value of $ 13.0 million. There were no impairment charges recorded in the Third Quarter 2024. Unfavorable changes in certain of the Company’s key assumptions may affect future testing results. For example, keeping all other assumptions constant, a 100-basis point increase in the discount rate or a 10% decrease in forecasted revenue would result in further impairment charges of approximately $ 1.0 million. 21 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 13. INCOME TAXES The Company computes income taxes using the asset and liability method. This method requires recognition of deferred tax assets and liabilities, measured by enacted rates, attributable to temporary differences between the financial statement and income tax basis of assets and liabilities. The Company’s deferred tax assets and liabilities are comprised largely of differences relating to depreciation and amortization, rent expense, inventory, stock-based compensation, net operating loss carryforwards, tax credits, and various accruals and reserves. The Company’s provision (benefit) for income taxes in the Third Quarter 2024 has been calculated by applying an estimate of the annual effective tax rate for Fiscal 2024 to pre-tax income (loss), excluding unusual or infrequently occurring discrete items in the reporting period. This is the method that has historically been followed in interim reporting periods with the exception of the Third Quarter 2023, where the Company computed its provision (benefit) for income taxes based on the actual effective tax rate for Year-To-Date 2023 by applying the discrete method as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes-Interim Reporting-Initial Measurement”. The Company’s effective income tax rate for the Third Quarter 2024 was a benefit of ( 4.7 )%, or $( 0.9 ) million, compared to ( 3.9 )%, or $( 1.5 ) million, during the Third Quarter 2023. The change in the effective income 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 the Company’s net deferred tax assets in Fiscal 2023, partially offset by a favorable shift in the jurisdictional earnings mix in Fiscal 2024. Furthermore, the Company’s provision (benefit) for income taxes in the Third Quarter 2024 has been calculated by applying an estimate of the annual effective tax rate. In the Third Quarter 2023, the Company computed its provision (benefit) for income taxes based on the actual effective tax rate for Year-To-Date 2023 by applying the discrete method. The Company’s effective income tax rate for Year-To-Date 2024 was a provision of ( 4.8 )%, or $ 2.3 million, compared to a benefit of 40.9 %, or $( 17.8 ) million, for Year-To-Date 2023. The change in the effective income 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 the Company’s net deferred tax assets in Fiscal 2023. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act allows net operating losses (“NOLs”) incurred in taxable years 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to offset 100 % of taxable income and to generate a refund of previously paid income taxes. Pursuant to the CARES Act, the Company carried back the taxable year 2020 tax loss of $ 150.0 million to prior years. As of November 2, 2024, the remaining income tax receivable of $ 19.1 million is included within Prepaid expenses and other current assets on the Consolidated Balance Sheets. The Company accrues interest and penalties related to unrecognized tax benefits as part of its provision (benefit) for income taxes. The total amount of unrecognized tax benefits was $ 6.9 million, $ 7.0 million, and $ 4.8 million as of November 2, 2024, February 3, 2024, and October 28, 2023, respectively, and is included within long-term liabilities. Additional interest expense recognized in the Third Quarter 2024 and Third Quarter 2023 related to unrecognized tax benefits was not significant. The Company is subject to tax in the United States and foreign jurisdictions, including Canada and Hong Kong. The Company files a consolidated U.S. income tax return for federal income tax purposes. The Company is no longer subject to income tax examinations by U.S. federal, state and local or foreign tax authorities for tax years 2015 and prior. The Internal Revenue Service is currently conducting an examination of the Company’s tax return for fiscal year 2020 in conjunction with its review of the CARES Act NOL carryback to earlier fiscal years. The Company believes that its reserves for uncertain tax positions are adequate to cover existing risks or exposures. Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues arise as a result of a tax audit, and are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. During the First Quarter 2024, Mithaq became the controlling shareholder of the Company. This change of control constituted an “ownership change” under the Internal Revenue Code Section 382, subjecting the Company to an annual limitation on its ability to utilize its existing NOLs and tax credits as of the ownership change date to offset future taxable income. The application of such limitation may cause U.S. federal income taxes to be paid by the Company earlier than they otherwise would be paid if such limitation was not in effect, which would adversely affect the Company’s operating results and cash flows if it has taxable income in the future. In addition to the aforementioned federal income tax implications pursuant to Section 382 of the Code, most U.S. states follow the general provision of Section 382 of the Code, either explicitly or implicitly resulting in separate state NOL limitations. This could cause state income taxes to be paid earlier than otherwise would be paid if such limitation was not in effect and could cause such NOLs to expire unused. 22 THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 14. SEGMENT INFORMATION In accordance with FASB ASC 280— Segment Reporting , the Company reports segment data based on geography: The Children’s Place U.S. and The Children’s Place International. Each segment includes an e-commerce business located at www.childrensplace.com and www.gymboree.com . Included in The Children’s Place U.S. segment are the Company’s U.S. and Puerto Rico-based stores and revenue from the Company’s U.S.-based wholesale business. Included in The Children’s Place International segment are the Company’s Canadian-based stores, revenue from the Company’s Canadian-based wholesale business, and revenue from international franchisees. The Company measures its segment profitability based on operating income, defined as income before interest and taxes. Net sales and direct costs are recorded by each segment. Certain inventory procurement functions, such as production and design, as well as corporate overhead, including executive management, finance, real estate, human resources, legal, and information technology services, are managed by The Children’s Place U.S. segment. Expenses related to these functions, including depreciation and amortization, are allocated to The Children’s Place International segment based primarily on net sales. The assets related to these functions are not allocated. The Company periodically reviews these allocations and adjusts them based upon changes in business circumstances. Net sales to external customers are derived from merchandise sales, and the Company has one U.S. wholesale customer that individually accounted for more than 10% of its net sales, amounting to $ 57.3 million and $ 118.3 million for the Third Quarter 2024 and Year-To-Date 2024, respectively, and accounts for a majority of the Company’s accounts receivable, amounting to $ 45.1 million as of November 2, 2024. As of November 2, 2024, The Children’s Place U.S. had 449 stores and The Children’s Place International had 61 stores. As of October 28, 2023, The Children’s Place U.S. had 520 stores and The Children’s Place International had 71 stores. The following table provides segment level financial information: Thirteen Weeks Ended Thirty-nine Weeks Ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 (in thousands) Net sales: The Children’s Place U.S. $ 356,163 $ 441,865 $ 894,744 $ 1,048,568 The Children’s Place International (1) 34,010 38,369 82,962 98,906 Total net sales $ 390,173 $ 480,234 $ 977,706 $ 1,147,474 Operating income (loss): The Children’s Place U.S. $ 28,120 $ 38,551 $ ( 15,531 ) $ ( 26,216 ) The Children’s Place International (1) 1,138 6,416 ( 4,975 ) 4,174 Total operating income (loss) $ 29,258 $ 44,967 $ ( 20,506 ) $ ( 22,042 ) Operating income (loss) as a percentage of net sales: The Children’s Place U.S. 7.9 % 8.7 % ( 1.7 %) ( 2.5 )% The Children’s Place International (1) 3.3 % 16.7 % ( 6.0 %) 4.2 % Total operating income (loss) as a percentage of net sales 7.5 % 9.4 % ( 2.1 %) ( 1.9 )% Depreciation and amortization: The Children’s Place U.S. $ 8,613 $ 10,868 $ 27,102 $ 32,852 The Children’s Place International 653 864 3,304 2,682 Total depreciation and amortization $ 9,266 $ 11,732 $ 30,406 $ 35,534 Capital expenditures: The Children’s Place U.S. $ 2,949 $ 6,217 $ 15,347 $ 24,359 The Children’s Place International 497 — 577 10 Total capital expenditures $ 3,446 $ 6,217 $ 15,924 $ 24,369 ____________________________________________ (1) The Company’s foreign subsidiaries, primarily in Canada, have operating results based in foreign currencies and are thus subject to the fluctuations of the corresponding translation rates into U.S. dollars. 23