What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-04-17 compared with 2024-05-06 · 336 added, 290 removed, 106 unchanged (86% of the section changed)

3 unchanged sentences

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

Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate,” and similar words, although some forward-looking statements are expressed differently.

Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate,” “believe,” and similar words, although some forward-looking statements are expressed differently.

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.

1 unchanged sentence

Risk Factors of this Annual Report on Form 10-K for the fiscal year ended February 1, 2025.

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

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 stockholder, and the uncertainty of weather patterns, as well as other risks discussed in the Company’s filings with the SEC from time to time.

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

4 unchanged sentences

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

• Fiscal 2025 — The fifty-two weeks ending January 31, 2026

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

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

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

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

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

Securities and Exchange Commission

9 unchanged sentences

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

• Cost of Sales — Cost of inventory sold, including certain buying, design, and distribution expenses, and shipping and handling costs on merchandise sold.

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

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

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

We are the largest pure-play children’s specialty retailer in North America with an omni-channel portfolio of brands.

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

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

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

Our global retail and wholesale network includes two digital storefronts, 495 stores in North America, wholesale marketplaces, 190 international points of distribution in 13 countries through our six franchise partners, and social media channels on Instagram, Facebook, X, formerly known as Twitter, YouTube and Pinterest.

Our digital storefronts are at www.childrensplace.com and www.gymboree.com , where our customers are able to shop online for the same merchandise available in our physical stores, but also certain exclusive merchandise only available at our e-commerce sites.

Segment Reporting

6 unchanged sentences

and Puerto Rico-based stores and revenue from our U.S.-based wholesale business.

Included in The Children’s Place International segment are our Canadian-based stores, revenue from our Canadian-based wholesale business, as well as revenue from international franchisees.

We measure our segment profitability based on operating income, defined as income before interest and taxes.

Included in The Children’s Place International segment are our Canadian-based stores and revenue from international franchisees.

We measure our segment profitability based on operating income (loss), defined as income (loss) before interest and taxes.

Net sales and direct costs are recorded by each segment.

3 unchanged sentences

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

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

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 during Fiscal 2024.

Refer to “Note 17.

Segment Information” of the Consolidated Financial Statements of this Form 10-K for more information.

Recent Developments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Macroeconomic conditions, including inflationary pressures, higher interest rates, and other domestic and geopolitical factors, continued to adversely affect our core customer in Fiscal 2024.

While some of these inflationary pressures, including freight input costs and product input costs, had improved in Fiscal 2024, we may continue to experience inflationary pressures on our product input costs and distribution costs.

In Fiscal 2024, these pressures contributed to a decrease in consumer discretionary apparel purchases.

We expect these macroeconomic conditions, including but not limited to increased product input costs, transportation costs, distribution costs, and geopolitical conditions like changes in foreign policies of the United States, and other inflationary pressures, to continue to have an impact during Fiscal 2025.

In February and March 2025, the U.S.

government announced the intention to impose tariffs on certain goods imported from Canada, Mexico and China.

On April 2, 2025, it was further announced that tariffs would be applied to all countries importing goods to the United States.

We continue to monitor the impact of any of these tariffs that become effective, as well as potential retaliatory tariffs imposed by other countries.

These tariffs could have a material adverse impact on the global retail industry, supply chains worldwide, and other political and macroeconomic conditions, which could increase our product input costs in Fiscal 2025 and beyond, and also affect customer sentiment in deciding whether to purchase U.S.

goods as opposed to other alternatives.

On February 6, 2025, we completed a rights offering (“Rights Offering”) pursuant to which we distributed to the holders of record of our Common stock as of the close of business on December 13, 2024, the record date for the Rights Offering, non-transferable subscription rights to purchase, in the aggregate, up to 9.2 million shares of Common stock.

Each subscription right entitled its holder to purchase 0.7220 shares of Common stock at a subscription price of $9.75 per whole share of Common stock.

Additionally, rights holders who fully exercised their basic subscription rights were entitled to subscribe for additional shares of Common stock that remained unsubscribed as a result of any unexercised basic subscription rights.

The subscription price was payable by rights holders (i) in cash, (ii) by delivery in lieu of cash of an equivalent amount of any indebtedness for borrowed money (principal and/or accrued and unpaid interest) owed by us to such rights holder, or (iii) by delivery of a combination of cash and such indebtedness.

Upon the completion of the Rights Offering, we issued 9.2 million shares of Common stock for a total purchase price of $90.0 million.

Mithaq Capital SPC, a Cayman segregated portfolio company (“Mithaq”), which is a controlling stockholder of the Company, purchased 6.7 million of shares of Common stock pursuant to the Rights Offering and as of February 6, 2025, it owns and controls the voting power of 62.2% of our outstanding shares of Common stock.

Mithaq paid (i) $5.1 million of the subscription price for such shares in cash and (ii) the remaining $60.2 million of the subscription price for such shares by delivery of indebtedness for borrowed money owed by us to Mithaq pursuant to that certain interest-free unsecured promissory note for a $78.6 million term loan (the “Initial Mithaq Term Loan”), dated February 29, 2024, by and among us, certain subsidiaries of the Company, and Mithaq.

Accordingly, the aggregate outstanding indebtedness owed by us to Mithaq pursuant to both of our term loans from Mithaq, collectively, has been reduced to $108.4 million as of February 6, 2025.

We received approximately $29.8 million in gross cash proceeds from the Rights Offering on February 6, 2025.

Substantially all of the gross cash proceeds from the Rights Offering were used towards prepaying our asset-based revolving credit facility (the “ABL Credit Facility”) under our Amended and Restated Credit Agreement dated May 9, 2019 (as amended from time to time, the “Credit Agreement”), with Wells Fargo, National Association (“Wells Fargo”), Bank of America, N.A., HSBC Bank (USA), N.A., JPMorgan Chase Bank, N.A., Truist Bank and PNC Bank, National Association, as lenders (collectively, the “Credit Agreement Lenders”), and Wells Fargo, as Administrative Agent, Collateral Agent and Swing Line Lender.

On March 17, 2025, we announced that John Szczepanksi has been appointed Chief Financial Officer, effective March 31, 2025.

Pillar Two Model Rules

The Organization for Economic Cooperation and Development (“OECD”) has introduced a global minimum corporate tax rate of 15% under its Pillar Two initiative (“Pillar Two”), effective for tax years beginning in January 2024.

Although the U.S.

and Hong Kong had not yet adopted the Pillar Two rules in 2024, other regions where we conduct business, primarily Canada, have begun to enact such legislation.

The implementation of the Pillar Two rules in each jurisdiction in which it operates is not expected to have a material impact on our effective tax rate.

We are closely monitoring legislative developments globally to evaluate potential impacts on our financial statements as more regions implement the Pillar Two rules.

Operating Highlights

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

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

Comparable retail sales decreased 4.7% for Fiscal 2023.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net sales decreased $216.2 million, or 13.5%, to $1.386 billion during Fiscal 2024 from $1.603 billion during Fiscal 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.

The Company also experienced a decrease in brick-and-mortar revenue due to a lower store count and lower sales volume.

This was partially offset by an increase in wholesale revenue, as we continue to strengthen relationships with our partners.

During Fiscal 2024, we closed 29 stores and opened one Gymboree stand-alone store in Paramus, New Jersey.

Comparable retail sales decreased 13.4% for Fiscal 2024, largely due to the planned decrease in e-commerce revenue.

Gross profit increased $14.2 million, or 3.2%, to $459.5 million during Fiscal 2024 from $445.3 million during Fiscal 2023.

Gross margin increased 530 basis points to 33.1% during Fiscal 2024, compared to 27.8% during Fiscal 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 improvements in input costs were combined with the success of our strategies to rationalize profit-draining promotions and limit unprofitable shipping offers, in addition to optimized shipping carrier rates, which resulted in a significant reduction in freight costs.

Operating loss was $(13.7) million during Fiscal 2024 compared to $(83.8) million during Fiscal 2023.

Operating margin leveraged 420 basis points to (1.0)% of net sales.

Net loss was $(57.8) million, or $(4.53) per diluted share, during Fiscal 2024 compared to $(154.5) million, or $(12.34) per diluted share, during Fiscal 2023, due to the factors discussed above.

RESULTS OF OPERATIONS

We believe that our e-commerce and brick-and-mortar retail store operations are highly interdependent, with both sharing common customers purchasing from a common pool of product inventory.

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 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”).

Fiscal Year Ended Fiscal Year Ended Variance

2025 % of Net Sales February 3,

2024 % of Net Sales $ % % of Net Sales

(amounts in thousands)

Net sales $ 1,386,269 100.0 % $ 1,602,508 100.0 % $ (216,239) (13.5) % — %

Cost of sales (exclusive of depreciation and amortization) 926,808 66.9 % 1,157,234 72.2 % (230,426) (19.9) % (5.3) %

Gross profit 459,461 33.1 % 445,274 27.8 % 14,187 3.2 % 5.3 %

Selling, general, and administrative expenses 405,550 29.3 % 447,343 27.9 % (41,793) (9.3) % 1.4 %

Depreciation and amortization 39,612 2.9 % 47,186 2.9 % (7,574) (16.1) % — %

Asset impairment charges 28,000 2.0 % 34,543 2.2 % (6,543) (18.9) % (0.2) %

Operating loss (13,701) (1.0) % (83,798) (5.2) % 70,097 (83.6) % 4.2 %

Related party interest expense (6,493) (0.5) % — — % (6,493) (100.0) % (0.5) %

Other interest expense, net (29,254) (2.1) % (30,000) (1.9) % 746 (2.5) % (0.2) %

Loss before provision for income taxes (49,448) (3.6) % (113,798) (7.1) % 64,350 (56.5) % 3.5 %

Provision for income taxes 8,371 0.6 % 40,743 2.5 % 32,372 (79.5) % (1.9) %

Net loss $ (57,819) (4.2) % $ (154,541) (9.6) % $ 96,722 (62.6) % 5.4 %

Non-GAAP Reconciliation

We have presented certain measures on a non-GAAP basis.

Adjusted net loss, adjusted net loss per diluted share, adjusted selling, general, and administrative expenses, and adjusted operating income (loss) are non-GAAP measures.

These measures are not intended to replace GAAP financial information, and may be different from non-GAAP measures reported by other companies.

The most comparable GAAP measures are net loss, net loss per diluted share, selling, general, and administrative expenses, and operating income (loss), respectively.

We believe the income and expense items excluded as non-GAAP adjustments are not reflective of the performance of our core business, and that providing this supplemental disclosure to investors will facilitate comparisons of the past and present performance of our core business.

Fiscal 2024 Compared to Fiscal 2023

We also experienced a decrease in brick-and-mortar revenue due to a lower store count and lower sales volume.

This was partially offset by an increase in wholesale revenue, as we continue to strengthen relationships with our partners.

Comparable retail sales decreased 13.4% for Fiscal 2024, largely due to the planned decrease in e-commerce revenue.

Gross profit increased $14.2 million, or 3.2%, to $459.5 million during Fiscal 2024 from $445.3 million during Fiscal 2023.

Gross m argin increased 530 basis points to 33.1% of net sales during Fiscal 2024, compared to 27.8% during Fiscal 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.

Gross profit is calculated as consolidated net sales less cost of goods sold.

Gross margin is calculated as gross profit divided by consolidated net sales.

Gross profit as a percentage of net sales is dependent upon a variety of factors, including changes in the relative sales mix among distribution channels, changes in the mix of products sold, the timing and level of promotional activities, changes in foreign currency exchange rates, and fluctuations in input 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 were $405.6 million during Fiscal 2024, compared to $447.3 million during Fiscal 2023.

The decrease in SG&A was due to significant reductions in marketing expenses of $31.0 million, as we eliminated inflated and unprofitable marketing costs and to a lesser extent, due to reductions in store payroll and corporate payroll.

We were successful in reducing SG&A expenses by $41.7 million despite an increase in incentive compensation and equity compensation of $21.0 million.

Fiscal 2024 results included incremental operating expenses of $35.3 million, including restructuring costs of $11.7 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 $1.4 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.

Fiscal 2023 results included incremental operating expenses of $14.9 million, including restructuring costs of $10.5 million, fleet optimization costs of $3.1 million, a reserve of $3.0 million for a customer lawsuit, contract termination costs of $3.0 million, professional and consulting fees of $1.8 million, partially offset by a settlement payment received of $6.5 million.

Excluding the impact of these charges, Adjusted SG&A expenses were $370.3 million during Fiscal 2024, compared to $432.5 million during Fiscal 2023, and leveraged 30 basis points to 26.7% of net sales.

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

Depreciation and amortization was $39.6 million during Fiscal 2024, compared to $47.2 million during Fiscal 2023.

This decrease was primarily driven by reduced depreciation of capitalized software and the permanent closure of 29 stores during Fiscal 2024.

Asset impairment charges were $28.0 million during Fiscal 2024 due to the reduction in fair value of the Gymboree tradename, which was primarily due to reductions in Gymboree sales forecasts.

Asset impairment charges were $34.5 million during Fiscal 2023 for long-lived assets, inclusive of ROU assets.

These charges were due to the reduction in fair value of the Gymboree tradename attributable to an increase in the discount rate used to value the tradename and reductions in Gymboree sales forecasts.

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

Operating loss was $(13.7) million during Fiscal 2024, compared to $(83.8) million during Fiscal 2023.

The Fiscal 2024 results were impacted by incremental operating expense of $66.4 million, including SG&A expenses of $35.3 million, as described above, asset impairment charges of $28.0 million on the Gymboree tradename, accelerated depreciation of $2.2 million, and additional change in control charges impacting gross margin of $0.9 million.

The Fiscal 2023 results were impacted by incremental operating expenses of $51.3 million, including SG&A expenses of $14.9 million, as described above, asset impairment charges of $34.5 million, and accelerated depreciation of $2.0 million.

Excluding the impact of these incremental charges, Adjusted operating income was $52.7 million during Fiscal 2024, compared to an Adjusted operating loss of $(32.5) million and leveraged 580 basis points to 3.8% of net sales.

Related party interest expense was $6.5 million during Fiscal 2024, due to interest-equivalent charges from loans entered into with Mithaq during Fiscal 2024.

There was no related party interest expense during Fiscal 2023.

Other interest expense, net was $29.3 million during Fiscal 2024, compared to $30.0 million during Fiscal 2023.

The decrease was primarily due to the paydown of the $50.0 million term loan (the “2021 Term Loan”) under our Credit Agreement, partially offset by higher average interest rates associated with our ABL Credit Facility.

Provision for income taxes was $8.4 million during Fiscal 2024, compared to $40.7 million during Fiscal 2023.

Our effective tax rate was a provision of (16.9)% and (35.8)% during Fiscal 2024 and Fiscal 2023, respectively.

The change in our effective tax rate and income tax provision for Fiscal 2024 compared to Fiscal 2023 was primarily driven by the establishment of a valuation allowance against our net deferred tax assets in Fiscal 2023 and a shift in the jurisdictional earnings mix in Fiscal 2024.

We continue to adjust the valuation allowance based on ongoing operating results.

Net loss was $(57.8) million, or $(4.53) per diluted share, during Fiscal 2024, compared to $(154.5) million, or $(12.34) per diluted share, during Fiscal 2023, due to the factors described above.

Adjusted net income was $5.5 million, or $0.43 per diluted share during Fiscal 2024, compared to Adjusted net loss of $(103.3) million, or $(8.25) per diluted share, during Fiscal 2023 due to factors described above, in addition to the impact of income taxes of $3.1 million on the non-GAAP charges.

The following table sets forth Net sales and Operating loss, respectively, by segment, for the periods indicated:

Fiscal Years Ended

2025 February 3,

(in thousands)

The Children’s Place U.S.

$ 1,266,500 $ 1,457,352

The Children’s Place International (1)

119,769 145,156

Total net sales $ 1,386,269 $ 1,602,508

___________________________________________

(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.

Fiscal Years Ended

February 1, 2025 February 3, 2024

(in thousands)

The Children’s Place U.S.

$ (3,746) $ (86,482)

The Children’s Place International (9,955) 2,684

Total segment operating loss $ (13,701) $ (83,798)

The Children’s Place U.S.

(0.3) % (5.9) %

The Children’s Place International (8.3) % 1.8 %

Total segment operating loss as a percentage of net sales (1.0) % (5.2) %

The Children’s Place U.S.

Net sales decreased $190.9 million, or 13.1%, to $1.266 billion during Fiscal 2024, compared to $1.457 billion during Fiscal 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.

We also experienced a decrease in brick-and-mortar revenue due to a lower store count and lower sales volume.

This was partially offset by an increase in wholesale revenue, as we continue to strengthen relationships with our partners.

The Children’s Place International Net sales decreased $25.4 million, or 17.5%, to $119.8 million during Fiscal 2024, compared to $145.2 million during Fiscal 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.

We also experienced a decrease in brick-and-mortar revenue due to a lower store count and lower sales volume.

The Children’s Place U.S.

Operating loss was $(3.7) million during Fiscal 2024, compared to $(86.5) million during Fiscal 2023.

The Children’s Place U.S.

operating margin improved during Fiscal 2024 primarily due to the success of our strategies to rationalize profit-draining promotions and limit unprofitable shipping offers, in addition to optimized shipping carrier rates, which resulted in a significant reduction in freight costs.

We were also able to significantly reduce marketing expenses, as we eliminated inflated and unprofitable marketing costs and to a lesser extent, by reductions in store payroll and corporate payroll.

The Children’s Place International Operating loss was $(10.0) million during Fiscal 2024, compared to Operating income of $2.7 million during Fiscal 2023.

The Children’s Place International operating margin was negatively impacted during Fiscal 2024 due to shifts in our supply chain which resulted in increased freight, duty and commission costs to transfer inventory from the U.S.

into Canada, partially offset by occupancy cost savings achieved due to the closure of our distribution center in Toronto, Canada.

Fiscal 2023 Compared to Fiscal 2022

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2024 for the Fiscal 2023 to Fiscal 2022 comparative discussion.

QUARTERLY RESULTS AND SEASONALITY

Our quarterly results of operations have fluctuated and are expected to continue to fluctuate materially depending on a variety of factors, including overall economic conditions, the timing and number of store openings and closures, increases or decreases in Comparable Retail Sales, weather conditions (such as unseasonable temperatures or storms), and changes in our merchandise mix and pricing strategy, including changes to address competitive factors.

The combination and severity of one or more of these factors could result in material fluctuations in our results of operations.

In connection with the completion of our Rights Offering on February 6, 2025, our diluted weighted average common shares outstanding and diluted earnings (loss) per common share were retroactively adjusted for all periods presented by a factor of 1.002.

Refer to “Note 18.

Subsequent Events” of the Consolidated Financial Statements of this Form 10-K for more information.

The following table sets forth certain statement of operations data for each of our last four fiscal quarters.

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

Fiscal Year Ended February 1, 2025

Quarter Second

Quarter Third

Quarter Fourth

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

Net sales $ 267,878 $ 319,655 $ 390,173 $ 408,562

Cost of sales (exclusive of depreciation and amortization) 175,137 207,861 251,832 291,977

Gross profit 92,741 111,794 138,341 116,585

Selling, general, and administrative expenses 109,094 96,065 99,817 100,574

Depreciation and amortization 11,635 9,505 9,266 9,206

Asset impairment charges — 28,000 — —

Operating income (loss) (27,988) (21,776) 29,258 6,805

Related party interest expense (389) (2,087) (2,078) (1,939)

Other interest expense, net (7,332) (7,144) (8,000) (6,778)

Income (loss) before provision (benefit) for income taxes (35,709) (31,007) 19,180 (1,912)

Provision (benefit) for income taxes 2,086 1,107 (900) 6,078

Net income (loss) $ (37,795) $ (32,114) $ 20,080 $ (7,990)

Diluted earnings (loss) per common share $ (2.98) $ (2.51) $ 1.57 $ (0.62)

Diluted weighted average common shares outstanding 12,665 12,793 12,822 12,805

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 consist primarily of inventory purchases, rent and marketing expenses;

the payment of interest expense on our ABL Credit Facility, and the financing of capital projects.

During Fiscal 2024, we entered into an interest-free, unsecured and subordinated promissory note with Mithaq for a $78.6 million Initial Mithaq Term Loan and an unsecured and subordinated $90.0 million term loan (the “New Mithaq Term Loan”;

and together with the Initial Mithaq Term Loan, collectively, the “Mithaq Term Loans”).

As of February 6, 2025, $60.2 million under the Initial Mithaq Term Loan was repaid pursuant to the completion of the Rights Offering, leaving an aggregate of $108.4 million outstanding under the Mithaq Term Loans.

As of February 1, 2025, we had $245.7 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 working capital deficit decreased $114.2 million to $50.1 million at February 1, 2025, compared to $164.3 million at February 3, 2024, primarily reflecting a decrease in our accounts payable balances as we paid down past due vendors, partially offset by an increase in our inventory and accounts receivable balances.

As of February 1, 2025, we had total liquidity of $85.5 million, including $40.2 million of availability under our ABL Credit Facility, $40.0 million of availability under our Mithaq Credit Facility and $5.3 million of cash on hand.

At February 1, 2025, we had $16.0 million of outstanding letters of credit with an additional $9.0 million available for issuing letters of credit under our ABL Credit Facility.

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

Share Repurchase Program

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

Currently, given the terms of our Credit Agreement, as amended by the seventh amendment to the Credit Agreement (the “Seventh Amendment”), dated as of April 18, 2024, the repurchase of any shares would require fulfilling the heightened payment conditions under our Credit Agreement, except that repurchases of shares as described above in “Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”, pursuant to our practice as a result of our insider trading policy, are expressly permitted.

During Fiscal 2024, we repurchased approximately 0.1 million shares of our common stock for $0.7 million, consisting of shares surrendered to cover tax withholdings associated with the vesting of equity awards.

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

As of February 1, 2025, there was $156.5 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:

Cash Flows and Capital Expenditures

Cash used in operating activities was $117.6 million during Fiscal 2024, compared to $92.8 million of cash provided by operating activities during Fiscal 2023.

Cash used in operating activities during Fiscal 2024 was primarily the result of a decrease in accounts payable as we paid down past due vendors and an increase in inventory.

Cash provided by operating activities of $92.8 million during Fiscal 2023 was primarily the result of a lower inventory balance, reflecting lower average unit costs, and improved inventory management, as well as an increase in accounts payable and other planned changes in working capital.

Cash used in investing activities was $15.8 million during Fiscal 2024, compared to $27.8 million during Fiscal 2023.

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

Cash provided by financing activities was $128.4 million during Fiscal 2024, compared to cash used in financing activities of $68.3 million during Fiscal 2023.

The increase primarily resulted from proceeds from higher net borrowings under our ABL Credit Facility and the Mithaq Term Loans, partially offset by the repayment of the 2021 Term Loan.

Our ability to continue to meet our capital requirements in Fiscal 2025 depends on our cash on hand, our ability to generate cash flows from operations, and available borrowings under our ABL Credit Facility and Mithaq Credit Facility.

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 the foreseeable future.

Selected Consolidated Balance Sheets Data

Certain components of our Consolidated Balance Sheets as of February 1, 2025 and February 3, 2024 were as follows:

Fiscal Years Ended

2024 January 28,

2023 January 29,

Average Translation Rates (1)

Canadian dollar 0.7414 0.7469 0.7986

Hong Kong dollar 0.1277 0.1277 0.1286

2025 February 3,

(in thousands)

Accounts receivable $ 42,701 $ 33,219

Inventories 399,602 362,099

Accounts payable 126,716 225,549

Accounts receivable were $42.7 million at February 1, 2025, compared to $33.2 million at February 3, 2024.

The increase of $9.5 million, or 28.5%, was primarily driven by the timing of wholesale customer shipments and associated payments.

Inventories were $399.6 million at February 1, 2025, compared to $362.1 million at February 3, 2024.

The increase of $37.5 million, or 10.4%, was primarily the result of a higher number of units on hand.

Accounts payable were $126.7 million at February 1, 2025, compared to $225.5 million at February 3, 2024.

The decrease of $98.8 million, or 43.8%, was primarily the result of paying down past due vendors that existed at the end of Fiscal 2023.

ABL Credit Facility and 2021 Term Loan

We and certain of our subsidiaries maintain the $433.0 million ABL Credit Facility and, before it was fully repaid, maintained the 2021 Term Loan under our Credit Agreement.

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, 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%;

(ii) the Secured Overnight Financing Rate (“SOFR”) per annum, plus 0.100%, plus a margin of 3.000%.

Prior to April 18, 2024, we were 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, we are 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 our 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%;

(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 our average daily excess availability under the facility.

For Fiscal 2024, Fiscal 2023, and Fiscal 2022, we recognized $25.0 million, $24.2 million, and $10.2 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.

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

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.

We are not subject to any early termination fees.

The ABL Credit Facility contains covenants, which include conditions on stock buybacks and the payment of cash dividends or similar payments.

These covenants also limit our ability and our subsidiaries’ ability to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, or dispositions or to change the nature of our 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 we are unable to maintain a certain amount of excess availability for borrowings (the “excess availability threshold”), we 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 our ABL Credit Facility as of the end of Fiscal 2024 and Fiscal 2023:

2025 February 3,

(in millions)

Total borrowing base availability (1)

$ 301.9 $ 258.4

(1) The average translation rates are the average of the monthly translation rates used during each fiscal year to translate the respective income statements.

Each rate represents the U.S.

dollar equivalent of the respective foreign currency.

Credit facility availability (1)

Maximum borrowing availability (2)

Outstanding borrowings 245.7 226.7

Letters of credit outstanding—standby 16.0 7.4

Utilization of credit facility at end of period 261.7 234.1

Availability (3)

$ 40.2 $ 24.3

Interest rate at end of period 7.6% 8.1%

2025 February 3,

(in millions)

Average end-of-day loan balance during the period $ 284.5 $ 315.5

Highest end-of-day loan balance during the period $ 366.9 $ 379.4

Average interest rate 8.7% 7.5%

____________________________________________

(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 $9.0 million at February 1, 2025 and $42.6 million at February 3, 2024.

The 2021 Term Loan bore interest, payable monthly, at (i) the SOFR per annum plus 2.750% for any portion that was a SOFR loan, or (ii) 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.

For Fiscal 2024, Fiscal 2023, and Fiscal 2022, we recognized $1.1 million, $4.0 million, and $2.3 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 February 1, 2025 and February 3, 2024, unamortized deferred financing costs amounted to $3.8 million and $2.2 million, respectively, related to our ABL Credit Facility.

Mithaq Term Loans

Mithaq is a controlling stockholder of the Company.

We and certain of our subsidiaries maintain the Initial Mithaq Term Loan, consisting of (i) a first tranche in an aggregate principal amount of $30.0 million (the “First Tranche”) and (ii) a second tranche in an aggregate principal amount of $48.6 million (the “Second Tranche”).

We 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 our subsidiaries that guarantee our ABL Credit Facility.

We and certain of our subsidiaries also maintain the New Mithaq Term Loan.

The New Mithaq Term Loan matures on April 16, 2027, and requires monthly payments equivalent to interest charged at the 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 our subsidiaries that guarantee our ABL Credit Facility.

For Fiscal 2024, we recognized $6.5 million 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 our subsidiaries, Wells Fargo and Mithaq, pursuant to which the Mithaq Term Loans are subordinated in payment priority to the obligations of us and our 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 our ability and our subsidiaries’ ability to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, dispositions or restricted payments, or to change the nature of our 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 February 1, 2025, unamortized deferred financing costs amounted to $2.6 million related to the Mithaq Term Loans.

Maturities of our principal debt payments on the Mithaq Term Loans as of February 1, 2025 are as follows:

February 1, 2025

(in thousands)

Total related party debt

Refer to “Note 18.

Subsequent Events” of the Consolidated Financial Statements for additional detail.

Mithaq Commitment Letter

On May 2, 2024, we entered into a commitment letter (the “Commitment Letter”) with Mithaq for a $40.0 million Mithaq Credit Facility.

Under the Mithaq Credit Facility, we had the ability to request for advances at any time prior to July 1, 2025.

On September 10, 2024, we 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 our subsidiaries that guarantee our 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 February 1, 2025, no debt had been incurred under the Mithaq Credit Facility.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

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

Leases”, “Note 9.

Debt”, and “Note 10.

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

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

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.

CRITICAL ACCOUNTING ESTIMATES

18 unchanged sentences

Estimating the fair market value of long-lived assets using the discounted cash flow model requires management to estimate future revenues, expenses, discount rates, long-term growth rates, and other factors in order to project future cash flows.

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

The assumptions used to evaluate future cashflows consider external and internal factors.

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

3 unchanged sentences

Impairment of Indefinite-Lived Intangible Assets

Intangible assets with indefinite lives consist primarily of trademarks and acquired tradenames, which are tested for impairment annually at the end of December or whenever circumstances indicate that a decline in value may have occurred.

We estimate the fair value of these intangible assets based on an income approach using the relief-from-royalty method.

Our intangible assets with an indefinite life consists of the acquired Gymboree tradename, and it is tested for impairment using a qualitative assessment to determine whether its fair value is below its carrying value.

If there are indicators of impairment, we perform a quantitative assessment to estimate the fair value of these intangible assets based on an income approach using the relief-from-royalty method.

Estimating the fair value of indefinite-lived intangible assets using the relief-from-royalty 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.

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

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

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

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

We identified an indicator of impairment in our qualitative assessment performed during Fiscal 2024, primarily due to reductions in Gymboree sales forecasts, and performed a quantitative impairment assessment of the Gymboree tradename.

Based on this assessment, we recorded an impairment charge of $28.0 million, primarily due to reductions in Gymboree sales forecasts and a reduction in the royalty rate used to value the tradename, which reduced the carrying value to its fair value of $13.0 million as of August 3, 2024.

As of February 1, 2025, the tradename’s carrying value was $13.0 million.

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

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

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

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.

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

Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities, as well as for net operating losses and tax credit carryforwards.

15 unchanged sentences

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

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

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

Time-vesting awards are granted in the form of restricted stock units that require each recipient to complete a service period (“Deferred Awards”).

Deferred Awards granted to employees generally vest ratably over three years.

Deferred Awards granted to non-employee directors generally vest after one year.

Performance-based stock awards are granted in the form of restricted stock units, which have performance criteria that must be achieved for the awards to be earned, in addition to a service period requirement (“Performance Awards”), and each Performance Award has a defined number of shares that an employee can earn (the “Target Shares”).

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

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

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

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

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

As discussed in “Note 18.

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

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

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

In Fiscal 2024, there was a change of control of the Company, which triggered a conversion of all then-outstanding 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 or have vested, as applicable, at their Target Shares on their respective vesting dates without regard to the achievement of any of the performance metrics associated with those awards, provided that the recipient be employed at the Company on each such vesting date.

In Fiscal 2024, the stock awards granted to employees at senior management levels were a combination of both Deferred Awards and Performance Awards.

The Deferred Award portion has a one-year vesting schedule, while the Performance Award portion is subject to graded vesting over the subsequent two years of the stock award, whereby employees may earn from 0% to 200% of their Target Shares in each of those years, based on the terms of the award and our achievement of certain performance goals established for such Performance Awards.

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

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

Inventory Valuation

1 unchanged sentence

The estimated market value of inventory is determined based on an analysis of historical sales trends of our individual product categories, the impact of market trends and economic conditions, and a forecast of future demand, as well as plans to sell through inventory.

Estimates may differ from actual results due to the quantity, quality, and mix of products in inventory, consumer and retailer preferences, and market conditions such as those resulting from disease pandemics and other catastrophic events.

Estimates may differ from actual results due to the quantity, quality, and mix of products in inventory, consumer and retailer preferences, market conditions, and other catastrophic events.

Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts.

4 unchanged sentences

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

RESULTS OF OPERATIONS

We believe that our e-commerce and brick-and-mortar retail store operations are highly interdependent, with both sharing common customers purchasing from a common pool of product inventory.

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.

For example, SG&A increased approximately 90 basis points to 27.9% of Net sales during Fiscal 2023 from 27.0% during Fiscal 2022.

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 utilized the investments we have made in our business less efficiently.

Fiscal Years Ended

2024 January 28,

2023 January 29,

Net sales 100.0 % 100.0 % 100.0 %

Cost of sales (exclusive of depreciation and amortization) 72.2 69.9 58.5

Gross profit 27.8 30.1 41.5

Selling, general, and administrative expenses 27.9 27.0 24.0

Depreciation and amortization 2.9 3.0 3.0

Asset impairment charges 2.2 0.2 0.1

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

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

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

Provision (benefit) for income taxes 2.5 (0.8) 3.6

Net income (loss) (9.6) % (0.1) % 9.8 %

Number of Company stores, end of period 523 613 672

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

Fiscal Years Ended

2024 January 28,

2023 January 29,

(in thousands)

The Children’s Place U.S.

$ 1,457,352 $ 1,533,934 $ 1,723,887

The Children’s Place International 145,156 174,548 191,477

Total Net sales $ 1,602,508 $ 1,708,482 $ 1,915,364

Fiscal 2023 Compared to Fiscal 2022

Comparable retail sales decreased 4.7% for Fiscal 2023.

The Children’s Place U.S.

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

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

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

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

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

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

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

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

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

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

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 $13.6 million, or 3.0%, to $447.3 million during Fiscal 2023 from $461.0 million during Fiscal 2022.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Fiscal 2022 Compared to Fiscal 2021

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023 for the Fiscal 2022 to Fiscal 2021 comparative discussion.

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

and the financing of capital projects.

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

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

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

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

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

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

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

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

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

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

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

See “Recent Developments” above for further information.

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

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

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

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

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

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

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

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

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

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

ABL Credit Facility and Term Loan

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

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

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

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

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

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

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

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

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

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

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

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

(ii) the SOFR per annum, plus a margin of 1.375% or 1.625%.

Letter of credit fees would range from 0.688% to 0.813% for commercial letters of credit and would range from 0.875% to 1.125% for standby letters of credit.

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

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

The outstanding obligations under the ABL Credit Facility may be accelerated upon the occurrence of certain events, including, among others, non-payment, breach of covenants, the institution of insolvency proceedings, defaults under other material indebtedness, and a change of control, subject, in the case of certain defaults, to the expiration of applicable grace periods.

We were not subject to any early termination fees.

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

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

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

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

2024 January 28,

(in millions)

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

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

Maximum borrowing availability (1)

Outstanding borrowings 226.7 287.0

Letters of credit outstanding—standby 7.4 7.4

Utilization of credit facility at end of period 234.1 294.4

Availability (2)

$ 24.3 $ 20.6

Interest rate at end of period 8.1% 5.9%

2024 January 28,

(in millions)

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

Highest end of day loan balance during the period $ 379.4 $ 297.7

Average interest rate 7.5% 3.7%

____________________________________________

(1) Lower of the credit facility maximum and the total borrowing base availability, both net of the excess availability threshold.

(2) The sub-limit availability for letters of credit was $42.6 million at February 3, 2024, January 28, 2023, and January 29, 2022.

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

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

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

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

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

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

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

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

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

See “Recent Developments” above for further information.

Cash Flows and Capital Expenditures

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

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

accounts payable and other planned changes in working capital.

Cash used in operating activities during Fiscal 2022 was primarily the result of a higher inventory balance, reflecting higher average unit costs, higher inbound transportation costs, and amounts on hand to support growth initiatives, as well as other planned changes in working capital, partially offset by the receipt of a net income tax refund of $15.0 million.

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

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

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

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

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

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

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

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

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

Leases”, “Note 9.

Debt”, and “Note 10.

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

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

Off-Balance Sheet Arrangements

QUARTERLY RESULTS AND SEASONALITY

Our quarterly results of operations have fluctuated and are expected to continue to fluctuate materially depending on a variety of factors, including overall economic conditions, the timing and number of store closures, increases or decreases in Comparable Retail Sales, weather conditions (such as unseasonable temperatures or storms), shifts in timing of certain holidays, and changes in our merchandise mix and pricing strategy, including changes to address competitive factors.

The combination and severity of one or more of these factors could result in material fluctuations in our results of operations.

The following table sets forth certain statement of operations data for each of our last four fiscal quarters.

Fiscal Year Ended February 3, 2024

Quarter Second

Quarter Third

Quarter Fourth

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

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

Gross profit 96,462 87,759 162,052 98,911

Selling, general, and administrative expenses 112,931 111,965 104,770 117,587

Depreciation and amortization 11,848 11,953 11,732 11,652

Asset impairment charges 1,750 782 583 31,429

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

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

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

Provision (benefit) for income taxes (7,136) (9,227) (1,454) 58,561

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

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis