UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fifty-two weeks ended January 29, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-23071
THE CHILDREN’S PLACE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
500 Plaza Drive
Secaucus, New Jersey
(Address of principal executive offices)
31-1241495
(I.R.S. Employer
Identification Number)
07094
(Zip Code)
(201) 558‑2400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading Symbol:
Name of each exchange on which registered:
Common Stock, $0.10 par value
PLCE
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None.
___________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” ”accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b‑2 of the Exchange Act. (Check one):
Large accelerated filer ☒
Accelerated filer
☐
Non-accelerated filer ☐
Smaller reporting
company
☐
Emerging growth
company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of common stock held by non-affiliates was $1,204,813,065 at the close of business on July 31, 2021 (the last business day of the registrant’s fiscal 2021
second fiscal quarter) based on the closing price of the common stock as reported on the Nasdaq Global Select Market. For purposes of this disclosure, shares of common stock held by persons
who hold more than 10% of the outstanding shares of common stock and shares held by executive officers and directors of the registrant have been excluded because such persons may be
deemed affiliates. This determination of executive officer or affiliate status is not necessarily a conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: Common Stock, par value $0.10 per share, outstanding
at March 18, 2022: 13,549,035.
Documents Incorporated by Reference: Portions of The Children’s Place, Inc. Definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 11, 2022 are
incorporated by reference into Part III.
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE FIFTY-TWO WEEKS ENDED JANUARY 29, 2022
TABLE OF CONTENTS
PART I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2.
Properties.
Item 3.
Legal Proceedings.
Item 4. Mine Safety Disclosures.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
[Reserved]
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Item 8.
Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Item 13. Certain Relationships and Related Transactions and Director Independence.
Item 14. Principal Accountant Fees and Services.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
Item 16. Form 10-K Summary.
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
The Business section and other parts of this Annual Report on Form 10-K may contain certain forward-looking statements
regarding future circumstances. Forward-looking statements provide current expectations of future events based on certain
assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements
can also be identified by words such as “anticipates”, “believes”, “estimates”, “expects”, “intends”, “plans”, “predicts”, and
similar terms. These forward-looking statements are based upon current expectations and assumptions of The Children’s Place,
Inc. (the “Company”) and are subject to various risks and uncertainties that could cause actual results to differ materially from
those contemplated in such forward-looking statements including, but not limited to, those discussed in the subsection entitled
“Risk Factors” under Part I, Item 1A of this Annual Report on Form 10-K. Actual results, events, and performance may differ
significantly from the results discussed in the forward-looking statements. Readers of this Annual Report on Form 10-K are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The inclusion of any
statement in this Annual Report on Form 10-K does not constitute an admission by the Company or any other person that the
events or circumstances described in such statement are material.
The following discussion should be read in conjunction with the Company’s audited financial statements and notes thereto
included elsewhere in this Annual Report on Form 10‑K.
ITEM 1.
BUSINESS.
PART I
As used in this Annual Report on Form 10-K, references to the “Company”, “The Children’s Place”, “we”, “us”, “our”,
and similar terms refer to The Children's Place, Inc. and its subsidiaries. Our fiscal year ends on the Saturday on or nearest to
January 31. Other terms that are commonly used in this Annual Report on Form 10-K are defined as follows:
•
•
•
•
•
•
•
•
•
•
•
•
•
Fiscal 2021 — The fifty-two weeks ended January 29, 2022
Fiscal 2020 — The fifty-two weeks ended January 30, 2021
Fiscal 2019 — The fifty-two weeks ended February 1, 2020
Fiscal 2022 — Our next fiscal year representing the fifty-two weeks ending January 28, 2023
SEC — U.S. Securities and Exchange Commission
U.S. GAAP — Generally Accepted Accounting Principles in the United States
FASB — Financial Accounting Standards Board
FASB ASC — FASB Accounting Standards Codification, which serves as the source for authoritative U.S. GAAP,
except that rules and interpretive releases by the SEC are also sources of authoritative U.S. GAAP for SEC
registrants
Comparable Retail Sales — Net sales, in constant currency, from stores that have been open for at least 14
consecutive months and from our e-commerce store, excluding postage and handling fees. Store closures in the
current fiscal year will be excluded from Comparable Retail Sales beginning in the fiscal quarter in which the
store closes. A store that is closed for a substantial remodel, relocation, or material change in size will be
excluded from Comparable Retail Sales for at least 14 months beginning in the fiscal quarter in which the closure
occurred. However, stores that temporarily close will be excluded from Comparable Retail Sales until the store is
re-opened for a full fiscal month. Comparable Retail Sales do not exclude any temporarily closed stores impacted
by the COVID-19 pandemic.
CCPSA — Canada Consumer Product Safety Act
CPSA — U.S. Consumer Product Safety Act
CPSC — U.S. Consumer Product Safety Commission
CPSIA — U.S. Consumer Product Safety Improvement Act of 2008
3
General
The Children’s Place, Inc. is the largest pure-play children’s specialty apparel retailer in North America. We design,
contract to manufacture, sell at retail and wholesale, and license to sell trend right, high quality merchandise predominantly at
value prices, primarily under our proprietary “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, and “Sugar & Jade”
brand names. Our physical stores offer a friendly and convenient shopping environment, segmented into departments that serve
the wardrobe needs of girls and boys (sizes 4-18), toddler girls and boys (sizes 6 months-5T), and baby (sizes 0-24 months).
Our merchandise is also available online at www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com. Our
customers are able to shop online for the same merchandise available in our physical stores, in addition to certain merchandise
which is exclusive to our e-commerce sites.
The Children’s Place was founded in 1969. The Company became publicly traded on the Nasdaq Global Select Market in
1997. As of January 29, 2022, we operated 672 stores throughout North America, as well as our online stores. During Fiscal
2021, we opened one store and closed 78 stores. During Fiscal 2020, we opened three stores and closed 178 stores.
Jane Elfers, our President and Chief Executive Officer, established several key strategic initiatives:
1. Superior Product - Product is our number one priority. We are focused on providing the right product, in the right
channels of distribution, at the right time. We offer a full line of apparel, footwear and accessories so busy moms
can quickly and easily put together head-to-toe outfits. Our design, merchandising, sourcing, and planning teams
strive to ensure that our product is trend right, while at the same time balancing fashion and fashion basics with
more frequent, wear-now deliveries. We reintroduced the Gymboree brand in February 2020 on an enhanced
Gymboree website and in certain co-branded locations in Company stores in the U.S. and Canada, and in
November 2021, we introduced our new brand, Sugar & Jade, which is targeted at the girls’ “tween” market and is
offered exclusively online.
2. Digital Transformation - The transformation of our digital capabilities continues to expand with the development
of completely redesigned responsive sites and mobile applications, providing an online shopping experience
geared toward the needs of our “on-the-go” customers, expanded customer personalization, which delivers unique,
relevant content designed to drive sales, loyalty and retention, and the ability to have our entire store fleet
equipped with ship-from-store capabilities. Also, in response to increased digital demand, including as a result of
the COVID-19 pandemic, the Company has continued to increase the utilization of its third-party logistics
provider to further support both our U.S. and Canadian e-commerce operations.
3. Fleet Optimization - As a result of the heightened demand for online purchasing, including due to the COVID-19
pandemic, we accelerated our planned store closures under our fleet optimization initiative and have closed 256
stores, against our original target of 300 stores, over the past two fiscal years, including the 78 stores closed during
Fiscal 2021. We have closed 527 stores since the announcement of this initiative in 2013. We are targeting 40
retail store closures in Fiscal 2022, which would bring our total store closures since the fleet optimization
initiative began to 567 stores.
Overlaying these strategic initiatives is talent. Talent ultimately defines our success, and, over the past several years, we
have built a best-in-class management team. We believe that our talented team is a significant competitive advantage for our
Company.
Underlying these growth initiatives is a commitment to operational excellence. The Company’s commitment to
operational excellence includes disciplined expense management and a focus on ongoing improvement in store and e-commerce
operations, and combined with our finance, human resources, compliance and legal areas, form the strong base necessary to
support our long-term growth initiatives.
COVID-19 Pandemic
The COVID-19 pandemic continues to significantly impact regions all around the world, including the United States and
Canada. This has resulted in continuing restrictions of businesses and other activities implemented by national, state, and local
authorities and private entities, leading to significant adverse economic conditions and business and lifestyle disruptions, as
well as significant volatility in global financial and retail markets. Federal, state, and local governments and health officials
worldwide continue to impose varying degrees of preventative and protective actions, such as travel bans, restrictions on public
gatherings, forced closures of businesses and other activities, social distancing, and the adoption of remote or hybrid learning
models for schools, all in an effort to reduce the spread of the virus. In addition, certain U.S. and Canadian mall owners
continue to restrict hours of operation and the number of people permitted in stores. Such factors, among others, have resulted
in a significant decline in retail traffic and consumer spending on discretionary items.
As a result of the impact of the COVID-19 pandemic, we continue to experience business disruption with many of our
retail stores across the U.S. and Canada. As of January 29, 2022, all of our stores were open to the public in the U.S., Canada,
4
and Puerto Rico. Our distribution centers have remained open and operating during the pandemic to support our retail stores
and e-commerce business.
Segment Reporting
In accordance with FASB ASC 280—Segment Reporting, we report segment data based on geography: The Children’s
Place U.S. and The Children’s Place International. Each segment includes an e-commerce business located at
www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com. Included in The Children’s Place U.S. segment are
our U.S. 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. Net sales and direct costs are recorded by each segment. Certain inventory procurement functions such as
production and design, as well as corporate overhead, including executive management, finance, real estate, human resources,
legal, and information technology services, are managed by The Children’s Place U.S. segment. Expenses related to these
functions, including depreciation and amortization, are allocated to The Children’s Place International segment based primarily
on net sales. The assets related to these functions are not allocated. We periodically review these allocations and adjust them
based upon changes in business circumstances. Net sales to external customers are derived from merchandise sales, and we
have no customers that individually account for more than 10% of our net sales. The following tables show, by segment, our net
sales and operating income for the past three fiscal years and total assets as of January 29, 2022 and January 30, 2021:
Net sales:
The Children’s Place U.S.
The Children’s Place International
Total net sales
Operating income (loss):
The Children’s Place U.S.
The Children’s Place International
Total operating income (loss)
Operating income (loss) as a percentage of net sales:
The Children’s Place U.S.
The Children’s Place International
Total operating income (loss) as a percentage of net sales
Total assets:
The Children’s Place U.S.
The Children’s Place International
Total assets
Fiscal Years Ended
January 29,
2022
January 30,
2021
February 1,
2020
(in thousands)
$ 1,723,887 $ 1,372,079 $ 1,671,165
191,477
150,519
199,502
$ 1,915,364 $ 1,522,598 $ 1,870,667
Fiscal Years Ended
January 29,
2022
January 30,
2021
February 1,
2020
(in thousands)
$
253,419
$ (196,565)
$
22,229
(3,350)
$
275,648
$ (199,915)
$
77,989
18,369
96,358
14.7 %
11.6 %
14.4 %
(14.3) %
(2.2) %
(13.1) %
4.7 %
9.2 %
5.2 %
January 29,
2022
January 30,
2021
(in thousands)
$
951,401 $ 1,054,339
86,059
85,788
$ 1,037,460 $ 1,140,127
See “Note 14. Segment Information” of the Notes to Consolidated Financial Statements for further segment financial
data.
5
All foreign net sales are in The Children’s Place International segment, while certain foreign expenses related to our
buying operations are allocated between the two segments.
Key Capabilities
Our objective is to sell high quality, value priced, trend right children’s merchandise. Our merchandise assortment offers
one stop shopping across apparel, footwear, and accessories.
Merchandising Strategy
Our merchandising strategy delivers a compelling and coordinated assortment of apparel, footwear, and accessories that
facilitate the purchase of head-to-toe outfits. We merchandise our deliveries by season and flow new product to stores monthly.
High Quality and Value
We believe that offering high quality, value priced, trend right apparel, footwear, and accessories under “The Children’s
Place”, “Place”, “Baby Place”, “Gymboree”, and “Sugar & Jade” brand names is a competitive advantage.
Brand Image
We focus on our brand image and strengthening our customer loyalty by:
•
•
•
•
•
•
•
Consistently offering high quality and age appropriate products and trend right fashion predominantly at value
prices in a friendly and convenient store shopping environment and online;
Providing coordinated outfits and accessories for our customers’ lifestyle needs;
Providing exclusive products on our e-commerce sites to expand the breadth of our offerings;
Creating strong merchandising and visual presentations to create compelling in-store and online experiences;
Emphasizing our great value fashion in marketing visuals to convey a consistent message across our brands;
Leveraging our customer database to communicate with our customers and personalize communications to
maximize customer satisfaction, engagement and retention; and
Utilizing our MyPLACE Loyalty Rewards program and private label credit card to drive customer engagement
and retention.
Low-Cost Global Sourcing
We design, source, and contract to manufacture the substantial majority of the Company’s branded products. We believe
that this is essential to assuring the consistency and quality of our merchandise, as well as our ability to deliver value to our
customers. We have strong multi-year relationships with the substantial majority of our vendors. Through these relationships
and our extensive knowledge of low cost sourcing on a global scale, we are able to offer our customers high-quality products at
predominantly value prices. We maintain a network of sourcing offices globally in order to manage our vendors efficiently and
respond to changing business needs effectively. Our sourcing offices in Hong Kong, Shanghai, Indonesia, Ethiopia, and
Bangladesh, and our presence in Asia and Africa and other areas in which we source products, give us access to a wide range of
vendors and allow us to work to maintain and/or reduce our merchandise costs by capitalizing on new sourcing opportunities
while maintaining our high standard for product quality.
Merchandising Process
The strong collaboration between our cross-functional teams in design, merchandising, sourcing, and planning have
enabled us to build our brands.
Design
The design team gathers information from trends, color services, research, and trade shows.
Merchandising
Each quarter, we develop seasonal merchandising strategies.
Planning and Allocation
The planning and allocation organization works collaboratively with the merchandising, finance, and global sourcing
teams to develop seasonal sales and margin plans to support our financial objectives and merchandising strategies. Further, this
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team plans the flow of inventory to ensure that we are adequately supporting store floor sets, online demand, and key selling
periods.
Production, Quality Assurance, and Responsible Sourcing
During Fiscal 2021, we engaged independent contract vendors located primarily in Asia and Africa. We continue to
pursue global sourcing opportunities to support our inventory needs and seek to reduce merchandise costs. We contract for the
manufacture of the substantial majority of the products we sell. We do not own or operate any manufacturing facilities.
During Fiscal 2021, we sourced all of our merchandise directly without the use of third-party commissioned buying
agents for our branded product. We source from a diversified network of vendors, purchasing primarily from Vietnam,
Cambodia, Indonesia, Ethiopia, Bangladesh, and China. No country accounted for 15% or more of our production.
In addition to our quality assurance procedures, we conduct a responsible sourcing program that seeks to protect our
Company, enhance our brands and address the well-being of the people who make our products by providing guidance in line
with industry standards to our vendors in their efforts to provide safe and appropriate working conditions for their employees.
These efforts are part of an ongoing process to encourage our vendors to continually assess, and where appropriate, improve
factory working conditions, and well-being of their employees who make our product. Additionally, under our responsible
sourcing program, we monitor changes in local laws and other conditions (e.g., worker safety, workers’ rights of association,
and political and social instability) in the countries from which we source in order to identify and assess potential risks to our
sourcing capabilities.
Environmental, Social & Governance
We published a comprehensive Environment, Social & Governance (“ESG”) Report in November 2021, which is
available at http://corporate.childrensplace.com under the ESG tab. This ESG Report includes 22 public goals across our global
operations, aligned with Sustainability Accounting Standards Board (“SASB”) guidelines for apparel, accessories & footwear,
Global Reporting Initiative core standards (“GRI”), and United Nations Sustainable Development Goals.
In recognition of the increasing importance to our shareholders and other stakeholders of enhanced board oversight of
ESG topics, in Fiscal 2021, our Board of Directors directed the Corporate Responsibility, Sustainability & Governance
Committee (previously the Nominating and Corporate Governance Committee) to formulate a recommendation to the Board of
Directors concerning the assignment of oversight responsibilities for ESG topics, including human capital management and
diversity, equity, and inclusion (“DE&I”) matters. Following a comprehensive review and analysis of oversight responsibilities
by the Corporate Responsibility, Sustainability & Governance Committee, in conjunction with governance and legal advisors,
the Board of Directors approved the Committee’s recommendations to leverage director skillsets, rename the Committees to
better reflect the Committees’ expanded roles, and amend Committee charters to include the enhanced oversight
responsibilities.
Previously, oversight of ESG topics resided primarily with the Audit Committee of the Board of Directors. In response to
the recommendations made to and approved by the Board of Directors, components of the Company’s ESG activities were
assigned between the other two committees, and both of those committees were renamed to better reflect their new oversight
responsibilities. Following the reassignment, the Corporate Responsibility, Sustainability & Governance Committee is
responsible for overseeing the Company’s ESG risk management activities, including environmental initiatives, and social
topics such as responsible sourcing in the Company’s global supply chain. This Committee is also charged with the oversight of
the Company’s corporate governance policies and practices. Separately, the Human Capital & Compensation Committee has
the oversight responsibility for the Company’s human capital management policies and practices, including diversity, equity
and inclusion topics and associated risks. The Human Capital & Compensation Committee also is charged with the oversight of
the Company’s executive compensation policies, practices and plans, and associated risks.
In terms of environmental initiatives, we believe that purpose-led companies such as ours have the opportunity and
responsibility to work to ensure that our business contributes to a healthy planet. We focus on topics that are important to our
long-term success and where we believe we can have the most positive impact. The Corporate Responsibility, Sustainability &
Governance Committee oversees our environmental initiatives which aim to:
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Reduce scope 1, 2 and 3 greenhouse gas emissions (“GHG”) in our operations and across our global supply chain
through science-based goals to address climate change;
Deliver responsibly sourced product offerings through the use of sustainable raw materials;
Reduce and manage water and chemical usage in manufacturing and processing in our global supply chain; and
Divert the amount of waste from our operations sent to landfills and move to a more circular system through
reusing and recycling.
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In designing and implementing our environmental initiatives, we identify areas where we believe we can make a
difference and establish quantitative goals in an effort to positively impact the communities and environments affected by our
business. To have the greatest impact, we collaborate with experts, non-governmental organizations (“NGOs”), other non-profit
organizations, industry peers, and third-party vendors and factories to identify and implement initiatives. The Corporate
Responsibility, Sustainability & Governance Committee oversees our commitment to a long-term approach across our global
operations to act responsibly and efficiently.
In terms of social initiatives, our commitment to positive social practices includes our responsible sourcing activities in
our global supply chain, where we partner with our third-party vendors and factories, NGOs and others in supporting workers’
health, safety and well-being. We monitor compliance by our third-party vendors and factories with our Vendor Code of
Conduct, local laws and ethical business practices to help ensure fair and safe work conditions for the people who make our
products. We also recognize the importance of eliminating forced labor within the supply chain and its increasing significance
in light of recent reports of human rights abuses in various regions of the world. In addition, we support and sponsor a number
of worker well-being programs designed to improve the daily lives of the predominantly female factory workers who make our
products. Our commitment to having a positive social influence also extends to our charitable mission of supporting children
and families in need.
Human Capital Management
As of January 29, 2022, we had approximately 11,900 employees, approximately 2,000 of whom were based at our
corporate offices and distribution centers. Approximately 1,500 were full-time store employees and approximately 8,400 were
part-time and seasonal store employees. None of our employees are covered by a collective bargaining agreement.
The Human Capital & Compensation Committee is actively engaged in overseeing our human capital management
strategies, including our talent and succession planning initiatives designed to attract, develop, engage, reward and retain top
retail, digital and business leaders, who can drive our financial performance and strategic growth initiatives and contribute to
building long-term shareholder value. The Company has benefited greatly, especially during the COVID-19 pandemic, from the
stability of our senior leadership team, who have an average tenure of over six years, including our CEO who has led the
Company for over a decade. The Human Capital & Compensation Committee’s involvement in leadership development and
succession planning is systematic and ongoing, culminating in an annual review by the Board of Directors of succession plans
for all of our senior leaders, inclusive of development strategies for top talent within the Company. The Company has a strong
track record of succession planning and growing talent within the organization with 60% of its senior leadership team promoted
into their current role. In addition, during Fiscal 2020, almost 70% of all open corporate roles and over 50% of all field
management roles were filled internally.
Diversity, Equity and Inclusion
In Fiscal 2021, the Board of Directors approved the assignment of oversight responsibilities for human capital
management activities and risks, including DE&I, to the Human Capital & Compensation Committee. To improve its
understanding of the Company’s culture and talent pipeline, the Board of Directors and its committees periodically meet with
high-potential executives in formal and informal settings. More broadly, the Human Capital & Compensation Committee and
the Board of Directors are regularly updated on key talent metrics for the overall workforce, including diversity and inclusion,
pay equity, employee relations, recruiting and development programs, and overall progress against the Company’s human
capital development strategies. Diversity and inclusion are top priorities for the Company, and we actively work to ensure that
our workplace includes a range of perspectives and backgrounds at the Board of Directors level, in senior leadership, and
throughout our management and associate base. The Company reports annually on employment data, including ethnicity, in line
with Equal Employment Opportunity Commission (“EEOC”) guidelines, publishes its complete EEO-1 data on its corporate
website, and continues to focus on building a culture which supports diversity, equity and inclusion, and which works to ensure
fair compensation and opportunity for all employees regardless of gender or race.
The Company is female-led and believes that it is positioned to outperform by employing diverse teams operating in an
inclusive environment. The Company’s position is enhanced by the diversity of teams across its stores, distribution centers and
corporate headquarters, in its senior leadership team, and at the Board of Directors level. As reported in the Company’s ESG
Report, 87% of the Company’s associates are women. Over 50% of both the members of our Board of Directors and senior
leadership team are women. 87% of new hires and 90% of promotions during Fiscal 2020 were women. Additionally, 64% of
our associates identify as racially diverse and associates identifying as racially diverse represented 70% of new hires and 62%
of promotions during Fiscal 2020. In addition, the Company is committed to doubling its Black associate population at its
corporate headquarters by 2025. The Company seeks to uphold its diverse and inclusive culture by striving to ensure its talent
acquisition programs sustain and grow diverse representation across its workforce, promoting talent from within, building an
inclusive culture through awareness and education, and rewarding all employees equitably.
8
For additional information concerning the Company’s environmental initiatives, DE&I initiatives and EEO-1 data, please
refer to the Company’s ESG Report, which can be found on the Company’s corporate website at
http://corporate.childrensplace.com under the ESG section, and the Company’s Proxy Statement for Fiscal 2021.
Company Stores
The following section highlights various store information for The Children’s Place operated stores as of January 29,
2022.
Existing Stores
As of January 29, 2022, we had a total of 672 The Children’s Place stores in the United States, Canada, and Puerto Rico
and our online stores at www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com. In addition, our seven
international partners operated 211 international points of distribution in 16 countries. The following table sets forth the number
of stores in the U.S., Puerto Rico, and Canada as of the current and prior fiscal year end:
Location
United States
Canada
Puerto Rico
Total Stores
Number of Stores
January 29,
2022
January 30,
2021
582
83
7
672
640
101
8
749
At The Children’s Place, our store concepts consist of multiple formats ranging in size from approximately 2,500 to 22,800
square feet, which have evolved over time in response to market trends, and are strategically placed within each market. We try
to create an open and brightly lit environment for customers. Our stores typically feature white fixtures to ensure the product is
the focal point, using color to brand and create shop identifiers.
Fleet Optimization
We have closed 527 stores, including the 78 stores closed during Fiscal 2021, since the announcement of our fleet
optimization initiative in 2013. As a result of the heightened demand for online purchasing, including due to the COVID-19
pandemic, we accelerated our planned store closures and closed 256 stores over the past two fiscal years. Since 2013, we have
reduced our total store square footage from 5.2 million to 3.2 million. These closures have resulted in improved profitability
and operating margin accretion due to sales transfer to surrounding stores and/or e-commerce, low cost of exit, and the
elimination of underperforming locations. In markets where we have closed stores, we are seeing the neighboring stores and e-
commerce business in the area of the closing become more productive and profitable. These results further our commitment to
continue to execute our optimization program.
We continuously review the performance of our store fleet. We base our decisions to open, close, or remodel stores on a
variety of factors, including lease terms, landlord negotiations, market dynamics, and projected financial performance. When
assessing whether to close a store, we also consider remaining lease life and current financial performance.
E-commerce Sales
Each of our U.S. and International segments includes an e-commerce business located at www.childrensplace.com,
www.gymboree.com, and www.sugarandjade.com and digital growth remains one of our top strategic priorities. We are
committed to delivering a best in class, end-to-end user experience, including product assortment and website operation,
fulfillment, and customer service. We are further committed to delivering these experiences to our customers when, where, and
how they are looking to access our brands, accounting for cross-channel behavior, growth of mobile devices, and the growing
interest in our brands from international consumers. As such, we will continue to make required investments in back-end
infrastructure, as well as front-end technology to deliver on this commitment. We believe that the critical investments made in
areas such as e-commerce infrastructure and mobile optimization, as well as additional front-end website features, have
improved our customer experience.
International Franchisees and Wholesale
We have 211 international points of distribution (stores, shop in shops, e-commerce site) with seven partners operating in
16 countries. We generate revenues from our franchisees from the sale of products and sales royalties. Our wholesale business
includes our relationship with Amazon.
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Store Operations
The Children’s Place store operations are organized by geographic region. Our U.S. Vice Presidents and Canada
Regional Director oversee a number of district managers residing within each region. We have a centralized corporate store
operations function which supports the operations of our stores. Our stores are staffed by store managers and full-time and part-
time sales associates, with additional temporary associates hired to support seasonal needs. Our store managers spend a high
percentage of their time on the store’s selling floor providing direction, motivation, and development to store associates. To
maximize selling productivity, our teams emphasize greeting, replenishment, presentation standards, procedures, and controls.
In order to motivate our store management, we offer a monthly incentive compensation plan that awards bonuses for achieving
certain financial goals.
Seasonality
Our business is subject to seasonal influences, with historically heavier concentrations of sales during the back-to-school
and holiday seasons. Our first fiscal quarter results are dependent upon sales during the period leading up to the Easter holiday,
our second and third fiscal quarter results are dependent upon back-to-school sales, and our fourth fiscal quarter results are
dependent upon sales during the holiday season. The business is also subject to shifts due to unseasonable weather conditions.
As described elsewhere herein, the COVID-19 pandemic has significantly disrupted the foregoing seasonal influences. The
following table shows the quarterly distribution, as a percentage of the full year, of net sales and operating income (loss)
(results in Fiscal 2020 were significantly impacted by the COVID-19 pandemic, including the government mandated temporary
closure of all of our stores for substantial periods of time during Fiscal 2020):
Net sales as a percentage of full year
Fiscal 2021
Fiscal 2020
Operating income (loss) as a percentage of full year
Fiscal 2021
Fiscal 2020
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
22.8 %
16.8 %
21.6 %
24.2 %
29.1 %
27.9 %
26.5 %
31.1 %
23.9 %
13.7 %
(86.6) % (32.3) %
41.3 %
11.7 %
21.1 %
7.2 %
For more information regarding the seasonality of our business and the disruption caused by the COVID-19 pandemic,
refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Quarterly Results
and Seasonality.”
Marketing
The Children’s Place and Gymboree are well-recognized brands, with a trend right offering and a compelling value
proposition. Our direct marketing program utilizes both on-line and off-line channels. We relaunched the Gymboree brand in
February 2020 with a meaningfully improved digital experience on www.gymboree.com, complemented by shop-in-shop
locations in certain co-branded stores in the U.S. and Canada, by successfully executing on the specific design, sourcing, and
merchandising characteristics that create Gymboree’s elevated, playful collections. Additionally, in November 2021, we
introduced our new brand, Sugar & Jade, which is targeted at the girls’ “tween” market and is offered exclusively online.
We have a customer loyalty program and a private label credit card program. At the end of Fiscal 2021, members of our
MyPLACE Rewards loyalty program and/or private label credit card program accounted for approximately 75% of sales. Our
private label credit card is issued to our customers for use exclusively at The Children’s Place stores and online at
www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com, and credit is extended to such customers through a
third-party financial institution on a non-recourse basis to us. Additionally, in our effort to reach an even wider customer base
who are digitally savvy during the COVID-19 pandemic and to utilize other forms of spending arrangements available, we have
partnered with Afterpay to allow our customers to purchase our products on a “buy-now-pay-later” program. We promote
affinity and loyalty through our marketing programs by utilizing specialized incentive programs.
Distribution
In the United States, we own and operate a 700,000 square foot distribution center in Alabama, which supports both U.S.
retail store operations and U.S. e-commerce operations. In Canada, we lease and operate a 95,000 square foot distribution center
in Ontario for our Canadian retail store operations. We also use a third-party provider operating a 694,000 square foot
distribution center in Indiana and a 286,000 square foot distribution center in Ontario, Canada to support our U.S. and Canadian
10
e-commerce operations, respectively. On occasion, we may utilize additional facilities to support seasonal warehousing needs.
We also use a third-party provider of warehousing and logistics services in both Malaysia and China to support our
international franchise business.
Competition
The children’s apparel, footwear, and accessories retail markets are highly competitive. Our primary competitors are
specialty stores, mass merchants, and off-price stores, including Target Corporation, Old Navy, GapKids, and babyGap (each of
which is a division of The Gap, Inc.), Carter’s, Inc., T.J. Maxx and Marshall’s (each of which is a division of TJX Companies,
Inc.), Burlington Coat Factory, Inc., Kohl’s Corporation, Walmart Stores, Inc., and other department stores. We also compete
with regional retail chains, catalog companies, and e-commerce retailers. One or more of our competitors are present in
substantially all of the areas in which we have stores.
Trademarks and Service Marks
“The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, “Crazy 8”, “Sugar & Jade” and certain other marks have
been registered as trademarks and/or service marks with the United States Patent and Trademark Office and in Canada and
other foreign countries. During the first quarter of Fiscal 2019, the Company acquired certain intellectual property and related
assets of Gymboree Group, Inc. and related entities (the “Gymboree Assets”), which included the worldwide rights to the
names “Gymboree” and “Crazy 8” and other intellectual property, including trademarks, domain names, copyrights, and
customer databases. In November 2021, we launched the Sugar & Jade e-commerce website at www.sugarandjade.com.
Registration of our trademarks and the service marks may be renewed to extend the original registration period indefinitely,
provided the marks are still in use. We intend to continue to use and protect our trademarks and service marks and maintain
their registrations. We have also registered our trademarks in other countries where we source our products and where we have
established and possibly may establish franchising operations. We believe our trademarks and service marks have received
broad recognition and are of significant value to our business.
Government Regulation
We are subject to extensive federal, state, local, provincial, and other foreign laws and regulations affecting our business,
including product testing and safety, consumer protection, privacy, truth-in-advertising, accessibility, customs, wage and hour
laws and regulations, and zoning and occupancy ordinances that regulate retailers generally and/or govern the promotion and
sale of merchandise and the operation of retail stores and e-commerce sites. We also are subject to similar international laws
and regulations affecting our business. We believe that we are in material compliance with these laws and regulations.
We are committed to product quality and safety. We focus our efforts to adhere to all applicable laws and regulations
affecting our business, including the provisions of the CPSIA, the Federal Hazardous Substances Act, the Flammable Fabrics
Act, the Textile Fiber Product Identification Act, the CCPSA, the Canadian Textile Labelling Act, the Canadian Care Labelling
Program, and various environmental laws and regulations. Each of our product styles currently covered by the CPSIA and the
CCPSA is appropriately tested to meet current standards.
Virtually all of our merchandise is manufactured by third-party factories located outside of the United States. These
products are imported and are subject to U.S. and Canadian customs laws and regulations, which restrict the importation of and
impose tariffs, anti-dumping and countervailing duties on, certain imported products, including textiles, apparel, footwear, and
accessories. We currently are not restricted by any such anti-dumping and countervailing duties in the operation of our business.
Internet Access to Reports
We are a public company and are subject to the disclosure requirements of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Accordingly, we file periodic reports, proxy statements, and other information with the SEC.
Such reports, proxy statements, and other information may be obtained by visiting the SEC website (http://www.sec.gov) that
contains reports, proxy, and information statements and other information regarding us and other issuers that file electronically.
Our corporate website address is http://corporate.childrensplace.com. We make available, without charge, through our
website, copies of our Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon
as reasonably practicable after such reports are filed with or furnished to the SEC. Our ESG Report is also available on our
corporate website under the ESG tab. References in this document to our websites are not and should not be considered part of
this Annual Report on Form 10-K, and the information on our websites is not incorporated by reference into this Annual Report
on Form 10-K.
We also make available our corporate governance materials, including our corporate governance guidelines and our code
of business conduct, on our website. If we make any substantive amendments to our code of business conduct or grant any
waiver, including any implicit waiver, from a provision of the code for the benefit of our Chief Executive Officer and President
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or our Chief Financial Officer, we will disclose the nature of such amendment or waiver on our corporate website or in a
Current Report on Form 8-K.
12
ITEM 1A. RISK FACTORS.
Investors in the Company should consider the following risk factors as well as the other information contained herein:
RISKS RELATED TO THE COVID-19 PANDEMIC
The COVID-19 pandemic has significantly disrupted, and is expected to continue to significantly disrupt, our business,
which in turn could have a material adverse effect on our business, financial position, results of operations, and cash flows.
In March 2020, the World Health Organization declared COVID-19 a global pandemic and the President of the United
States declared a national emergency. From the onset of the pandemic and as new variants emerged, federal, state, and local
governments and private entities mandated, and continue to mandate, various restrictions, including closure of businesses,
closure of and limits on social, educational, entertainment, and other activities, travel restrictions, prohibitions and restrictions
on public gatherings, social distancing, stay-at-home and work-from-home orders and advisories, the adoption of remote or
hybrid learning models for schools and the quarantining of people who may have been exposed to the virus. The COVID-19
pandemic has significantly negatively affected the domestic and global economies, significantly disrupted global supply chains,
and created significant disruption of businesses, lifestyles, and the financial and retail markets, including a significant disruption
in consumer demand for children’s clothing and accessories.
The COVID-19 pandemic has had, and will likely continue to have, a significant adverse effect on our business, financial
position, results of operations, and cash flows. For example:
•
•
•
•
In March 2020, for the safety of customers and employees, we suspended retail store operations in the U.S. and
Canada, which has had a significant adverse effect on the results of operations and the financial condition of our
business. We reopened the majority of our stores during the last two weeks of June 2020. The decision to reopen stores
was driven by a number of factors, including evaluating the safety of the Company’s customers and employees, as well
as an evaluation of guidance provided by the federal, state, and local governments. As of January 29, 2022, the
Company had all of its stores open to the public in the U.S., Canada and Puerto Rico, and had permanently closed 256
stores during the past two fiscal years.
The Company has experienced, and will likely continue to experience, reductions and volatility in demand for its retail
products, including as a result of customers delaying their purchases of merchandise due to certain restrictions on
hours of store operation and the number of people permitted in certain stores, and changes in consumer spending
behaviors and needs (including because of the adoption of remote or hybrid learning models by schools) due to the
COVID-19 pandemic, have adversely impacted and are likely to continue to adversely impact traffic in stores and
sales, and such actions have resulted, and are likely to continue to result, in a loss of sales and profit.
The Company has experienced, and will likely continue to experience, significant temporary and long-term disruptions
in its global supply chain, as the COVID-19 outbreak has resulted in travel and shipping disruptions and has
significantly adversely impacted, and will likely continue to significantly adversely impact, manufacturing and
distribution throughout the world, including in all countries in which the Company’s products are produced. The
receipt of products and raw materials has been, and will likely continue to be, significantly slowed or disrupted, which
has significantly adversely impacted, and will likely continue to significantly adversely impact, the fulfillment of
merchandise orders from the Company’s vendors.
In response to increased digital demand, the Company increased and will continue to increase the utilization of its
third-party logistics providers to further support both our U.S. and Canadian e-commerce operations. This increased
utilization has resulted and may continue to result in higher fulfillment costs for the Company.
The significant disruption to the domestic and global economies and to the Company’s business may lead to additional
triggering events that may indicate that the carrying value of certain assets, including inventories, long-lived assets, and
intangibles, may not be recoverable. Furthermore, the global situation is changing rapidly and the Company cannot foresee
whether the outbreak of COVID-19 and/or variant viruses will be effectively contained, nor can it predict the severity and
duration of the pandemic’s impact. As such, impacts of COVID-19 and/or variant viruses on the Company are highly uncertain,
and the Company will continue to assess the operational and financial impacts. The significant disruptions caused by the
COVID-19 pandemic, and all measures taken, and to be taken in the future, in response to it, including those described above,
may have a material adverse effect on our business, financial position, results of operations, and cash flows.
13
RISKS RELATED TO BUSINESS STRATEGIES AND GLOBAL OPERATIONS
We may not be able to successfully execute our business strategies.
Our strategic initiatives currently involve a focus on (i) delivery of product of a quality and value that resonates with our
customers, (ii) scaling and optimizing our infrastructure to support our e-commerce business given the continued shift in our
customers’ shopping patterns to online shopping, and (iii) optimization of our North American retail store fleet.
We will continue to implement and refine our business systems transformation initiatives designed to increase sales and
profitability. Our business transformation through technology initiative has two key components: digital transformation and
inventory management. With respect to digital transformation, we continue to implement a personalized customer contact
strategy and are scaling our digital infrastructure to support increased digital demand. These initiatives require the execution of
complex projects involving significant systems and operational changes, which place considerable demands on our
management and our information and other systems. Our ability to successfully implement and capitalize on these projects is
dependent on management’s ability to manage these projects effectively and implement and operate them successfully, without
adversely affecting the subject and/or other systems, and on our employees’ ability to operationalize the required changes. If we
fail to implement these projects effectively, including aligning them with our sourcing, distribution and logistics operations, if
we experience significant delay, cost overruns, or unforeseen costs, or if the necessary operational changes and change
management are not enacted properly, we may not realize the return on our investments that we anticipate, and we may
adversely affect the operation of other systems, and our business, financial position, results of operations, and cash flows could
be materially adversely affected.
We will continue our store fleet optimization program, which is intended to address the accelerated consolidation of the
brick and mortar retail channel resulting from the COVID-19 pandemic and to increase the profitability of our existing retail
store fleet. Since the program was announced in 2013, we have closed 527 stores, including 78 stores closed in Fiscal 2021, and
it is planned that this program will close 40 stores in Fiscal 2022. Failure to properly identify or measure underperforming retail
stores, failure to achieve anticipated sales transfer rates from closed stores to remaining retail stores and/or e-commerce sales,
and failure to properly identify and analyze customer segmentation and spending patterns could have a material adverse effect
on our business, financial position, results of operations, and cash flows. In addition, pursuant to GAAP, we are required to
recognize an impairment charge when circumstances indicate that the carrying value of long-lived assets may not be
recoverable. If a determination is made that the carrying value of a long-lived asset is not recoverable over its estimated useful
life, the asset is written down to its estimated fair value.
Consumer demand, behavior, taste, and purchasing trends, as well as geopolitical conflicts and economic and political
stability may differ in international markets and/or in the distribution channels through which our wholesale customers sell
products, including as a result of the COVID-19 pandemic, and, as a result, sales of our products may not be successful or meet
our expectations, or the margins on those sales may not be in line with those we currently anticipate. We may also face
difficulties integrating foreign business operations and/or wholesaling operations with our current sourcing, distribution,
information technology systems, and other operations. In addition, our expanded marketing and advertising strategies to
promote sales, including the sponsorship of sweepstakes, contests and donations, and an increased online presence through
collaborations with social media influencers, may not generate sufficient interest in our products while exposing us to other
risks. Any of these challenges could hinder our success in new markets or new distribution channels. There can be no assurance
that we will successfully complete any planned expansion or that any new business will be profitable or meet our expectations.
In addition, a wholly-owned subsidiary of the Company acquired certain intellectual property and related assets of
Gymboree Group, Inc. and related entities, including worldwide rights to the name “Gymboree”. We have relaunched and plan
to use the Gymboree brand to expand our business across our retail stores, e-commerce, international, and wholesale
businesses. We also recently launched the Sugar & Jade brand in November 2021. The positioning of the Gymboree and the
Sugar & Jade brands and their products, relative to our existing products, the fashion choices we make with respect to our
products, and our ability to integrate the Gymboree and the Sugar & Jade brands and their products into our existing marketing,
sourcing, inventory, sales/e-commerce, customer relations, and logistics operations and systems will be critical to our ability to
leverage the Gymboree and the Sugar & Jade brands to expand our business.
A failure to properly execute our plans and business strategies, delays in executing our plans and business strategies,
increased costs associated with executing on our plans and business strategies, or failure to identify alternative strategies could
have a material adverse effect on our business, financial position, results of operations, and cash flows.
14
We depend on generating sufficient cash flows, together with our existing cash balances and availability under our
credit facility, to fund our ongoing operations, capital expenditures, debt service requirements, share repurchases and, prior
to its temporary suspension due to the COVID-19 pandemic, payment of dividends.
Our ability to fund our ongoing operations, capital expenditures, debt service requirements, share purchase programs and,
prior to its temporary suspension due to the COVID-19 pandemic, payment of dividends will depend on our ability to generate
cash flows. Our cash flows are dependent on many factors, including:
•
•
•
•
•
seasonal fluctuations in our net sales and net income;
the continued operation of our store fleet and e-commerce websites;
the timing of inventory purchases for upcoming seasons, such as when to purchase merchandise for the back-to-school
season;
vendor and other supplier terms and related conditions, which may be less favorable to us as a smaller company in
comparison to larger companies; and
consumer sentiment, general business conditions, and economic uncertainty or slowdown, including as a result of
events such as acts of terrorism, effects of war, pandemics, or other health issues such as COVID-19.
Most of these factors are beyond our control. It is difficult to predict the impact that general economic conditions, including
the effects of the COVID-19 pandemic and inflation, will continue to have on consumer spending and our financial results.
However, we believe that they could continue to result in reduced spending by our target customer, which would reduce our
revenues and our cash flows from operating activities from those that otherwise would have been generated. In addition, steps
that we may take to limit cash outlays, such as delaying the purchase of inventory, may not be successful or could delay the
arrival of merchandise for future selling seasons, which could reduce our net sales or profitability. If we are unable to generate
sufficient cash flows, we may not be able to fund our ongoing operations, planned capital expenditures, debt service
requirements, or share repurchases, and we may be required to seek additional sources of liquidity.
Damage to, or a prolonged interruption of activities at, any facility that we use in our business operations could have a
material adverse effect on our business.
Our single U.S. corporate headquarters is located in Secaucus, New Jersey. One of our company-operated distribution
centers is located in Fort Payne, Alabama and supports our U.S. stores, wholesale, and e-commerce shipments in the U.S.
Another company-operated distribution center is located in Mississauga, Ontario and supports all of our store fulfillment
activities in Canada. We also use a third-party warehouse provider, with distribution centers located in: (i) Brownsburg,
Indiana, to support our U.S. e-commerce operations; and (ii) Mississauga, Ontario to support our Canadian e-commerce
operations. Our international franchise partners receive the vast majority of shipments of merchandise from our third-party
warehouse provider located in Asia. On occasion, we may utilize additional facilities to support our seasonal warehousing
needs. Damage to, or prolonged interruption of operations at, any of these third-party facilities due to a work stoppage,
pandemics or other health issues, such as COVID-19, weather conditions such as a tornado, hurricane or flood, other natural
disaster, fire, or other event could have a material adverse effect on our business, financial position, results of operations, and
cash flows.
We depend on our relationships with unaffiliated manufacturers, suppliers, and transportation companies, both
domestically and internationally. Our inability to maintain relationships with any of these entities, the disruption to or
failure of any of their businesses, their failure to operate in a lawful or ethical manner, and the risks associated with
international business, could have a material adverse effect on our business, financial position, results of operations, and
cash flows.
We do not own or operate any manufacturing facilities and, therefore, are dependent upon independent third parties for the
manufacture of all of our products. The vast majority of our products are currently manufactured to our specifications, pursuant
to purchase orders, by independent manufacturers located primarily in Asia and Africa. We have no exclusive or long-term
contracts with our manufacturers. We compete with other companies for manufacturing facilities, many of which have greater
financial resources than we have or pay a higher unit price than we do. If an existing manufacturer of merchandise must be
replaced for any reason, we will have to find alternative sources of manufacturing or increase purchases from our other third-
party manufacturers, and there is no assurance we will be able to do so or do so on terms that are acceptable to us.
We do not use commissioned buying agents to source any products. Although we believe that we have the in-house
capability to more efficiently source all of our products, our inability to do so, or our inability to find adequate sources to
support our current needs for merchandise and future growth, could have a material adverse effect on our business, financial
position, results of operations, and cash flows.
15
Our merchandise is shipped directly from manufacturers through third-party logistics providers to our or our third-party
providers’ distribution and fulfillment centers, and in turn, to our stores, our e-commerce customers, and our international
franchise partners and wholesale customers. Our operating results depend, in material part, on the orderly, timely, and accurate
operation of our shipping, receiving, and distribution processes, which depends, in material part, on our manufacturers’
adherence to shipping schedules, the availability of ships, shipping containers and shipping routes, and our third-party
providers’ effective management of our domestic and international shipping functions, distribution processes, facilities, and
capacity.
If our agents, manufacturers, suppliers or freight operators experience negative financial consequences, our inability to use
or find substitute providers to support our manufacturing and distribution needs in a timely manner could have a material
adverse effect on our business, financial position, results of operations, and cash flows.
Additionally, given that virtually all of our merchandise is purchased from foreign suppliers, we are subject to various risks
of doing business in foreign markets and importing merchandise from abroad, including from less politically or socially stable
and/or less developed countries, such as:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
new tariffs or imposition of duties, taxes, and other charges on or costs of relying on imports;
foreign governmental regulations, including, but not limited to, changing requirements in the course of dealing with
regard to product safety, product testing, environmental matters, employment, taxation, and language preference;
the failure of a vendor or supplier to comply with local laws or industry standards or ethical business practices,
including worker safety (e.g., fire safety and building codes), worker rights of association, freedom from harassment
and coercion, unauthorized subcontracting or use of forced, indentured or child labor, social compliance with health
and welfare standards, and environmental matters;
financial, political, or societal instability, or military action, war or other conflict;
the rising cost of doing business in particular countries, including China;
pandemics or other health issues, such as COVID-19;
bankruptcy or insolvency of our vendors;
fluctuation of the U.S. dollar against foreign currencies;
pressure from or campaigns by non-governmental organizations or other persons, including on social media;
customer acceptance of foreign produced merchandise;
developing countries with less or inadequate infrastructure;
new and existing legislation relating to use of forced, indentured or child labor by unaffiliated manufacturers or
suppliers, import quotas or other restrictions that may limit or prevent the import of our merchandise;
changes to, or repeal, suspension or discontinuation of, trade agreements, trade legislation and/or trade preferences;
significant delays in the manufacture, transportation and delivery of cargo due to COVID-19 and other health issues,
port security considerations, political unrest, war, weather conditions, or cyber-security events;
disruption of imports by labor disputes and local business or unethical practices;
regulations under the United States Foreign Corrupt Practices Act; and
increased costs of or shortages of equipment, containers for shipments, or transportation.
In addition to the above, it is possible that other events beyond our control, both domestically and internationally, such as
labor disputes, cybersecurity events or allegations of misconduct or unethical behavior affecting our unaffiliated manufacturers,
suppliers, or transportation companies, a terrorist or similar act, military action, strike, weather conditions, natural disasters,
pandemics or other health issues, such as COVID-19, or government spending cuts, could result in delays or disruptions in the
production, transportation and/or delivery of merchandise to our distribution centers or our stores, international franchise
partners and wholesale customers, or the fulfillment of e-commerce orders to our customers, or require us to incur substantial
additional costs, including in air freight, to ensure timely delivery. Any such event could have a material adverse effect on our
business, financial position, results of operations, and cash flows.
In an attempt to mitigate the above risks within any one region or one country, we maintain relationships with many
manufacturers and suppliers in various countries. We cannot predict the effect that this, or the other factors noted above, in any
region or country from which we import products could have on our business. If any of these factors rendered the conduct of
business in a particular region or country undesirable or impractical, or if our current foreign manufacturing and supply sources
16
ceased doing business with us or we ceased doing business with them for any reason and we were unable to find alternative
sources of supply, we could experience a material adverse effect on our business, financial position, results of operations, and
cash flows.
Our vendor guidelines and code of conduct are designed to promote compliance with applicable law and industry standards
and ethical business practices. We monitor our vendors’ practices; however, we do not control these independent
manufacturers, their business practices, their labor practices, their health and safety practices, the physical condition of their
factories, worker dormitories or other facilities, the integrity of their information or other business systems, or from where they
buy or otherwise source their raw materials or labor. The failure of our third-party manufacturers or suppliers, which we do not
control, to address the risks described above, could result in accidents and practices that cause material disruptions or delays in
production or delivery, the imposition of governmental penalties or restrictions, and/or material harm to our reputation, any of
which could have a material adverse effect on our business, financial position, results of operations, and cash flows.
We may experience disruptions at ports used to export our products from Asia, Africa, and other regions, or along the
various shipping routes, or used as ports of entry in the United States and Canada.
We currently ship the vast majority of our products by ocean. If a disruption occurs in the operation of ports through which
our products are exported or imported (e.g., the impact of pandemics or other health issues, such as COVID-19) or along the
various shipping routes, we and our vendors may have to ship some or all of our products from Asia, Africa, and other regions
by air freight or to or from alternative shipping destinations in the United States or in foreign countries. Shipping by air is
significantly more expensive than shipping by ocean and our profitability could be materially reduced. Similarly, shipping to or
from alternative destinations could lead to significantly increased costs for our products. A disruption at ports (domestic or
abroad) through which our products are exported or imported or along the various shipping routes could have a material adverse
effect on our business, financial position, results of operations, and cash flows.
Because certain of our subsidiaries operate outside of the United States, some of our revenues, product costs, and other
expenses are subject to foreign economic and currency risks.
We have store operations in Canada, a sourcing office in Hong Kong, sourcing operations in various locations in Asia and
Africa, and store operations internationally through franchisees.
The currency market has seen significant volatility in the value of the U.S. dollar against other foreign currencies. While
our business is primarily conducted in U.S. dollars, we purchase virtually all of our products overseas, and we generate
significant revenues in Canada in Canadian dollars. Cost increases caused by currency exchange rate fluctuations could make
our products less competitive or have a material adverse effect on our profitability. Currency exchange rate fluctuations could
also disrupt the business of the third-party manufacturers that produce our products, or franchisees that purchase our products,
by making their purchases of raw materials or products more expensive and more difficult to finance.
Changes in currency exchange rates affect the U.S. dollar value of the Canadian dollar denominated prices at which our
Canadian business sells product. As a result, fluctuations in exchange rates impact the amount of our reported sales and
expenses, which could have a material adverse effect on our business, financial position, results of operations, and cash flows.
Additionally, we have foreign currency denominated receivables and payables that are not hedged against foreign currency
fluctuations. When settled, these receivables and payables could result in significant transaction gains or losses.
Acts of terrorism, effects of war, pandemics or other health issues, such as COVID-19, natural disasters, other
catastrophes, or political unrest could have a material adverse effect on our business.
Threatened or actual acts of terrorism, including U.S. domestic terrorism, continue to be a risk to the U.S. and global
economies. Terrorism and potential military responses, political unrest, war and other conflicts, natural disasters, pandemics or
other health issues, such as COVID-19, have disrupted and could disrupt commerce and impact our or our franchisees’ ability
to operate our stores in affected areas, produce our products in foreign countries, import our products from foreign countries, or
provide critical functions necessary to the operation of our business. A disruption of commerce, or an inability to recover
critical functions from such a disruption, could interfere with the production, shipment, or receipt of our merchandise in a
timely manner or increase our costs to do so. Consequently, any such disruption could undermine consumer confidence, which
could negatively impact consumer spending patterns or customer traffic, and thus have a material adverse effect on our
business, financial position, results of operations, and cash flows.
For example, the recent outbreak of respiratory and other illnesses caused by the COVID-19 virus, has led to worldwide
work and travel restrictions which in turn has led to textile mill and factory closures and delays in reopening, and delays in
workers returning to work, which have affected our third-party manufacturers. This viral outbreak continues to make it difficult
for our suppliers to source raw materials, manufacture goods, and export our products. If the severity and reach of the
COVID-19 pandemic continues or increases, there may be significant and material disruptions to our supply chain and
operations, and disruptions in the manufacture, shipment, and sale of our products, which would have a material adverse effect
on our business, financial position, results of operations, and cash flows.
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Our success depends upon the service and capabilities of our management team. Changes in management or in our
organizational structure, particularly in the most senior positions, or inadequate or ineffective management, could have a
material adverse effect on our business.
Our business and success is materially dependent on retaining members of our senior leadership team, including our chief
executive officer, and other key individuals within the organization, to formulate and execute the Company’s strategic and
business plans. Leadership changes can be inherently difficult to manage and may cause material disruption to our business or
management team. Senior level management establishes the “tone at the top” by which an environment of ethical values,
operating style, and management philosophy is fostered. Changes in senior management could lead to an environment that lacks
inspiration and/or a lack of commitment by our employees, which could have a material adverse effect on our business.
Any disruption in, or changes to, our consumer credit arrangements, including our private label credit card agreement,
may adversely affect the ability of our customers to obtain consumer credit.
Credit card operations are subject to numerous federal and state laws that impose disclosure and other requirements upon
the origination, servicing, and enforcement of credit accounts and limitations on the maximum amount of finance charges that
may be charged by a credit provider. Additionally, during periods of increasing consumer credit delinquencies, financial
institutions may reexamine their lending practices and procedures. There can be no assurance that the delinquencies being
experienced by providers of consumer credit generally would not cause providers of third-party credit offered by us to decrease
the availability of, or increase the cost of, such credit.
Any of the above risks, individually or in aggregation, could have a material adverse effect on the way we conduct business
and could materially negatively impact our business, financial position, results of operations, and cash flows.
We are subject to customer payment-related risks that could increase our operating costs, expose us to fraud or theft,
subject us to potential liability and potentially disrupt our business.
We accept payments using a variety of methods, including cash, checks, credit and debit cards, Afterpay, ApplePay,
PayPal, our private label credit card, and gift cards. Acceptance of these payment options subjects us to rules, regulations,
contractual obligations and compliance requirements, including payment card association operating rules, certification
requirements and operating guidelines, data security standards and certification requirements, and rules governing electronic
funds transfers. These requirements may change over time or be reinterpreted, making compliance more difficult or costly.
Although no system can completely prevent theft, security countermeasures have been deployed to reduce the potential for
fraud and theft by criminals. If we fail to comply with applicable rules and regulations, we may be subject to fines or higher
transaction fees and may lose our ability to accept online payments or other payment card transactions. If any of these events
were to occur, our business, financial position, results of operations, and cash flows could be adversely affected.
RISKS RELATED TO THE RETAIL AND APPAREL INDUSTRIES
We may suffer material adverse business consequences if we are unable to anticipate, identify, and respond to
merchandise trends, marketing and promotional trends, changes in technology, or customer shopping patterns. Profitability
and our reputation could be materially negatively impacted if we do not adequately forecast the demand for our products
and, as a result, create significant levels of excess inventory or insufficient levels of inventory.
The apparel industry is subject to rapidly changing fashion trends and shifting consumer preferences, including the increase
in online shopping. Our success depends, in material part, on the ability of our design, merchandising and IT teams to anticipate
and respond to these changes for our brands and our global sourcing team to source from vendors that produce merchandise
which has a compelling quality and value proposition for our customers. Our design, manufacturing, and sourcing process
generally takes up to one year, during which time fashion trends and consumer preferences may further change. If we
miscalculate either the demand for our merchandise or our customers’ tastes or purchasing habits, we could experience
materially increased costs and lower selling prices due to a need to dispose of excess inventory. Conversely, if we forecast
demand for our products that is lower than actual demand, we may experience insufficient levels of inventory, increased costs
to fulfill demand from alternative locations of inventory, and reputational damage. Further, it is necessary to develop and
implement uses and scaling of technology addressing changes in customer buying behaviors and/or successful customer
marketing programs, including loyalty and private label credit card programs and “buy-now-pay-later” programs. Failure to
address any of the above risks could have a material adverse effect on our business, financial position, results of operations, and
cash flows.
A wide variety of factors can cause a decline in consumer confidence and spending which could have a material adverse
effect on the retail and apparel industries and our operating results.
The apparel industry is cyclical in nature and is particularly affected by adverse trends in the general economy. Purchases
of apparel and related merchandise are generally discretionary and, therefore, tend to decline during recessionary, inflationary
and weak economic periods and also may decline at other times, including as a result of the COVID-19 pandemic. This is
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particularly true with our target customer who is a value conscious, lower to middle income mother buying for infants and
children based on need rather than based on fashion, trend, or impulse. High unemployment levels, inflation, increases in tax
rates, declines in real estate values, availability of credit, volatility in the global financial markets, and the overall level of
consumer confidence have negatively impacted, and could in the future negatively impact, the level of consumer spending for
discretionary items. This could adversely affect our business as it is dependent on consumer demand for our products. In North
America, we have experienced and continue to experience a decrease in customer traffic, including at shopping malls, and a
highly promotional environment. If the current macroeconomic environment deteriorates further, including as a result of the
COVID-19 pandemic, there will likely be a negative effect on our revenues, operating margins, and earnings which could have
a material adverse effect on our business, financial position, results of operations, and cash flows.
In addition to the economic environment, there are a number of other factors that could contribute to reduced customer
traffic and/or reduced levels of consumer confidence and spending, such as actual or potential terrorist acts, including domestic
terrorism, natural disasters, severe weather, pandemics or other health issues, such as COVID-19, political disruption, war, or
geopolitical conflicts. These occurrences create significant instability and uncertainty in the United States and elsewhere in the
world, causing consumers to defer purchases or to not shop in retail stores in shopping malls, or preventing our suppliers and
service providers from providing required products, services, or materials to us. These factors could have a material adverse
effect on our business, financial position, results of operations, and cash flows.
Fluctuations in the prices of raw materials, labor, energy, and services could result in increased product and/or delivery
costs. Our profitability may decline as a result of increasing pressure on margins.
The apparel industry is subject to significant pricing pressure caused by many factors, including intense competition, the
highly promotional retail environment, the financial health of competitors, changes in consumer demand, and macroeconomic
conditions. If these factors cause us to reduce our sales prices and we fail to sufficiently reduce our product costs or operating
expenses, our profitability could decline.
Increases in the price of raw materials, including cotton and other materials used in the production of fabric, clothing,
footwear, and accessories, as well as volatility and increases in labor (including increases in minimum wages and wage rates as
a result of change in laws or business practices), energy, shipping or distribution costs, pandemics or other health issues, such as
COVID-19, and other costs, could result in significant increases in operating costs, as well as cost increases for our products
and their distribution to our and our third-party partners’ distribution centers, retail locations, international franchise partners,
and wholesale and retail customers. To the extent we are unable to offset any such increased costs through value engineering or
price increases, such increased costs could have a material adverse effect on our business, financial position, results of
operations, and cash flows.
In addition, a shortage of labor or an increase in the cost of labor for our retail stores and/or such distribution centers could
also have a material adverse effect on our business, financial position, results of operations, and cash flows.
Product liability costs, related claims, and the cost of compliance with consumer product safety laws in the U.S and in
Canada or our inability to comply with such laws could have a material adverse effect on our business and reputation.
We are subject to regulation by the Consumer Product Safety Commission (“CPSC”) in the U.S., Health Canada in
Canada, and similar state, provincial, and international regulatory authorities. Although we test the products sold in our stores,
on our website, and to our international franchise partners and our wholesale customers, concerns about product safety,
including, but not limited to, concerns about those manufactured in developing countries, may lead us to recall selected
products, either voluntarily or at the direction of a governmental authority, and may lead to a lack of consumer acceptance or
loss of consumer trust. Product safety concerns, recalls, or the failure to properly manage recalls, defects, or errors could result
in governmental fines, rejection of our products by customers, damage to our reputation, lost sales, product liability litigation,
and increased costs, any or all of which could harm our business and have a material adverse effect on our business, financial
position, results of operations, and cash flows.
The cost of compliance with current requirements and any future requirements of the CPSC, Health Canada, or other
federal, state, provincial, or international regulatory authorities, consumer product safety laws, including initiatives labeled as
“green chemistry” and regulatory testing, certification, packaging, labeling, and advertising and reporting requirements, or
changes to existing laws could have a material adverse effect on our business, financial position, results of operations, and cash
flows. In addition, any failure to comply with such requirements could result in significant penalties, litigation, or require us to
recall products, any or all of which could have a material adverse effect on our business, reputation, financial position, results of
operations, and cash flows.
We face significant competition in the retail and apparel industries, which could negatively impact our business.
The children’s apparel retail market is highly competitive, and we face heightened price and promotional competition. We
compete in substantially all of our markets with Target Corporation, Old Navy, GapKids, and babyGap (each of which is a
division of The Gap, Inc.), Carter’s, Inc., T.J. Maxx and Marshall’s (each of which is a division of TJX Companies, Inc.),
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Burlington Coat Factory, Inc., Kohl’s Corporation, Walmart Stores, Inc., and other department stores. We also compete with a
wide variety of specialty stores, other national and regional retail chains, catalog companies, and e-commerce retailers,
including Amazon. One or more of our competitors are present in virtually all of the areas in which we have stores. E-
commerce only retailers generally do not incur the geographical limitations suffered by traditional brick and mortar stores,
giving e-commerce only retailers a competitive advantage to and imposing significant pricing pressure on brick and mortar
stores. In addition, while we view our business as a single omni-channel business, our e-commerce stores may divert sales from
our brick and mortar stores. Many of our competitors are larger than us and have access to significantly greater financial,
marketing, and other resources than we have. Increased competition, increased promotional activity, continuing economic
pressure on and inflation affecting value-seeking consumers, and liquidation activities by bankrupt and other struggling
retailers, including selling apparel, footwear, and accessory merchandise at substantial discounts, could also have a material
adverse effect on our ability to compete successfully, and could have a material adverse effect on our business, reputation,
financial position, results of operations, and cash flows. We may not be able to continue to compete successfully against
existing or future competition.
If our landlords should suffer financial difficulty or if we are unable to successfully negotiate acceptable lease terms,
including resulting from actions taken by the Company in response to the COVID-19 pandemic, it could have a material
adverse effect on our business, financial position, results of operations, and cash flows.
If any of our landlords or their substantial tenants, such as anchor department stores, should suffer financial difficulty, it
could render our landlords unable to fulfill their duties under our lease agreements and/or could render certain malls to
experience reduced customer traffic. Such duties include providing a sufficient number of mall co-tenants, common area
maintenance, utilities, and payment of real estate taxes. While we have certain remedies under our lease agreements, the loss of
business that could result if a shopping center should close or if customer traffic were to significantly decline as a result of lost
tenants or improper care of the facilities or due to macroeconomic effects, including the COVID-19 pandemic or inflation,
could have a material adverse effect on our business, financial position, results of operations, and cash flows.
The leases for a substantial number of our retail stores come up for renewal each year. If we are unable to continue to
negotiate acceptable lease and renewal terms, it could have a material adverse effect on our business, financial position, results
of operations, and cash flows.
RISKS RELATED TO CYBERSECURITY, DATA PRIVACY, INFORMATION TECHNOLOGY AND E-
COMMERCE
A privacy breach, through a cybersecurity incident or otherwise, or failure to comply with privacy laws could have a
material adverse effect on our business.
As part of normal operations, we and our third-party vendors, consultants and other partners receive and maintain
confidential and personally identifiable information about our customers and employees, and confidential financial, intellectual
property, and other proprietary information. We regard the protection of our customer, employee, and Company information as
critical. The regulatory environment surrounding information security and privacy is very demanding, with the frequent
imposition of new and changing significant requirements, such as the California Consumer Privacy Act and the California
Privacy Rights Act, and more recently, the Virginia Consumer Data Protection Act and the Colorado Privacy Act, some of
which involve significant costs to implement and significant penalties if not followed properly. A significant breach of federal,
state, provincial, local, or international privacy laws could have a material adverse effect on our business, reputation, financial
position, results of operations, and cash flows.
A cybersecurity breach, whether targeted, random, or inadvertent, and whether at the hands of cyber criminals, hackers,
rogue employees, hostile agents of foreign governments, or other persons, may occur and could go undetected for a period of
time. Any cybersecurity incident could result in any or all of the following:
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theft, destruction, loss, misappropriation, or release of confidential financial and other data, intellectual property,
customer awards or loyalty points, or customer, employee or vendor information, including personally identifiable
information such as payment card information, bank account information, email addresses, passwords, social
security numbers, home addresses, or health information;
operational or business delays resulting from the disruption of our e-commerce site, computer network, or the
computer networks of our third-party vendors, consultants and other partners and subsequent material clean-up
and mitigation costs and activities;
negative publicity resulting in material reputation or brand damage with our investors, customers, vendors, third-
party partners, or industry peers;
loss of sales, including those generated through our e-commerce websites; and
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governmental penalties, fines and/or enforcement actions, payment and industry penalties and fines, and/or class
action and other lawsuits.
Our efforts and technology to secure our computer network and systems may not be sufficient to defend us against all
unauthorized attempts to access our employees’, customers’, vendors’ and/or our information. We have been and may be
subject to attempts to gain unauthorized access to our computer network and systems, including emails. Similarly, a breach to
the computer networks and systems of our third-party vendors, consultants or other partners, including those that are cloud-
based, may also occur. Any such breach could lead to a material disruption of our computer network and/or the areas of our
business dependent on the support, services, and other products provided by these third-party vendors, consultants and other
partners, subsequently resulting in the events described above. To date, prior attempts to gain unauthorized access to the
networks and systems of the Company, our third-party vendors, consultants or other partners have not had a material adverse
effect on us.
Our systems and procedures are required to meet the Payment Card Industry (“PCI”) data security standards, which require
periodic audits by independent third-parties to assess compliance. Failure to comply with the security requirements or rectify a
security issue may result in substantial fines and the imposition of material restrictions on our ability to accept payment by
credit or debit cards. There can be no assurance that we will be able to satisfy PCI security standards or to identify security
issues in a timely fashion. In addition, PCI are controlled by a limited number of vendors who have the ability to impose
changes in PCI’s fee structure and operational requirements on us without negotiation. Such changes in fees and operational
requirements may result in our failure to comply with PCI security standards, as well as significant unanticipated expenses.
Any of the above risks, individually or in aggregation, could result in significant costs and/or materially damage our
reputation and result in lost sales, governmental and payment card industry fines, and/or class action and other lawsuits, which
in turn could have a material adverse effect on our business, financial position, results of operations, and cash flows. Although
we carry cybersecurity insurance, in the event of a cyber-incident, that insurance may not be extensive enough or adequate in
scope of coverage or amount to reimburse us for damages we may incur.
Our failure to successfully manage our e-commerce business could have a material adverse effect on our business.
The successful operation of our e-commerce business depends on our ability to maintain the efficient and uninterrupted
operation of our online order-taking and our fulfillment operations and on our ability to provide a shopping experience that will
generate orders and return visits to our site, including by updating our e-commerce platform to stay abreast of changing
consumer shopping habits such as the significantly increased use of mobile devices and apps to shop online. Risks associated
with our e-commerce business include:
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risks associated with the failure of the computer systems that operate our website or the failure or disruption of our
information technology and other business systems, including, but not limited to, inadequate system capacity,
security breaches, computer viruses, human error, changes in programming, failure of third-parties to continue to
support older systems or system upgrades, or unintended disruptions occasioned as a result of such upgrades, or
migration of these services to new systems, including to the cloud;
inadequacy of disaster recovery processes and the failure to align these processes with business continuity plans;
the integration and relaunch of the Gymboree brand in our stores and via our e-commerce website, and the launch
of our newest brand, Sugar & Jade;
consumer privacy and information security concerns and regulation;
changes in applicable federal, state, provincial, local, or international regulations;
disruptions in telephone service or power outages;
reliance on third parties for computer hardware and software, cloud-based computing services, updates (patches),
as well as delivery of merchandise to our customers;
increased or unplanned costs associated with order fulfillment and delivery of merchandise to our customers;
rapid technology changes and changes in consumer shopping habits, including as a result of the COVID-19
pandemic, such as the significant increase in online shopping, including through the use of mobile devices and
apps;
credit or debit card fraud;
the diversion of sales from our physical stores;
natural disasters or adverse weather conditions;
negative publicity related to the social media influencers we have engaged;
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negative customer reviews or influencer reviews on social media; and
liability for online advertising and content.
Problems in any one or more of these areas, individually or in aggregation, could have a material adverse effect on our
business, financial position, results of operations, and cash flows, and could damage our reputation and brands.
A material disruption in, failure of, inability to upgrade, or inability to properly implement disaster recovery plans for,
our information technology or other business systems could have a material adverse effect on our business, financial
position, results of operations, and cash flows.
We rely heavily on various information and other business systems to manage our complex operations, including our
online business, management of our global supply chain, merchandise assortment planning, inventory allocation and
replenishment, order management, warehousing, distribution and shipping activities, point-of-sale processing in our stores,
including credit and debit card processing, gift cards, our private label credit card, our customer loyalty program, and various
other processes and transactions. We continue to evaluate and implement upgrades and changes to our information technology
(“IT”) and other business systems.
Operation of our IT and/or implementation of upgrades and changes to our IT and other business systems carries
substantial risk, including failure to operate as designed, failure to properly integrate with, or disruption of, other systems,
potential loss of data or information, cost overruns or unforeseen costs, implementation delays, disruption of operations,
inability to properly train associates on new processes, inability to properly direct change management, lower customer
satisfaction resulting in lost customers or sales, inability to deliver the optimal level of merchandise to our stores in a timely
manner, inventory shortages, inventory levels in excess of customer demand, inability to meet the demands of our international
franchise partners or our wholesale and retail customers, and the inability to meet financial, regulatory, and other reporting
requirements. Further, disruptions or malfunctions affecting our current or new information or other business systems could
cause critical information upon which we rely to be lost, delayed, unreliable, corrupted, insufficient, or inaccessible. See also
the risks associated with the risk factor above, “Our failure to successfully manage our e-commerce business could have a
material adverse effect on our business.”
We continue to focus on the implementation of IT disaster recovery and/or implementation of high availability readiness
with regard to our e-commerce, finance, reporting, distribution, logistics, store operations, merchandising, sourcing, and other
key systems in order to protect against the loss or corruption of critical data. There can be no assurance that we will be
successful in implementing or executing on the appropriate disaster recovery plans or high availability readiness to protect
against such loss or corruption. There is also no assurance that a successfully implemented system will deliver or continue to
deliver any anticipated sales or margin improvements or other benefits to us. The failure to do so could have a material adverse
effect on our business, financial position, results of operations, and cash flows.
We also rely on third-party vendors and outsourcing partners to design, program, implement, maintain, and service our
existing and planned information systems, including those operated through cloud-based technology. Any failures of these
vendors to properly deliver their services in a timely fashion, any determination by those vendors to stop supporting certain
systems or components, or any failure of these vendors to protect our competitively sensitive data, or the personal data of our
customers or employees, or to prevent the unauthorized access to, or corruption of, such data, whether in their possession,
through our information systems or cloud-based technology utilized by us, could have a material adverse effect on our business,
financial position, results of operations, and cash flows.
RISKS RELATED TO OUR STOCK AND STOCK PRICE
Changes in our sales, comparable retail sales, margins, operating income, earnings per share, cash flows, and/or other
results of operations could have a material adverse effect on the market price of our common stock.
Numerous factors affect our sales, comparable retail sales, margins, operating income, earnings per share, cash flows, and
other financial results, including the effects of the COVID-19 pandemic, unseasonable weather conditions, merchandise
assortment and product acceptance, the retail price of our merchandise, fashion trends, customer traffic, number of visits to our
e-commerce site, as well as related conversion, economic conditions in general, including inflation and consumer confidence,
and the retail sales environment in particular, calendar shifts of holidays or seasonal periods, birth rate fluctuations, timing or
extent of promotional events by our Company or by competitors and other competitive factors, including competitor
bankruptcies, fluctuations in currency exchange rates, macro-economic conditions, and our success in and the cost of executing
our business strategies.
Unseasonable weather, for example, warm weather in the winter or cold weather in the spring over an extended period of
time, or the occurrence of frequent or severe storms, may adversely affect our sales and, therefore, our comparable retail sales,
operating income and earnings per share. The nature of our target customer heightens the effects of unseasonable weather on
our sales. Our target customer is a value conscious, lower to middle income mother buying for infants and younger children
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primarily based on need rather than based on fashion, trend, or impulse. Therefore, for example, our target customer may not
purchase warm weather spring clothing during an extended period of unseasonably cold weather occurring in what otherwise
should be warmer weather months, particularly since infants and younger children tend to outgrow clothing at a faster rate than
older children and adults.
Our sales, comparable retail sales, margins, operating income, earnings per share, cash flows, and other financial results
have fluctuated significantly in the past due to the factors cited above, and we anticipate that they may continue to fluctuate in
the future, particularly in the highly competitive retail environment in which we operate, which may result in declines or delays
in consumer spending. The investment and analyst community follows all of these financial markers closely and fluctuations in
these results, or the failure of our results to meet investors’ or analysts’ models or expectations, may have a significant adverse
effect on the price of our common stock.
The highly concentrated nature of our stock holdings could facilitate the approval by stockholders of proposals which
are contrary to positions supported by our Board of Directors or management.
The top holders of our common stock are predominantly large multi-national financial institutions. As of the end of Fiscal
2021, the top ten institutional holders own over 50% of our outstanding shares of common stock. These holdings would permit
these institutions to approve proposals submitted to the vote of stockholders, which may be contrary to positions supported by
our Board of Directors or management.
Our share price may be volatile.
Our common stock is quoted on the Nasdaq Global Select Market. Stock markets in general have experienced, and are
likely to continue to experience, price and volume fluctuations, which could have a material adverse effect on the market price
of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly
fluctuations in our financial results, other risk factors identified here, announcements or actions by other competitors, the
overall economy, including as affected by the COVID-19 pandemic, legislative, regulatory and other actions resulting from the
Presidential administration or U.S. Congress, and the geopolitical environment could individually or in aggregation cause the
price of our common stock to fluctuate substantially.
We have experienced, and may experience, large “short” positions in our common stock relative to other publicly traded
companies in our industry. The existence of a relatively large short position may result in substantial volatility in the trading
price of our common stock, including due to an adverse impact on investors’ and analysts’ perceptions of our business and its
prospects or due to “short covering” (relatively large purchases of our common stock). Purchasers of our common stock during
periods of volatility, including as a result of “short covering” when the price of our common stock may rise rapidly, could later
experience a significant decrease in stock price, eventually leading to a significant loss in value.
Declarations of quarterly cash dividends, and the establishment of future record and payment dates, are at the discretion of
our Board of Directors based on a number of factors, including future financial performance, general business and market
conditions, and other investment priorities. If payment of dividends is resumed, any subsequent reduction or discontinuance by
us of the payment of quarterly cash dividends could cause the market price of our common stock to decline.
RISKS RELATED TO LEGAL AND REGULATORY MATTERS
We may be unable to protect our trademarks and other intellectual property rights.
We believe that our trademarks and service marks are important to our success and our competitive position due to their
name recognition with our customers. We devote substantial resources to the establishment and protection of our trademarks
and service marks on a worldwide basis, including in the countries from which we source our merchandise and in which we
have business operations or plan to have business operations, including through foreign franchise partners. We are not aware of
any material claims of infringement or material challenges to our right to use any of our trademarks in the United States or
Canada. Nevertheless, the actions we have taken, including to establish and protect our trademarks and service marks, may not
be adequate to prevent others from imitating our products or to prevent others from seeking to block sales of our products. Also,
others may assert proprietary rights in our intellectual property, or may assert that we are engaging in activities that infringe on
their own intellectual property, and we may not be able to successfully resolve these types of claims, any of which could have a
material adverse effect on our business, financial position, results of operations, and cash flows. In addition, the laws of certain
foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States, and we may not
be successful in obtaining our trademarks in foreign countries where we plan to conduct business. Our failure to protect our
intellectual property rights could diminish the value of our brands, weaken our competitive position, and could have a material
adverse effect on our business, reputation, financial position, results of operations, and cash flows.
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Federal tax and other legislation has had and will continue to have a material effect on our business, financial position,
results of operations, and cash flows. In addition, changes in current tax law could adversely impact our business, financial
position, results of operations, and cash flows. Other legislative, regulatory, and other actions which might be taken by
federal or state governments are unpredictable and could have unforeseen consequences having a material adverse effect on
our business.
We are subject to income taxes in the United States and foreign jurisdictions, including Canada and Hong Kong. Our
provision for income taxes and cash tax liability in the future could be adversely affected by numerous factors, including, but
not limited to, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than
anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and
changes in tax laws, regulations, accounting principles or interpretations thereof, which could adversely impact our business,
financial position, results of operations, and cash flows in future periods.
In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service, Canada Revenue
Agency, and other state, local and foreign tax authorities. We regularly assess the likelihood of adverse outcomes resulting from
these examinations to determine the adequacy of our provision for income and other taxes. There can be no assurance that the
outcomes from these continuous examinations will not have a material adverse effect on our business, financial position, results
of operations, and cash flows.
Legislative, regulatory, and other actions, such as minimum wage requirements or overtime regulation and other wage and
hour regulations, continue to be unpredictable and could have unforeseen consequences. Such changes could impact our
relationship with our workforce, increase our expenses and have a material adverse effect on our business, financial position,
results of operations, and cash flows. None of our employees is currently represented by a collective bargaining agreement.
However, from time to time there have been efforts to organize our employees at various locations. There is no assurance that
our employees will not unionize in the future.
Our failure to comply with federal, state or local law, and litigation involving such laws, or changes in such laws, could
materially increase our expenses and expose us to legal risks and liability.
If we fail to comply with applicable laws and regulations, particularly wage and hour, accessibility, privacy and
information security, product safety, and pricing, children's online privacy protection, advertising, sweepstakes, contests, and
marketing laws, we could be subject to legal and reputational risk, government enforcement action, and class action civil
litigation, which could have a material adverse effect on our business, financial position, results of operations, and cash flows.
Changes in regulation and how regulations are enforced, such as taxes, privacy and information security, product safety, trade,
consumer credit, pricing, advertising, and marketing, healthcare or environmental protection, among others, could cause our
expenses to increase, margins to decrease, or tax deductible expenses to decrease, which could lead to a material adverse effect
on our business, financial position, results of operations, and cash flows.
Legal and regulatory actions are inherent in our business and could have a material adverse effect on our business,
reputation, financial position, results of operations, and cash flows.
We are, and in the future may be, subject to legal and regulatory actions in the ordinary course of our business. Some of
these proceedings have been, and in the future may be, brought on behalf of various alleged classes of complainants. The
plaintiffs may seek large and/or indeterminate amounts, including treble, punitive, or exemplary damages and/or payment of
legal fees in these proceedings. Substantial legal liability could have a material adverse effect on our business, financial
position, results of operations, and cash flows or cause us material reputational harm, which in turn could materially harm our
business prospects.
Our litigation and regulatory enforcement and other matters are subject to many uncertainties, and given their complexity
and scope, their outcome cannot be predicted. Our reserves for litigation and regulatory and enforcement matters may prove to
be inadequate. In light of the unpredictability of our litigation and regulatory and enforcement matters, it is also possible that in
certain cases an ultimately unfavorable resolution of, or decision in, one or more litigation or regulatory and enforcement
matters could have a material adverse effect on our reputation and/or our business, financial position, results of operations, and
cash flows.
Legislative actions and new accounting pronouncements could result in us having to increase our administrative
expenses to remain compliant and could have other material adverse effects.
In order to comply with the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010, accounting guidance or disclosure requirements by the SEC, guidance that may come from the Public Company
Accounting Oversight Board (“PCAOB”), or changes in listing standards by the Nasdaq Global Select Market, we may be
required to enhance our internal controls, hire additional personnel, and utilize additional outside legal, accounting, and
advisory services, all of which could cause our general and administrative expenses to increase materially.
24
Changes to existing tax or other laws, authoritative or regulatory guidance, and regulations may have a material adverse
effect on our financial statements. The Financial Accounting Standards Board is continuing its convergence efforts with its
international counterpart, the International Accounting Standards Board, to converge U.S. and International standards into one
uniform set of accounting rules. The effect of changes in tax and other laws or changes in accounting rules or regulatory
guidance on our financial statements could be significant. Changes to our financial position, results of operations, or cash flows
could impact our debt covenant ratios or a lender’s perception of our financial statements causing an adverse effect on our
ability to obtain credit, or could adversely impact investor analyses and perceptions of our business causing the market value of
our stock to decrease. In addition, any changes in the current accounting rules, including legislative and other proposals, could
increase the expenses we report under U.S. GAAP and have a material adverse effect on our business, financial position, results
of operations, and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
PROPERTIES.
We lease all of our existing store locations in the United States, Puerto Rico, and Canada, with lease terms expiring
through 2030. The average unexpired lease term for our stores is approximately 1.2 years in the United States and Puerto Rico
and in Canada. Generally, we enter into initial lease terms ranging between 5-10 years at inception and provide for contingent
rent based on sales in excess of specific minimums. We anticipate that we will be able to extend those leases which we wish to
extend on satisfactory terms as they expire or relocate to more desirable locations.
The following table sets forth information with respect to certain of our non-store locations as of January 29, 2022:
Location
Fort Payne, AL (1)
Ontario, Canada (2)
500 Plaza Drive, Secaucus, NJ (3)
Hong Kong, China (3)
Brownsburg, Indiana (4)
____________________________________________
Use
Approximate
Sq. Footage
Current Lease
Term Expiration
Warehouse Distribution Center
Warehouse Distribution Center
Corporate Offices
Product Support
Warehouse Distribution Center
700,000
95,000
200,000
22,800
315,000
Owned
4/30/2024
5/31/2029
4/30/2022
8/31/2024
(1)
(2)
(3)
(4)
Supports our U.S. stores, wholesale, and e-commerce business.
Supports our Canadian stores and our Canadian e-commerce business via a third-party provider.
Supports our U.S. stores, our e-commerce business, our Canadian stores, our international franchisees, and wholesale business.
Supports our U.S. e-commerce business via a third-party provider. The Company currently utilizes 315,000 square feet of space in the 694,000 square
foot facility.
On occasion, we may utilize additional third-party facilities to support seasonal warehousing needs.
ITEM 3.
LEGAL PROCEEDINGS.
The Company is a defendant in Rael v. The Children’s Place, Inc., a purported class action, pending in the U.S. District
Court, Southern District of California. In the initial complaint filed in February 2016, the plaintiff alleged that the Company
falsely advertised discount prices in violation of California’s Unfair Competition Law, False Advertising Law, and Consumer
Legal Remedies Act. The plaintiff filed an amended complaint in April 2016, adding allegations of violations of other state
consumer protection laws. In August 2016, the plaintiff filed a second amended complaint, adding an additional plaintiff and
removing the other state law claims. The plaintiffs’ second amended complaint sought to represent a class of California
purchasers and sought, among other items, injunctive relief, damages, and attorneys’ fees and costs.
The Company engaged in mediation proceedings with the plaintiffs in December 2016 and April 2017. The parties
reached an agreement in principle in April 2017, and signed a definitive settlement agreement in November 2017, to settle the
matter on a class basis with all individuals in the U.S. who made a qualifying purchase at The Children’s Place from February
11, 2012 through January 28, 2020, the date of preliminary approval by the court of the settlement. The Company submitted its
memorandum in support of final approval of the class settlement on March 2, 2021. On March 29, 2021, the court granted final
25
approval of the class settlement and denied plaintiff’s motion for attorney’s fees, with the amount of attorney’s fees to be
decided after the class recovery amount has been determined. The settlement provides merchandise vouchers for qualified class
members who submit valid claims, as well as payment of legal fees and expenses and claims administration expenses. Vouchers
were distributed to class members on November 15, 2021 and they will be eligible for redemption in multiple rounds through
November 2023. In connection with the settlement, the Company recorded a reserve for $5.0 million in its consolidated
financial statements in the first quarter of 2017.
The Company is also involved in various legal proceedings arising in the normal course of business. In the opinion of
management, any ultimate liability arising out of these proceedings will not have a material adverse effect on the Company’s
financial position, results of operations, or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
26
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is listed on the Nasdaq Global Select Market, or Nasdaq, under the symbol “PLCE”. On March 18,
2022, the number of holders of record of our common stock was 38 and the number of beneficial holders of our common stock
was approximately 24,000.
In March 2018, our Board of Directors authorized a $250.0 million share repurchase program (the “2018 Share
Repurchase Program”). In November 2021, our Board of Directors approved another $250.0 million share repurchase program,
which added to the remaining availability under the 2018 Share Repurchase Program. Under these programs, we may
repurchase shares on the open market at current market prices at the time of purchase or in privately negotiated transactions.
The timing and actual number of shares repurchased under a program will depend on a variety of factors, including price,
corporate and regulatory requirements, and other market and business conditions. We may suspend or discontinue the programs
at any time and may thereafter reinstitute purchases, all without prior announcement. As of January 29, 2022, there was $257.3
million remaining under these programs. From March 2020 through July 2021, we suspended share repurchases, other than to
satisfy withholding tax requirements of equity award recipients, due to the COVID-19 pandemic.
Pursuant to our practice, including due to restrictions imposed by our insider trading policy during black-out periods, we
withhold and repurchase shares of vesting stock awards and make payments to taxing authorities as required by law to satisfy
the withholding tax requirements of all equity award recipients. Our payment of the withholding taxes in exchange for the
surrendered shares constitutes a repurchase of our common stock. We also acquire shares of our common stock in conjunction
with liabilities owed under our Deferred Compensation Plan, which are held in treasury.
The following table summarizes our share repurchases:
Share repurchases related to:
Share repurchase program
Shares acquired and held in treasury
Fiscal Years Ended
January 29, 2022
January 30, 2021
Shares
Amount
Shares
Amount
(in thousands)
1,025 $ 85,648
294 $ 15,490
4 $
278
6 $
209
The following table provides a month-to-month summary of our share repurchase activity during the 13 weeks ended
January 29, 2022:
Period
10/31/21-11/27/21 (1)
11/28/21-1/1/22 (2)
1/2/22-1/29/22
Total
Total Number of
Shares Purchased
Average Price Paid
per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value (in thousands)
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
63,613 $
224,926
218,800
507,339 $
96.47
82.66
72.20
79.88
62,907 $
224,926
218,800
506,633 $
291,682
273,089
257,292
257,292
____________________________________________
(1)
Includes 706 shares acquired as treasury stock as directed by participants in the Company’s deferred compensation plan and 158 shares withheld to cover
taxes in conjunction with the vesting of stock awards.
(2) Includes 1,188 shares withheld to cover taxes in conjunction with the vesting of stock awards.
27
Equity Plan Compensation Information
On May 20, 2011, our shareholders approved the 2011 Equity Incentive Plan (the “2011 Equity Plan”). The following
table provides information as of January 29, 2022, about the shares of our Common Stock that may be issued under our equity
compensation plans.
Plan Category
Equity Compensation Plans
Approved by Security Holders
Equity Compensation Plans Not
Approved by Security Holders
Total
COLUMN (A)
COLUMN (B)
COLUMN (C)
Securities to be issued
upon exercise of
outstanding options
Weighted average
exercise price of
outstanding options
Securities remaining
available for future
issuances under
equity compensation
plans (excluding
securities reflected in
Column (A))
N/A
N/A
N/A
N/A
N/A
N/A
596,216
N/A
596,216
28
The following graph compares the cumulative stockholder return on our Common Stock with the return of companies
comprising the NASDAQ US Benchmark TR Index and the NASDAQ US Benchmark Retail TR Index. The graph and the
table below assume that $100 was invested on January 27, 2017 in each of our Common Stock, the NASDAQ US Benchmark
TR Index and the NASDAQ US Benchmark Retail TR Index.
Performance Graph
e
u
l
a
V
x
e
d
n
I
300
250
200
150
100
50
0
1/27/2017
2/2/2018
1/31/2019
1/31/2020
1/30/2021
1/29/2022
Period Ending
The Children's Place---"PLCE"
NASDAQ US Benchmark TR Index
NASDAQ US Benchmark Retail TR Index
The Children's Place---"PLCE"
NASDAQ US Benchmark TR Index
NASDAQ US Benchmark Retail TR Index
$ 155.72 $ 105.20 $
122.14
134.78
121.66
144.34
66.76 $
146.88
167.86
82.20 $
177.49
232.24
78.81
206.49
242.91
FY17
FY18
FY19
FY20
FY21
The table below sets forth the closing price of our Common Stock and the closing indices for the NASDAQ US Benchmark TR
Index and the NASDAQ US Benchmark Retail TR Index on the last day of each of our last five fiscal years.
FY17
FY18
FY19
FY20
FY21
The Children's Place---"PLCE"
NASDAQ US Benchmark TR Index
NASDAQ US Benchmark Retail TR Index
ITEM 6.
[RESERVED]
$ 145.60 $
2,344.18
3,026.13
92.13 $
59.67 $
73.47 $
2,335.10
3,240.82
2,819.09
3,768.85
3,406.63
5,214.30
70.44
3,963.21
5,453.85
29
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion should be read in conjunction with our audited financial statements and notes thereto included
in Part IV, Item 15.-Exhibits and Financial Statement Schedules. This Annual Report on Form 10-K contains 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. 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. These forward-looking statements are based upon the
Company’s current expectations and assumptions and are subject to various risks and uncertainties that could cause actual
results and performance to differ materially. Some of these risks and uncertainties are described in the Company’s filings with
the Securities and Exchange Commission, including in Part I, Item 1A. Risk Factors of this Annual Report on Form 10-K for
the fiscal year ended January 29, 2022. Included among the risks and uncertainties that could cause actual results and
performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing
consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on
consumer spending patterns, which may be affected by changes in economic conditions, the risks related to the COVID-19
pandemic, including the impact of the COVID-19 pandemic on our business or the economy in general (including decreased
customer traffic, schools adopting remote and hybrid learning models, closures of businesses and other activities causing
decreased demand for our products and negative impacts on our customers’ spending patterns due to decreased income or
actual or perceived wealth, and the impact of the CARES Act and other legislation related to the COVID-19 pandemic, and any
changes to the CARES Act or such other legislation), 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 and disruptions in the
Company’s global supply chain, including resulting from the COVID-19 pandemic or other disease outbreaks, or foreign
sources of supply in less developed countries or more politically unstable countries, 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 consumer protection,
employment, and privacy and information security laws and regulations, the imposition of regulations affecting the importation
of foreign-produced merchandise, including duties and tariffs, and the uncertainty of weather patterns. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The
Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
As used in this Annual Report on Form 10-K, references to the “Company”, “The Children’s Place”, “we”, “us”,
“our”, and similar terms refer to The Children’s Place, Inc. and its subsidiaries. Our fiscal year ends on the Saturday on or
nearest to January 31. 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 2021 — The fifty-two weeks ended January 29, 2022
Fiscal 2020 — The fifty-two weeks ended January 30, 2021
Fiscal 2019 — The fifty-two weeks ended February 1, 2020
Fiscal 2022 — Our next fiscal year representing the fifty-two weeks ending January 28, 2023
SEC — U.S. Securities and Exchange Commission
U.S. GAAP — Generally Accepted Accounting Principles in the United States
FASB — Financial Accounting Standards Board
FASB ASC — FASB Accounting Standards Codification, which serves as the source for authoritative U.S. GAAP,
except that rules and interpretive releases by the SEC are also sources of authoritative U.S. GAAP for SEC
registrants
AUR — Average unit retail price
Comparable Retail Sales — Net sales, in constant currency, from stores that have been open for at least 14
consecutive months and from our e-commerce store, excluding postage and handling fees. Store closures in the
current fiscal year will be excluded from Comparable Retail Sales beginning in the fiscal quarter in which the
store closes. A store that is closed for a substantial remodel, relocation, or material change in size will be
excluded from Comparable Retail Sales for at least 14 months beginning in the fiscal quarter in which the closure
occurred. However, stores that temporarily close will be excluded from Comparable Retail Sales until the store is
30
re-opened for a full fiscal month. Comparable Retail Sales do not exclude any temporarily closed stores impacted
by the COVID-19 pandemic.
•
•
Gross Margin — Gross profit expressed as a percentage of net sales
SG&A — Selling, general, and administrative expenses
OVERVIEW
Our Business
We are the largest pure-play children’s specialty apparel retailer in North America. We design, contract to manufacture,
sell at retail and wholesale, and license to sell trend right, high quality merchandise predominantly at value prices, primarily
under our proprietary “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, and “Sugar & Jade” brand names. As of
January 29, 2022, we had 672 stores across North America, our e-commerce business at www.childrensplace.com,
www.gymboree.com, and www.sugarandjade.com, and had 211 international points of distribution with our seven franchise
partners in 16 countries.
Segment Reporting
In accordance with FASB ASC 280—Segment Reporting, we report segment data based on geography: The Children’s
Place U.S. and The Children’s Place International. Each segment includes an e-commerce business located at
www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com. Included in The Children’s Place U.S. segment are
our U.S. 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. Net sales and direct costs are recorded by each segment. Certain inventory procurement functions such as
production and design, as well as corporate overhead, including executive management, finance, real estate, human resources,
legal, and information technology services, are managed by The Children’s Place U.S. segment. Expenses related to these
functions, including depreciation and amortization, are allocated to The Children’s Place International segment based primarily
on net sales. The assets related to these functions are not allocated. We periodically review these allocations and adjust them
based upon changes in business circumstances. Net sales to external customers are derived from merchandise sales, and we
have no customers that individually account for more than 10% of our net sales.
COVID-19 Pandemic
The COVID-19 pandemic continues to significantly impact regions all around the world, including the United States and
Canada. This has resulted in continuing restrictions of businesses and other activities implemented by national, state, and local
authorities and private entities, leading to significant adverse economic conditions and business and lifestyle disruptions, as
well as significant volatility in global financial and retail markets. Federal, state, and local governments and health officials
worldwide continue to impose varying degrees of preventative and protective actions, such as travel bans, restrictions on public
gatherings, forced closures of businesses and other activities, social distancing, and the adoption of remote or hybrid learning
models for schools, all in an effort to reduce the spread of the virus. In addition, certain U.S. and Canadian mall owners
continue to restrict hours of operation and the number of people permitted in stores. Such factors, among others, have resulted
in a significant decline in retail traffic and consumer spending on discretionary items.
As a result of the impact of the COVID-19 pandemic, we continue to experience business disruption with many of our
retail stores across the U.S. and Canada. As of January 29, 2022, all of our stores were open to the public in the U.S., Canada,
and Puerto Rico. Our distribution centers have remained open and operating during the pandemic to support our retail stores
and e-commerce business. We have experienced, and will likely continue to experience, disruptions in our global supply chain,
which have caused delays in the production and transportation of our products, which we are mitigating through shifting
production schedules.
Recent Developments
Recent macroeconomic events have increased the cost of goods necessary to produce and distribute our products,
including cotton and other materials used in production, as well as labor, fuel and energy. We expect these product input costs
to continue to increase in 2022, which is planned to be partially mitigated by higher price realization.
On November 16, 2021, we completed the refinancing of our previous $360.0 million asset-based revolving credit
facility (the “Previous ABL Credit Facility”) and our previous $80.0 million term loan (the “Previous Term Loan”) with a new
lending group led by an affiliate of Wells Fargo Bank, National Association (“Wells Fargo”) by entering into a fourth
amendment to our Credit Agreement, dated as of May 9, 2019, with the lenders party thereto (the “Fourth Amendment”). The
new debt consists of a revolving credit facility with $350.0 million of availability (the “ABL Credit Facility”) and a $50.0
31
million term loan (the “Term Loan”), both with five year maturities, lower interest rates, reduced reporting requirements, and
increased flexibility under the covenants.
The ABL Credit Facility is secured by a first-priority lien on 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 lien on
our intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock. Interest on borrowings
is payable monthly and is based on the amount of our average excess availability under the facility, at (a) the prime rate plus
0.375% or 0.625%, or (b) LIBOR plus 1.125% or 1.375%. The ABL Credit Facility has an unused line fee of 0.20%.
The Term Loan is secured by a first-priority lien on our intellectual property, certain furniture, fixtures, equipment, and
pledges of subsidiary capital stock, and a second-priority lien on the assets securing the ABL Credit Facility on a first-priority
basis. Interest is payable monthly at (a) LIBOR plus 2.50% for any portion that is a LIBOR loan, or (b) the base rate plus 1.75%
for any portion that is a base rate loan. The Term Loan does not require amortization if certain conditions are met and is pre-
payable at any time without penalty.
Concurrently, we repaid our then outstanding principal of $78.0 million on the Previous Term Loan with SLR Credit
Solutions (formerly known as Crystal Financial LLC).
The description of the Fourth Amendment set forth herein is qualified in its entirety by reference to the full text thereof, a
copy of which was filed as Exhibit 10.4 to our Quarterly Report on Form 10-Q for the third quarter of Fiscal 2021.
Operating Highlights
Net sales increased $392.8 million, or 25.8%, to $1.915 billion during Fiscal 2021 from $1.523 billion during Fiscal
2020. The increase in net sales was driven primarily by strong customer response to our product assortment, strategic pricing
and promotion changes, and the unprecedented level of stimulus and enhanced child tax credit payments to our customers
resulting from the government pandemic relief legislation. During Fiscal 2021, we opened one new store and closed 78 stores.
Gross profit increased $461.4 million, or 138.4%, to $794.7 million during Fiscal 2021 from $333.3 million during
Fiscal 2020. Gross margin increased 1,960 basis points to 41.5% during Fiscal 2021 from 21.9% during Fiscal 2020. The
increase in gross margin resulted primarily from the leverage of fixed expenses resulting from the increase in net sales, higher
merchandise margins in both our digital and stores channels due to strategic pricing and promotion changes, lower occupancy
expenses due to rent abatements of $12.1 million, favorable lease negotiations, permanent store closures, and lower e-
commerce fulfillment costs, resulting from our continuing cost optimization initiatives.
Selling, general, and administrative expenses (“SG&A”) increased $31.0 million, or 7.2%, to $459.2 million during
Fiscal 2021 from $428.2 million during Fiscal 2020, driven by higher incentive compensation expense and higher marketing
spend. As a percentage of net sales, SG&A decreased 410 basis points to 24.0% during Fiscal 2021 from 28.1% during Fiscal
2020, primarily as a result of the leverage of fixed expenses resulting from the increase in net sales.
Interest expense was $18.6 million during Fiscal 2021, compared to $11.8 million during Fiscal 2020. The increase in
interest expense was driven by a higher average debt balance and the higher interest rate associated with the Previous ABL
Credit Facility and Previous Term Loan for the first nine months of Fiscal 2021. In addition, interest expense for Fiscal 2021
included a charge of $3.7 million related to the refinancing of our Previous ABL Credit Facility and Previous Term Loan.
Provision for income taxes was $69.9 million during Fiscal 2021, compared to a benefit of $71.4 million during Fiscal
2020. Our effective tax rate was an expense of 27.2% and a benefit of 33.7% during Fiscal 2021 and Fiscal 2020, respectively.
The decrease in our effective tax rate was primarily driven by tax benefits from the CARES Act in Fiscal 2020.
Net income increased $327.6 million to $187.2 million, or $12.59 per diluted share, during Fiscal 2021, compared to a
net loss of $140.4 million, or $9.59 per share, during Fiscal 2020, due to the factors discussed above.
Although we are facing a period of uncertainty regarding the future impact of the COVID-19 pandemic, we continue to
focus on our key strategic growth initiatives — superior product, digital transformation, and fleet optimization.
Focus on product remains our top priority. We reintroduced the Gymboree brand in February 2020 on an enhanced
Gymboree website and in certain co-branded locations in Company stores in the U.S. and Canada, and in November 2021, we
introduced our new brand, Sugar & Jade, which is targeted at the girls’ “tween” market and is offered exclusively online.
The transformation of our digital capabilities continues to expand given a completely redesigned responsive site and
mobile application, providing a rich online shopping experience geared toward the needs of our “on-the-go” mobile customers,
expanded customer personalization, which delivers unique, relevant content to drive sales, loyalty and retention, and the ability
to have our entire store fleet equipped with ship-from-store capabilities. Also, in response to increased digital demand,
including as a result of the COVID-19 pandemic, we have increased and will continue to increase the utilization of our third-
party logistics provider to further support both our U.S. and Canadian e-commerce operations.
32
As a result of the heightened demand for online purchasing, including due to the COVID-19 pandemic, we accelerated
our planned store closures under our fleet optimization initiative and have closed 256 stores, against our original target of 300
stores, over the past two fiscal years, including the 78 stores closed during Fiscal 2021. We have closed 527 stores since the
announcement of this initiative in 2013. We are targeting 40 retail store closures in Fiscal 2022, which would bring our total
store closures since the fleet optimization initiative began to 567 stores.
In March 2018, our Board of Directors authorized a $250.0 million share repurchase program (the “2018 Share
Repurchase Program”). In November 2021, our Board of Directors approved another $250.0 million share repurchase program,
which added to the remaining availability under the 2018 Share Repurchase Program. During Fiscal 2021, we repurchased
approximately 1.0 million shares of our common stock for $85.6 million, consisting of shares surrendered to cover tax
withholdings associated with the vesting of equity awards and shares acquired in the open market. As of January 29, 2022, there
was $257.3 million remaining under these programs.
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. dollars. The table below summarizes the average translation rates that most
significantly impact our operating results:
Average Translation Rates (1)
Canadian dollar
Hong Kong dollar
Chinese renminbi
Fiscal Years Ended
January 29,
2022
January 30,
2021
February 1,
2020
0.7986
0.1286
0.1548
0.7481
0.1290
0.1459
0.7550
0.1277
0.1446
____________________________________________
(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.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial
statements, and the amounts of revenues and expenses reported during the period. We continuously review the appropriateness
of the estimates used in preparing our financial statements; however, estimates routinely require adjustment based on changing
circumstances and the receipt of new or better information. Consequently, actual results could differ materially from our
estimates. “Note 1. Basis of Presentation and Summary of Significant Accounting Policies,” of the Notes to Consolidated
Financial Statements in Part II, Item 8 of this Form 10-K describes the significant accounting policies and methods used in the
preparation of the Company’s consolidated financial statements.
The accounting estimates discussed below include those that we believe are the most critical to aid in fully understanding
and evaluating our financial results. Senior management has discussed the development and selection of our critical accounting
estimates with the Audit Committee of our Board of Directors, which has reviewed our related disclosures herein.
Impairment of Long-Lived Assets
We periodically review our long-lived assets for impairment when events indicate that their carrying value may not be
recoverable. Such events include a historical or projected trend of cash flow losses or a future expectation that we will sell or
dispose of an asset significantly before the end of its previously estimated useful life. In reviewing for impairment, we group
our long-lived assets at the lowest possible level for which identifiable cash flows are largely independent of the cash flows of
other assets and liabilities.
We review all stores that have reached comparable sales status for impairment on at least an annual basis, or sooner if
circumstances so dictate. We believe waiting this period of time allows a store to reach a maturity level where a more
comprehensive analysis of financial performance can be performed. For each store that shows indications of impairment, we
perform a recoverability test comparing estimated undiscounted future cash flows to the carrying value of the related long-lived
assets. If the undiscounted future cash flows are less than the related net book value of the long-lived assets, they are written
down to their fair market value. We primarily use discounted future cash flows directly associated with those assets, which
consist principally of property and equipment and right-of-use (“ROU”) lease assets, to determine their fair market values.
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. External factors comprise the local environment
33
in which the store resides, including mall traffic, competition, and their effect on sales trends, as well as macroeconomic
factors, such as the global pandemic. Internal factors include our ability to gauge the fashion taste of our customers, control
over variable costs such as cost of sales and payroll, and in certain cases, our ability to renegotiate lease costs. If external factors
should change unfavorably, if actual sales should differ from our projections, or if our ability to control costs is insufficient to
sustain the necessary cash flows, changes in these estimates can have a significant impact on the assessment of fair market
value, which could result in material impairment charges.
Income Taxes
We utilize the 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. Deferred tax assets and liabilities are
measured using currently enacted tax rates applied to taxable income in effect for the years in which the basis differences and
tax assets are expected to be realized. Although we believe our assumptions, judgments and estimates are reasonable, changes
in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts reflected
for income taxes in our consolidated financial statements.
A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.
In determining the need for valuation allowances, we consider projected future taxable income, the availability of tax planning
strategies, taxable income in prior carryback years, and future reversals of existing taxable temporary differences. The
assumptions utilized in determining future taxable income require significant judgment. Actual operating results in future years
could differ from our current assumptions, judgments and estimates. If, in the future, we determine that we would not be able to
realize our recorded deferred tax assets, an increase in the valuation allowance would decrease earnings in the period in which
such determination is made.
We assess our income tax positions and record tax benefits for all years subject to examination based upon our
evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more
likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50%
likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.
For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been
recognized in the consolidated financial statements. Due to uncertainties in any income tax audit, our assumptions regarding the
ultimate settlement of unrecognized tax positions may change and the actual tax benefits may differ significantly from current
estimates.
Stock-Based Compensation
We account for stock-based compensation according to the provisions of FASB ASC 718— Compensation-Stock
Compensation. We grant time-vesting and performance-based stock awards to employees at various management levels. We
also grant time-vesting stock awards to our non-employee 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 2021, employees may earn from 0% to 300% of their Target
Shares and for Performance Awards granted in Fiscal 2020 and Fiscal 2019, employees may earn from 0% to 250% of their
Target Shares, based on the terms of the award and our achievement of certain performance goals established at the beginning
of the applicable service period. Performance Awards cliff vest, if earned, after completion of the applicable service period,
which is generally three years. The expense recognized for Performance Awards throughout the service period and the number
of shares that are projected to ultimately vest, are based on the estimated degree to which the related performance metrics are
expected to be achieved. Actual performance may differ from such projections, which would impact the number of shares that
vest and the total amount of expense recognized for the related Performance Awards, which could have a material impact on
our consolidated financial statements.
Inventory Valuation
We value inventory at the lower of cost or net realizable value, with cost determined using an average cost method. 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,
34
consumer and retailer preferences, and market conditions such as those resulting from disease pandemics 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. Our historical estimates for inventory obsolescence and
shrinkage have not differed materially from actual results.
Recently Issued Accounting Standards
Refer to “Item 8. Financial Statements and Supplementary Data – Note 1. Basis of Presentation and Summary of
Significant Accounting Policies” for discussion regarding the impact of recently issued accounting standards on our
consolidated financial statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected income statement data expressed as a percentage of net
sales. We primarily evaluate the results of our operations as a percentage of net sales rather than in terms of absolute dollar
increases or decreases by analyzing the year over year change in our business expressed as a percentage of net sales (i.e., “basis
points”). For example, SG&A decreased approximately 410 basis points to 24.0% of net sales during Fiscal 2021 from 28.1%
during Fiscal 2020. 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., “de-leveraging”), we have less efficiently utilized the investments we have made
in our business.
Net sales
Cost of sales (exclusive of depreciation and amortization)
Gross profit
Selling, general, and administrative expenses
Depreciation and amortization
Asset impairment charges
Operating income (loss)
Income (loss) before provision (benefit) for income taxes
Provision (benefit) for income taxes
Net income (loss)
Number of Company stores, end of period
Fiscal Years Ended
January 29,
2022
100.0 %
58.5
41.5
24.0
3.0
0.1
14.4
13.4
3.6
9.8 %
672
January 30,
2021
100.0 %
78.1
21.9
28.1
4.4
2.5
(13.1)
(13.9)
(4.7)
(9.2) %
749
February 1,
2020
100.0 %
65.0
35.0
25.6
4.0
0.3
5.2
4.7
0.8
3.9 %
924
The following table sets forth net sales by segment, for the periods indicated:
January 29,
2022
Fiscal Years Ended
January 30,
2021
(in thousands)
February 1,
2020
Net sales:
The Children’s Place U.S.
The Children’s Place International
Total net sales
Fiscal 2021 Compared to Fiscal 2020
$ 1,723,887 $ 1,372,079 $ 1,671,165
199,502
$ 1,915,364 $ 1,522,598 $ 1,870,667
150,519
191,477
Net sales increased $392.8 million, or 25.8%, to $1.915 billion during Fiscal 2021 from $1.523 billion during Fiscal
2020. The increase in net sales was driven primarily by strong customer response to our product assortment, strategic pricing
and promotion changes, and the unprecedented level of stimulus and enhanced child tax credit payments to our customers
resulting from the government pandemic relief legislation.
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.
35
The Children’s Place U.S. net sales increased $351.8 million, or 25.6%, to $1.724 billion during Fiscal 2021, compared
to $1.372 billion during Fiscal 2020. The increase in net sales was driven primarily by strong customer response to our product
assortment, strategic pricing and promotion changes, and the unprecedented level of stimulus and enhanced child tax credit
payments to our customers resulting from the government pandemic relief legislation.
The Children’s Place International net sales increased $41.0 million, or 27.2%, to $191.5 million during Fiscal 2021,
compared to $150.5 million during Fiscal 2020. The increase in net sales was driven primarily by the strong customer response
to our product assortment and strategic pricing and promotion changes.
Total e-commerce sales, which include postage and handling, were 44.8% of net sales during Fiscal 2021, compared to
52.7% during Fiscal 2020.
Gross profit increased $461.4 million, or 138.4%, to $794.7 million during Fiscal 2021 from $333.3 million during
Fiscal 2020. Gross margin increased 1,960 basis points to 41.5% during Fiscal 2021 from 21.9% during Fiscal 2020. Fiscal
2021 results included incremental expenses, including personal protective equipment and incentive pay for our associates of
$1.4 million. Fiscal 2020 results included an inventory provision of $63.2 million related to the adverse business disruption
resulting from the COVID-19 pandemic, including store closures and incremental expenses, personal protective equipment and
incentive pay for our associates of $11.6 million, and fleet optimization costs of $0.6 million. Excluding the impact of these
charges, gross margin leveraged 1,472 basis points to 41.6% of net sales, primarily from the leverage of fixed expenses
resulting from the increase in net sales, higher merchandise margins resulting from significant AUR increases in both our
digital and stores channels due to strategic pricing and promotion changes, lower occupancy expenses due to rent abatements of
$12.1 million, favorable lease negotiations, permanent store closures, and lower e-commerce fulfillment costs, resulting from
our continuing cost optimization initiatives.
Gross profit as a percentage of net sales is dependent upon a variety of factors, including changes in the relative sales
mix among distribution channels, changes in the mix of products sold, the timing and level of promotional activities, changes in
foreign currency exchange rates, and fluctuations in material costs. These factors, among others, may cause gross profit as a
percentage of net sales to fluctuate from period to period.
Selling, general, and administrative expenses increased $31.0 million, or 7.2%, to $459.2 million during Fiscal 2021
from $428.2 million during Fiscal 2020. As a percentage of net sales, SG&A decreased 410 basis points to 24.0% during Fiscal
2021 from 28.1% during Fiscal 2020. Fiscal 2021 results included incremental expenses, including personal protective
equipment and incentive pay for our associates of $1.6 million, restructuring costs, primarily related to severance costs for
corporate and store associates, of $2.3 million, fleet optimization costs of $2.4 million, and contract termination costs of $0.8
million. Fiscal 2020 results included incremental operating expenses, including personal protective equipment and incentive
pay for our associates, of $10.9 million, restructuring costs, primarily related to severance costs for corporate and store
associates, of $10.5 million, the write-off of certain accounts receivable of $1.1 million, fleet optimization costs of $2.8 million,
Gymboree integration costs of $0.6 million, and legal reserves of $0.3 million. Excluding the impact of these charges, SG&A
expenses leveraged 281 basis points to 23.6% of net sales, primarily as a result of the leverage of fixed expenses resulting from
the increase in net sales.
Asset impairment charges were $1.5 million during Fiscal 2021, inclusive of ROU assets, primarily related to two stores.
Asset impairment charges during Fiscal 2020 were $38.5 million, inclusive of ROU assets, primarily related to 419 stores.
These charges were related to underperforming stores identified in our ongoing store portfolio evaluation primarily as a result
of decreased net sales and cash flow projections.
Depreciation and amortization was $58.4 million during Fiscal 2021, compared to $66.4 million during Fiscal 2020.
This decrease was primarily driven by reduced depreciation of capitalized software, the permanent closure of 78 stores during
Fiscal 2021, and a decrease in net book value as a result of the impairment charges recorded in Fiscal 2020.
Operating income (loss) increased to $275.6 million, or 14.4% of net sales for Fiscal 2021, from an operating loss of
$199.9 million, or 13.1% of net sales for Fiscal 2020, reflecting the factors discussed above.
Interest expense, net was $18.6 million during Fiscal 2021, compared to $11.8 million during Fiscal 2020. The increase
in interest expense was driven by a higher average debt balance and the higher interest rate associated with the Previous ABL
Credit Facility and Previous Term Loan for the first nine months of Fiscal 2021. In addition, interest expense for Fiscal 2021
included a charge of $3.7 million related to the refinancing of our Previous ABL Credit Facility and Previous Term Loan.
Provision (benefit) for income taxes was an expense of $69.9 million during Fiscal 2021, compared to a benefit of $71.4
million during Fiscal 2020. Our effective tax rate was an expense of 27.2% and a benefit of 33.7% during Fiscal 2021 and
Fiscal 2020, respectively. The decrease in our effective tax rate was primarily driven by tax benefits from the CARES Act in
Fiscal 2020.
36
Net income (loss) increased to $187.2 million, or $12.59 per diluted share, during Fiscal 2021, compared to a net loss of
$140.4 million, or $9.59 per share, during Fiscal 2020, due to the impact of COVID-19 pandemic in Fiscal 2020 and the other
factors discussed above.
Fiscal 2020 Compared to Fiscal 2019
See “Item 7. 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 30, 2021 for the Fiscal 2020 to Fiscal 2019
comparative discussion.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our working capital needs typically follow a seasonal pattern, peaking during the third fiscal quarter based on seasonal
inventory purchases. Our primary uses of cash are for working capital requirements, which are principally inventory purchases,
the financing of capital projects, including investments in new systems, and for the capital return program (other than payment
of dividends, which continue to be temporarily suspended due to the COVID-19 pandemic).
On November 16, 2021, we completed the refinancing of the Previous ABL Credit Facility and Previous Term Loan with
a new lending group led by an affiliate of Wells Fargo by entering into the Fourth Amendment to our Credit Agreement with
the lenders party thereto. The new debt consists of a revolving credit facility with $350.0 million of availability and a
$50.0 million term loan. (See “Revolving Credit Facility and Term Loan” below for further information).
Our working capital deficit improved $161.1 million to a deficit of $10.3 million at January 29, 2022, compared to a
deficit of $171.4 million at January 30, 2021, primarily reflecting operating results over the past twelve months, as well as
lower current lease liabilities resulting from favorable lease negotiations. During Fiscal 2021, we repurchased approximately
1.0 million shares for $85.6 million. During Fiscal 2020, prior to the suspension of our capital return program, we repurchased
approximately 0.3 million shares for $15.5 million.
At January 29, 2022, we had $175.3 million of outstanding borrowings and $97.0 million available for borrowing under
our ABL Credit Facility. In addition, at January 29, 2022, 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.
We expect to be able to meet our working capital and capital expenditure requirements for the foreseeable future by
using our cash on hand, cash flows from operations, and availability under our ABL Credit Facility.
ABL Credit Facility and Term Loan
We and certain of our subsidiaries maintain a $350 million ABL Credit Facility and a $50 million Term Loan with Wells
Fargo Bank, National Association (“Wells Fargo”), Truist Bank, Bank of America, N.A., HSBC Business Credit (USA) Inc.,
and JPMorgan Chase Bank, N.A., as lenders (collectively, the “Lenders”) and Wells Fargo, as Administrative Agent, Collateral
Agent, Swing Line Lender and Term Agent. Both the ABL Credit Facility and the Term Loan mature in November 2026, and
both of these debt facilities have lower interest rates, reduced reporting requirements, and increased flexibility under the
covenants compared to the Previous ABL Credit Facility and Previous Term Loan.
The ABL Credit Facility includes a $25 million Canadian sublimit and a $50 million sublimit for standby and
documentary letters of credit.
Borrowings outstanding under the ABL Credit Facility bear interest, at our option, at:
(i)
the prime rate plus a margin of 0.375% or 0.625% based on the amount of our average excess availability under
the facility; or
(ii) the London InterBank Offered Rate, or “LIBOR”, for an interest period of one, three, or six months, as selected by
us, plus a margin of 1.125% or 1.375% based on the amount of our average excess availability under the facility.
We are charged an unused line fee of 0.20% on the unused portion of the commitments. Letter of credit fees range from
0.563% to 0.683% for commercial letters of credit and range from 0.625% to 0.875% for standby letters of credit. Letter of
credit fees are determined based on the amount of our average excess availability under the facility. The amount available for
loans and letters of credit under the Credit Agreement 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.
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
37
material indebtedness, and a change of control, subject, in the case of certain defaults, to the expiration of applicable grace
periods. We are not subject to any early termination fees.
The ABL Credit Facility contains covenants, which include conditions on stock buybacks and the payment of cash
dividends or similar payments. These covenants also limit the ability of the Company and its subsidiaries to incur certain liens,
to incur certain indebtedness, to make certain investments, acquisitions, or dispositions or to change the nature of its business.
Credit extended under the ABL Credit Facility is secured by a first priority security interest in substantially all of the
Company’s U.S. and Canadian assets other than intellectual property, certain furniture, fixtures, equipment, and pledges of
subsidiary capital stock, and a second priority security interest in the Company’s intellectual property, certain furniture,
fixtures, equipment, and pledges of subsidiary capital stock.
The table below presents the components of our ABL Credit Facility and Previous ABL Credit Facility:
Credit facility maximum
Borrowing base (1)
Outstanding borrowings
Letters of credit outstanding—standby
Utilization of credit facility at end of period
Availability (2)
Interest rate at end of period
Average end of day loan balance during the period
Highest end of day loan balance during the period
Average interest rate
____________________________________________
January 29,
2022
January 30,
2021
$
(in millions)
$
350.0
279.7
175.3
7.4
182.7
360.0
282.2
169.8
8.2
178.0
$
97.0
$
104.2
1.6 %
4.2 %
Fiscal Years Ended
January 29,
2022
January 30,
2021
$
$
187.0
269.7
3.6 %
216.2
275.6
3.8 %
(1)
(2)
Lower of the credit facility maximum or the total borrowing base collateral.
The sublimit availability for letters of credit was $42.6 million and $41.8 million at January 29, 2022 and January 30, 2021, respectively.
The Term Loan bears interest, payable monthly, at (a) the LIBOR Rate plus 2.50% for any portion that is a LIBOR loan,
or (b) the base rate plus 1.75% for any portion that is a base rate loan. The Term Loan is pre-payable at any time without
penalty, and does not require amortization. For Fiscal 2021, we recognized $5.9 million in interest expense related to the Term
Loan and the Previous Term Loan.
The Term Loan is secured by a first priority security interest in the Company’s intellectual property, certain furniture,
fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the collateral securing the
ABL Credit Facility on a first-priority basis. The Term Loan is guaranteed by each of the Company’s subsidiaries that
guarantee the ABL Credit Facility and shares substantially the same covenants as provided in the ABL Credit Facility.
Both the ABL Credit Facility and the Term Loan contain customary events of default, which include (subject in certain
cases to customary grace and cure periods), nonpayment of principal or interest, breach of other covenants, failure to pay
certain other indebtedness, and certain events of bankruptcy, insolvency or reorganization. As of January 29, 2022 and
January 30, 2021, unamortized deferred financing costs amounted to $2.9 million and $3.6 million, respectively, of which $2.6
million and $1.2 million, respectively, related to our asset-based revolving credit facility.
Cash Flows and Capital Expenditures
Cash provided by operating activities was $133.3 million during Fiscal 2021, compared to $35.7 million of cash used by
operating activities of during Fiscal 2020. Cash provided by operating activities during Fiscal 2021 was primarily the result of
earnings generated during the period, partially offset by planned changes in working capital, which brought our vendor
38
payables in line with historical payment terms. Cash used in operating activities during Fiscal 2020 was primarily the result of
the net loss in the year due to the impact of the COVID-19 pandemic disruption, resulting in the acceleration of permanent store
closures and extensive government mandated temporary store closures, partially offset by the impact of strategic working
capital management and the extension of vendor payment terms.
Cash used in investing activities was $29.3 million during Fiscal 2021, compared to $30.4 million during Fiscal 2020.
This change was primarily driven by the timing of capital expenditures.
Cash used in financing activities was $112.7 million during Fiscal 2021, compared to cash provided by financing
activities of $60.9 million during Fiscal 2020. The decrease primarily resulted from net proceeds received from the issuance of
long-term debt during Fiscal 2020, compared to the use of cash in Fiscal 2021 to repay long-term debt, and increased
repurchases of our common stock during Fiscal 2021, compared to Fiscal 2020.
Our ability to continue to meet our capital requirements in Fiscal 2022 depends on our cash on hand, our ability to
generate cash flows from operations, and available borrowings under our ABL Credit Facility. Cash flows generated from
operations depends on our ability to achieve our financial plans. We believe that our existing cash on hand, cash generated from
operations, and funds available to us through our ABL Credit Facility will be sufficient to fund our capital and other cash
requirements for the foreseeable future.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
For a discussion of our contractual obligations and commercial commitments, see “Item 8. Financial Statements and
Supplementary Data” – “Note 7. Leases”, “Note 8. Debt”, and “Note 9. Commitments and Contingencies.”
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.
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. 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):
Net sales
Gross profit
Selling, general, and administrative expenses
Depreciation and amortization
Asset impairment charges
Operating income
Income before provision for income taxes
Provision for income taxes
Net income
Fiscal Year Ended January 29, 2022
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(in thousands, except earnings per share)
$
435,481 $
413,855 $
558,225 $
507,803
188,206
106,738
15,561
—
65,907
61,496
16,291
167,861
115,620
14,392
—
37,849
33,153
9,058
244,831
115,563
14,204
1,254
113,810
109,851
30,983
$
45,205 $
24,095 $
78,868 $
193,842
121,248
14,260
252
58,082
52,530
13,527
39,003
Diluted earnings per share
Diluted weighted average common
shares outstanding
$
3.01 $
1.60 $
5.30 $
2.68
15,002
15,062
14,873
14,543
39
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of business, our financial position and results of operations are routinely subject to market risk
associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar
denominated assets, liabilities, income, and expenses. We utilize cash from operations and short-term borrowings to fund our
working capital and investment needs.
Cash and Cash Equivalents
Cash and cash equivalents are normally invested in short-term financial instruments that will be used in operations within
90 days of the balance sheet date. Because of the short-term nature of these instruments, changes in interest rates would not
materially affect their fair values.
Interest Rates
Our ABL Credit Facility bears interest at a floating rate equal to the prime rate or LIBOR, plus a calculated spread based
on our average excess availability under the facility. As of January 29, 2022, we had $175.3 million in borrowings outstanding
under our ABL Credit Facility. A 10% change in the prime rate or LIBOR interest rates would not have had a material impact
on our interest expense.
Our Term Loan bears interest, payable monthly, at (a) the LIBOR Rate plus 2.50% for any portion that is a LIBOR loan,
or (b) the base rate plus 1.75% for any portion that is a base rate loan. As of January 29, 2022, the outstanding balance of the
Term Loan was $50.0 million. A 10% change in the three month LIBOR Rate would not have had a material impact on our
interest expense.
Assets and Liabilities of Foreign Subsidiaries
Assets and liabilities outside the United States are primarily located in Canada and Hong Kong, where our investments in
our subsidiaries are considered long-term. As of January 29, 2022, net assets in Canada and Hong Kong amounted to $52.7
million. A 10% increase or decrease in the Canadian and Hong Kong foreign currency exchange rates would increase or
decrease the corresponding net investment by $5.3 million. All changes in the net investments in our foreign subsidiaries are
recorded in other comprehensive income.
As of January 29, 2022, we had $47.7 million of our cash and cash equivalents held in foreign subsidiaries, of which
$25.5 million was in Hong Kong and $17.4 million was in Canada.
Foreign Operations
We have exchange rate exposure primarily with respect to certain revenues and expenses denominated in Canadian
dollars. As a result, fluctuations in exchange rates impact the amount of our reported sales and expenses. Assuming a 10%
change in foreign currency exchange rates, Fiscal 2021 net sales would have decreased or increased by approximately $17
million, and total costs and expenses would have decreased or increased by approximately $19 million. Additionally, we have
foreign currency denominated receivables and payables that, when settled, result in transaction gains or losses. A 10% change
in foreign currency exchange rates would not result in a significant transaction gain/loss in earnings.
We import a vast majority of our merchandise from foreign countries, primarily Vietnam, Cambodia, Indonesia,
Ethiopia, Bangladesh, and China. Consequently, any significant or sudden change in the political, foreign trade, financial,
banking, or currency policies and practices, or the occurrence of significant labor unrest in these countries, could have a
material adverse impact on our business, financial position, results of operations, and cash flows.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is incorporated herein by reference to the consolidated financial statements and
supplementary data set forth in “Item 15. Exhibits and Financial Statement Schedules” of Part IV of this Annual Report on
Form 10-K.
40
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed only to provide “reasonable assurance” that the controls and procedures
will meet their objectives. A control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our Company have been detected.
Management, including our Chief Executive Officer and President and our Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Exchange Act, as of January 29,
2022. Based on that evaluation, our Chief Executive Officer and President and our Chief Financial Officer concluded that our
disclosure controls and procedures were effective at the reasonable assurance level, as of January 29, 2022, to ensure that all
information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to
our management, including our principal executive, principal accounting, and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process to provide reasonable assurance
regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally
accepted in the U.S. Because of its inherent limitations, internal control over financial reporting is not intended to provide
absolute assurance that a misstatement of our financial statements would be prevented or detected.
Under the supervision and with the participation of our management, including our Chief Executive Officer and
President and our Chief Financial Officer, we conducted an evaluation of the design and effectiveness of our internal control
over financial reporting based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation under the Internal
Control-Integrated Framework, our management concluded that our internal control over financial reporting was effective as of
January 29, 2022. Our independent registered public accounting firm that audited the consolidated financial statements included
in this annual report has issued an attestation report on our internal control over financial reporting, which is included herein.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our most recently
completed fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
41
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of The Children’s Place, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited The Children’s Place, Inc. and subsidiaries’ internal control over financial reporting as of January 29,
2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, The Children’s Place, Inc.
and subsidiaries (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of
January 29, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of January 29, 2022, and January 30, 2021, the related
consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of
the three years in the period ended January 29, 2022, and the related notes and our report dated March 25, 2022 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/S/ Ernst & Young LLP
Iselin, New Jersey
March 25, 2022
42
ITEM 9B. OTHER INFORMATION.
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
43
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
PART III
The information required to be included by Item 10 of Form 10-K will be set forth in the Company’s proxy statement for
its 2021 annual meeting of stockholders to be filed with the SEC within 120 days after January 29, 2022 (the “Proxy
Statement”) and is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION.
The information required to be included by Item 11 of Form 10-K will be set forth in the Proxy Statement and is
incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required to be included by Item 12 of Form 10-K will be set forth in the Proxy Statement and is
incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The information required to be included by Item 13 of Form 10-K will be set forth in the Proxy Statement and is
incorporated by reference herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required to be included by Item 14 of Form 10-K will be set forth in the Proxy Statement and is
incorporated by reference herein.
44
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
PART IV
(a)(1) Financial Statements
The following documents are filed as part of this report:
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets as of January 29, 2022 and January 30, 2021
Consolidated Statements of Operations for the fiscal years ended January 29, 2022, January 30, 2021, and
February 1, 2020
Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended January 29, 2022, January
30, 2021, and February 1, 2020
Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended January 29, 2022,
January 30, 2021, and February 1, 2020
Consolidated Statements of Cash Flows for the fiscal years ended January 29, 2022, January 30, 2021, and
February 1, 2020
Notes to Consolidated Financial Statements
46
48
49
50
51
52
54
45
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of The Children’s Place, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Children’s Place, Inc. and subsidiaries (the
“Company”) as of January 29, 2022 and January 30, 2021, the related consolidated statements of operations, comprehensive
income (loss), changes in stockholders' equity and cash flows for each of the three years in the period ended January 29, 2022,
and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at January 29, 2022 and
January 30, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 29,
2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of January 29, 2022, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated March 25, 2022, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures
that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
Impairment of Long-Lived Assets
Description of the Matter: As discussed in Note 4 to the consolidated financial statements, during the year ending
January 29, 2022, the Company recorded impairment charges of $1.5 million related to its retail stores. The Company reviews
its long-lived assets, including any right of use asset, for each store, and when events indicate that their carrying values may not
be recoverable, the Company estimates future cash flows over the remaining lease term and compares the total undiscounted
cash flows to the carrying value of the related long-lived assets. If the undiscounted cash flows are less than the related
carrying value of the long-lived assets, they are written down to their fair values.
Auditing the Company’s long-lived asset impairment assessments involved subjective auditor judgment due to the
estimation involved in determining the forecasted cash flows used to evaluate the recoverability and estimate the fair values of
long-lived assets for which impairment was indicated. Significant assumptions used in determining the fair value of certain
operating lease right-of-use assets include the current market rent for the remaining lease term of the related stores. These
assumptions are subjective in nature and are affected by expectations about future market or economic conditions.
How We Addressed the Matter in Our Audit: We obtained an understanding, evaluated the design and tested the
operating effectiveness of controls over the Company's long-lived asset impairment review process. These procedures included
testing controls over management’s review of the data used in the cash flow projections and valuation models, as well as the
review of significant assumptions including estimates of future revenue and gross margin.
46
We performed audit procedures which included, among others, analyzing significant assumptions about future revenue
and operating costs for the relevant retail stores based on historical results and trends by store and testing the data used in the
calculations. We tested the assumed revenue growth and margin rates in comparison to recent actual results and expectations
about future market conditions. We tested assumptions about related operating costs based on historical costs and the existing
relationships between costs and revenues. We compared the assumptions used in the forecasted cash flows with the Company’s
strategic plans. We involved our internal valuation specialists to assist in evaluating the fair value of certain store long-lived
assets, which included assessing the estimated market rental rates of the related leases by comparing them to rental rates for
comparable leases and evaluating the applied discount rate.
/S/ Ernst & Young LLP
We have served as the Company’s auditor since 2018.
Iselin, New Jersey
March 25, 2022
47
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other current assets
Total current assets
Long-term assets:
Property and equipment, net
Right-of-use assets
Tradenames, net
Deferred income taxes
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Revolving loan
Accounts payable
Current portion of operating lease liabilities
Income taxes payable
Accrued expenses and other current liabilities
Total current liabilities
Long-term liabilities:
Long-term debt
Long-term portion of operating lease liabilities
Income taxes payable
Other tax liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (see Note 9)
Stockholders’ equity:
$
$
$
January 29,
2022
January 30,
2021
(in thousands, except par value)
54,787 $
21,863
428,813
76,075
581,538
63,548
39,534
388,141
55,860
547,083
155,006
194,653
71,692
23,109
11,462
1,037,460 $
181,801
283,624
72,492
45,579
9,548
1,140,127
175,318 $
183,758
91,097
10,984
130,669
591,826
49,685
134,761
14,939
8,689
12,088
811,988
169,778
252,124
174,585
5,508
116,504
718,499
75,346
214,173
14,939
6,304
17,489
1,046,750
Preferred stock, $1.00 par value, 1,000 shares authorized, 0 shares issued and outstanding
Common stock, $0.10 par value, 100,000 shares authorized; 13,964 and 14,641 issued;
13,903 and 14,584 outstanding
Additional paid-in capital
Treasury stock, at cost (61 and 57 shares)
Deferred compensation
Accumulated other comprehensive loss
Retained earnings (deficit)
Total stockholders’ equity
Total liabilities and stockholders’ equity
—
—
1,396
160,348
(3,443)
3,443
(14,186)
77,914
225,472
1,037,460 $
1,464
148,519
(3,164)
3,164
(13,816)
(42,790)
93,377
1,140,127
$
See accompanying notes to these consolidated financial statements.
48
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales
Cost of sales (exclusive of depreciation and amortization)
Gross profit
Selling, general, and administrative expenses
Depreciation and amortization
Asset impairment charges
Operating income (loss)
Interest expense
Interest income
Income (loss) before provision (benefit) for income taxes
Provision (benefit) for income taxes
Net income (loss)
Earnings (loss) per common share
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
$
$
$
$
Fiscal Years Ended
January 29,
2022
January 30,
2021
February 1,
2020
(in thousands, except earnings per share)
1,915,364 $
1,120,624
794,740
459,169
58,417
1,506
275,648
(18,634)
16
257,030
69,859
187,171 $
1,522,598 $
1,189,347
333,251
428,234
66,405
38,527
(199,915)
(11,906)
63
(211,758)
(71,393)
(140,365) $
1,870,667
1,215,362
655,305
478,120
74,788
6,039
96,358
(8,194)
253
88,417
15,117
73,300
12.82 $
12.59 $
(9.59) $
(9.59) $
4.71
4.68
14,597
14,870
14,631
14,631
15,547
15,653
See accompanying notes to these consolidated financial statements.
49
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustment
Change in fair value of cash flow hedges, net of income taxes
Total comprehensive income (loss)
Fiscal Years Ended
January 29,
2022
January 30,
2021
February 1,
2020
(in thousands)
$
187,171 $
(140,365) $
73,300
(370)
477
—
186,801 $
(748)
(140,636) $
$
1,388
1
74,689
See accompanying notes to these consolidated financial statements.
50
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
Balance, February 2, 2019
Vesting of stock awards
Stock-based compensation expense
Purchase and retirement of common
stock
Dividends declared ($2.24 per share)
Unvested dividends
ASC Topic 842 Adjustment
Change in cumulative translation
adjustment
Change in fair value of cash flow hedges,
net of income taxes
Deferral of common stock into deferred
compensation plan
Net income
Balance, February 1, 2020
Vesting of stock awards
Stock-based compensation expense
Purchase and retirement of common
stock
Other comprehensive loss
Deferral of common stock into deferred
compensation plan
Net loss
Balance, January 30, 2021
Vesting of stock awards
Stock-based compensation expense
Purchase and retirement of common
stock
Other comprehensive loss
Deferral of common stock into deferred
compensation plan
Net income
Common Stock
Additional
Paid-In
Deferred
Retained
Earnings
Accumulated
Other
Comprehensive
Treasury Stock
Total
Stockholders’
Shares
Amount
Capital
Compensation
(Deficit)
Income (Loss)
Shares
Amount
Equity
15,873 $ 1,588 $ 146,991 $
2,685 $ 180,792 $
(14,934)
(47) $ (2,685) $
314,437
480
47
(5)
16,219
(1,591)
(159)
(25,439)
(108,007)
1,275
(34,928)
(1,275)
(1,667)
1,388
1
271
73,300
(4)
(271)
42
16,219
(133,605)
(34,928)
—
(1,667)
1,388
1
—
73,300
14,762 $ 1,476 $ 139,041 $
2,956 $ 108,215 $
(13,545)
(51) $ (2,956) $
235,187
173
17
(17)
14,316
(294)
(29)
(4,821)
(10,640)
(271)
—
14,316
(15,490)
(271)
14,641 $ 1,464 $ 148,519 $
3,165 $ (42,790) $
(13,816)
(57) $ (3,165) $
93,377
209
(140,365)
(6)
(209)
—
(140,365)
348
35
(35)
30,942
(1,025)
(103)
(19,078)
(66,467)
278
187,171
(370)
(4)
(278)
—
30,942
(85,648)
(370)
—
187,171
Balance, January 29, 2022
13,964 $ 1,396 $ 160,348 $
3,443 $ 77,914 $
(14,186)
(61) $ (3,443) $
225,472
See accompanying notes to these consolidated financial statements.
51
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Reconciliation of net income (loss) to net cash provided by (used in)
operating activities:
Non-cash portion of operating lease expense
Depreciation and amortization
Non-cash stock-based compensation expense
Asset impairment charges
Deferred income tax provision (benefit)
Loss on extinguishment of debt
Other non-cash charges, net
Changes in operating assets and liabilities:
Inventories
Accounts receivable and other assets
Prepaid expenses and other current assets
Income taxes payable, net of prepayments
Accounts payable and other current liabilities
Lease liabilities
Other long-term liabilities
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
Acquisition of intangible assets
Change in deferred compensation plan
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility
Repayments under revolving credit facility
Proceeds from issuance of term loan, net of discount
Repayment of term loan
Payment of debt issuance costs
Purchase and retirement of common stock, including shares surrendered for
tax withholdings and transaction costs
Payment of dividends
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
January 29,
2022
Fiscal Years Ended
January 30,
2021
(in thousands)
February 1,
2020
$
187,171 $
(140,365) $
73,300
100,564
58,417
30,942
1,506
25,846
3,679
1,387
(40,870)
16,200
(7,191)
(5,982)
(58,334)
(172,454)
(7,605)
133,276
(29,307)
—
17
(29,290)
758,681
(753,140)
50,000
(81,840)
(2,468)
113,145
66,405
14,316
38,527
(32,660)
—
821
(61,080)
(3,616)
7,081
(43,306)
71,720
(69,294)
2,589
(35,717)
(30,585)
—
211
(30,374)
500,872
(501,902)
78,637
—
(1,188)
(83,974)
(15,490)
—
(112,741)
(6)
(8,761)
63,548
54,787 $
$
—
60,929
223
(4,939)
68,487
63,548 $
149,006
74,788
16,219
6,039
5,364
—
229
(23,537)
3,148
2,734
8,574
17,502
(155,288)
(176)
177,902
(57,502)
(76,951)
103
(134,350)
1,001,039
(879,092)
—
—
—
(131,393)
(34,928)
(44,374)
173
(649)
69,136
68,487
See accompanying notes to these consolidated financial statements.
52
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
OTHER CASH FLOW INFORMATION:
Net cash paid for income taxes
Cash paid for interest
Increase (decrease) in accrued capital expenditures
Fiscal Years Ended
January 29,
2022
January 30,
2021
February 1,
2020
(in thousands)
$
49,563 $
14,774
842
3,643 $
10,831
(811)
1,310
7,553
(1,853)
See accompanying notes to these consolidated financial statements.
53
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Children’s Place, Inc. and subsidiaries (collectively, the “Company”) is the largest pure-play children’s specialty
apparel retailer in North America. The Company provides apparel, footwear, accessories, and other items for children and
‘tweens.’ The Company designs, contracts to manufacture, sells at retail and wholesale, and licenses to sell trend right, high-
quality merchandise predominantly at value prices, primarily under the Company’s proprietary “The Children’s Place”, “Place”,
“Baby Place”, “Gymboree”, and “Sugar & Jade” brand names.
The Company classifies its business into two segments: The Children’s Place U.S. and The Children’s Place
International. Included in The Children’s Place U.S. segment are the Company’s U.S. and Puerto Rico-based stores and revenue
from its U.S.-based wholesale business. Included in The Children’s Place International segment are its Canadian-based stores,
revenue from the Company’s Canadian-based wholesale business, as well as revenue from international franchisees. Each
segment includes an e-commerce business located at www.childrensplace.com, www.gymboree.com, and
www.sugarandjade.com.
Terms that are commonly used in the notes to the Company’s consolidated financial statements are defined as follows:
Fiscal 2021 - The fifty-two weeks ended January 29, 2022
Fiscal 2020 - The fifty-two weeks ended January 30, 2021
Fiscal 2019 - The fifty-two weeks ended February 1, 2020
Fiscal 2022 - The Company’s next fiscal year representing the fifty-two weeks ending January 28, 2023
SEC - U.S. Securities and Exchange Commission
U.S. GAAP - Generally Accepted Accounting Principles in the United States
FASB - Financial Accounting Standards Board
FASB ASC - FASB Accounting Standards Codification, which serves as the source for authoritative U.S. GAAP,
except that rules and interpretive releases by the SEC are also sources of authoritative U.S. GAAP for SEC
registrants
•
•
•
•
•
•
•
•
Fiscal Year
The Company’s fiscal year is a 52-week or 53-week period ending on the Saturday on or nearest to January 31. Fiscal
2021, 2020, and 2019 were 52-week years.
Basis of Presentation
The consolidated financial statements and accompanying notes to consolidated financial statements are prepared in
accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. Intercompany
balances and transactions have been eliminated. As of January 29, 2022 and January 30, 2021, the Company did not have any
investments in unconsolidated affiliates. FASB ASC 810—Consolidation is considered when determining whether an entity is
subject to consolidation.
Certain reclassifications have been made to prior period financial statements to conform to the current period
presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and amounts of revenues and expenses reported during the period. Actual results could differ from the
assumptions used and estimates made by management, which could have a material impact on the Company’s financial position
or results of operations. Critical accounting estimates inherent in the preparation of the consolidated financial statements
include impairment of long-lived assets, income taxes, stock-based compensation, and inventory valuation.
54
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash
equivalents.
Accounts Receivable
Accounts receivable consists of credit and debit card receivables, franchisee and wholesale receivables, and other
miscellaneous items. Credit and debit card receivables represent credit and debit card sales, inclusive of private label credit card
sales, for which the respective third-party service company has yet to remit the cash. The unremitted balance approximates the
last few days of related credit and debit card sales for each reporting period. Franchisee and wholesale receivables represent
product sales and sales royalties in which cash has not yet been remitted by our partners. Bad debt associated with all sales has
not been material.
Inventories
Inventories, which consist primarily of finished goods, are stated at the lower of cost or net realizable value, with cost
determined on an average cost basis. The Company capitalizes certain buying, design, and supply chain costs in inventory, and
these costs are reflected within Cost of sales as the inventories are sold. Inventory shrinkage is estimated in interim periods
based upon the historical results of physical inventory counts in the context of current year facts and circumstances.
Derivative Instruments
The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates attributable
to inventory purchases denominated in a foreign currency. Specifically, the functional currency of the Company’s Canadian
subsidiary is the Canadian dollar, but it purchases inventory from suppliers in U.S. dollars. In order to mitigate the variability of
cash flows associated with certain of these forecasted inventory purchases, the Company enters, from time to time, into foreign
exchange forward contracts. These contracts typically mature within 12 months. The Company does not use forward contracts
to engage in currency speculation, and it does not enter into derivative financial instruments for trading purposes. The Company
accounts for all of its derivatives and hedging activity under FASB ASC 815—Derivatives and Hedging.
Under the Company’s risk management policy and in accordance with guidance under the topic, in order to qualify for
hedge accounting treatment, a derivative must be considered highly effective at offsetting changes in either the hedged item’s
cash flows or fair value. Additionally, the hedge relationship must be documented to include the risk management objective and
strategy, the hedging instrument, the hedged item, the risk exposure, and how hedge effectiveness will be assessed
prospectively and retrospectively. The Company formally measures effectiveness of its hedging relationships both at the hedge
inception and on an ongoing basis. The Company discontinues hedge accounting under a foreign exchange forward contract
prospectively: (i) if management determines that the derivative is no longer highly effective in offsetting changes in the cash
flows of a hedged item, (ii) when the derivative expires or is terminated, (iii) if the forecasted transaction being hedged by the
derivative is no longer probable of occurring, or (iv) if management determines that designation of the derivative as a hedge
instrument is no longer appropriate.
All derivative instruments are presented at gross fair value on the Consolidated Balance Sheets within either Prepaid
expenses and other current assets or Accrued expenses and other current liabilities. As of January 29, 2022 and January 30,
2021, the Company did not have any open foreign exchange forward contracts.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on
the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings within Cost of
sales (exclusive of depreciation and amortization) in the same period or periods during which the hedged transaction affects
earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in earnings within Selling,
general, and administrative expenses, consistent with where the Company records realized and unrealized foreign currency
gains and losses on transactions denominated in foreign currencies. There were no losses related to hedge ineffectiveness during
Fiscal 2021 or Fiscal 2020. Changes in fair value associated with derivatives that are not designated and qualify as cash flow
hedges are recognized in earnings within Selling, general, and administrative expenses. During Fiscal 2021, there were no
derivatives that qualified as cash flow hedges.
55
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred Financing Costs
The Company capitalizes costs directly associated with acquiring third-party financing. Deferred financing costs for the
asset-based revolving credit facility are included in Other assets and are amortized as Interest expense over the term of the
related indebtedness. As of January 29, 2022 and January 30, 2021, unamortized deferred financing costs amounted to $2.9
million and $3.6 million, respectively, of which $2.6 million and $1.2 million, respectively, related to the Company’s asset-
based revolving credit facility.
Property and Equipment, Net
Property and equipment are stated at cost. Leasehold improvements are depreciated on a straight-line basis over the
shorter of the life of the lease or the estimated useful life of the asset. All other property and equipment is depreciated on a
straight-line basis based upon estimated useful lives, with furniture and fixtures and equipment generally ranging from 3 to 10
years and buildings and improvements generally ranging from 20 to 25 years. Repairs and maintenance are expensed as
incurred.
The Company accounts for internally developed software intended for internal use in accordance with provisions of
FASB ASC 350—Intangibles-Goodwill and Other. The Company capitalizes development-stage costs such as direct external
costs and direct payroll related costs. When development is substantially complete and the software is ready for its intended use,
the Company amortizes the cost of the software on a straight-line basis over the expected life of the software, which is generally
3 to 10 years. Preliminary project costs and post-implementation costs such as training, maintenance, and support are expensed
as incurred.
Intangible Assets
The Company’s intangible assets include both indefinite-lived and finite-lived assets. Intangible assets with indefinite
lives consist primarily of trademarks and acquired trade names, which are tested for impairment annually at the end of
December or whenever circumstances indicate that a decline in value may have occurred. The Company estimates the fair value
of these intangible assets based on an income approach using the relief-from-royalty method. The Company’s finite-lived
intangible assets consist primarily of customer lists and other acquisition-related assets. Finite-lived intangible assets are
amortized over their estimated useful economic lives and are reviewed for impairment when factors indicate that an impairment
may have occurred. The Company recognizes an impairment charge when the estimated fair value of the intangible asset is less
than the carrying value.
Impairment of Long-Lived Assets
The Company periodically reviews its long-lived assets for impairment when events indicate that their carrying value
may not be recoverable. Such events include historical trends or projected trends of cash flow losses or a future expectation that
the Company will sell or dispose of an asset significantly before the end of its previously estimated useful life. In reviewing for
impairment, the Company groups its long-lived assets at the lowest possible level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities.
The Company reviews all stores that have reached comparable sales status for impairment on at least an annual basis, or
sooner if circumstances so dictate. The Company believes waiting this period of time allows a store to reach a maturity level
where a more comprehensive analysis of financial performance can be performed. For each store that shows indications of
impairment, the Company performs a recoverability test comparing estimated undiscounted future cash flows to the carrying
value of the related long-lived assets. If the undiscounted cash flows are less than the related net book value of the long-lived
assets, they are written down to their fair market value. The Company primarily uses discounted future cash flows directly
associated with those assets, which consist principally of property and equipment and right-of-use assets, to determine their fair
market values. In evaluating future cash flows, the Company considers 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 the global COVID-19 pandemic. Internal factors include the Company’s ability to gauge the
fashion taste of its customers, control variable costs such as cost of sales and payroll, and in certain cases, its ability to
renegotiate lease costs.
Insurance and Self-Insurance Reserves
The Company self-insures and purchases insurance policies to provide for workers’ compensation, general liability and
property losses, cyber-security coverage, as well as director and officers’ liability, vehicle liability, and employee medical
benefits. The Company estimates risks and records a liability based on historical claim experience, insurance deductibles,
56
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
severity factors, and other actuarial assumptions. The Company records the current portions of employee medical benefits,
workers compensation, and general liability reserves within Accrued expenses and other current liabilities.
Leases
The Company has operating leases for retail stores, corporate offices, distribution facilities, and certain equipment. The
Company’s leases have remaining lease terms ranging from less than one year up to nine years, some of which include options
to extend the leases for up to five years, and some of which include options to terminate the lease early.
The lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease
commencement date. For operating leases, the right-of-use (“ROU”) asset is initially and subsequently measured throughout the
lease term at the carrying amount of the lease liability, plus initial direct costs, less any accrued lease payments and
unamortized lease incentives. For finance leases, the ROU asset is initially measured at cost and subsequently amortized using
the straight-line method generally from the lease commencement date to the earlier of the end of its useful life or the end of the
lease term.
The discount rate is the rate implicit in the lease, unless that rate cannot be readily determined. In that case, the Company
is required to use its incremental borrowing rate. The discount rate for a lease is determined based on the information available
at lease commencement. The Company accounts for the underlying leased asset and applies a discount rate at the lease level.
However, there are certain non-real estate leases for which the Company utilizes the portfolio method by aggregating similar
leased assets based on the underlying lease term.
The Company has made an accounting policy election by class of underlying asset to not apply the recognition
requirements of FASB ASC 842—Leases (“Topic 842”) to leases with an initial term of 12 months or less. Leases with an
initial lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these
leases on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components. The Company has elected a policy to account
for lease and non-lease components as a single component for all asset classes.
In certain leases, the Company has the right to exercise lease renewal options. Renewal option periods are included in the
measurement of lease liability and related right-of-use asset where the exercise is reasonably certain to occur.
As of the periods presented, the Company’s finance leases were not material to the Consolidated Balance Sheets,
Consolidated Statements of Operations, or Consolidated Statements of Cash Flows.
The Company has certain lease agreements structured with both fixed base rent and contingent rent based on a
percentage of sales over contractual levels, others with only contingent rent based on a percentage of sales, and some with a
fixed base rent adjusted periodically for inflation or changes in fair market value of the underlying real estate. Contingent rent is
recognized as sales occur. The Company’s lease agreements do not contain any material residual value guarantees or material
restrictive covenants.
The Company records all occupancy costs in Cost of sales, except costs for administrative office buildings, which are
recorded in Selling, general, and administrative expenses.
In April 2020, the FASB staff released guidance regarding rent concessions related to the effects of the COVID-19
pandemic to allow for a temporary practical expedient (the “COVID-19 expedient”) to account for rent concessions as though
enforceable rights and obligations for those concessions existed in the lease agreements. The election is available for
concessions related to the effects of the COVID-19 pandemic that result in the total payments required by the modified contract
being substantially the same as or less than total payments required by the original contract.
Upon the temporary closure of the Company’s store fleet in March 2020, the Company began negotiating for
concessions of certain rent payments for the time the stores were impacted. These discussions and negotiations were
substantially completed at the end of the second quarter of Fiscal 2021. For the lease concessions that have been agreed upon
and executed, the Company did not reassess each existing contract to determine whether enforceable rights and obligations for
concessions existed and elected not to apply the lease modification guidance in ASC 842 to those contracts that shared similar
characteristics. Rather, the Company accounts for COVID-19 lease concessions as reductions to variable lease cost.
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THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) primarily consists of cumulative translation adjustments as well as
changes in the value of cash flow hedges, net of income taxes.
Treasury Stock
Treasury stock is recorded at acquisition cost. Gains and losses on disposition are recorded as increases or decreases to
Additional paid-in capital with losses in excess of previously recorded gains charged directly to Retained earnings. When
treasury shares are retired and returned to authorized but unissued status, the carrying value in excess of par is allocated to
Additional paid-in capital and Retained earnings on a pro rata basis.
Income Taxes
The Company utilizes the 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. Deferred tax
assets and liabilities are measured using currently enacted tax rates applied to taxable income in effect for the years in which the
basis differences and tax assets are expected to be realized. A valuation allowance is recorded when it is more likely than not
that any of the deferred tax assets will not be realized. In determining the need for valuation allowances, the Company considers
projected future taxable income, the availability of tax planning strategies, taxable income in prior carryback years, and future
reversals of existing taxable temporary differences. If, in the future, the Company determines that it would not be able to realize
recorded deferred tax assets, an increase in the valuation allowance would decrease earnings in the period in which such
determination is made.
The Company assesses income tax positions and records tax benefits for all years subject to examination based upon the
Company’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where
it is more likely than not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a
greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all
relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no
tax benefit has been recognized in the consolidated financial statements.
Deferred Compensation Plan
The Company has a deferred compensation plan (the “Deferred Compensation Plan”), which is a nonqualified, unfunded
plan, for eligible senior level employees. Under the Deferred Compensation Plan, a participant may elect to defer up to 80% of
his or her base salary and/or up to 100% of his or her bonus to be earned for the year following the year in which the deferral
election is made. The Deferred Compensation Plan also permits members of the Board of Directors to elect to defer payment of
all or a portion of their retainer and other fees to be earned for the year following the year in which a deferral election is made.
In addition, eligible employees and directors of the Company may elect to defer payment of any shares of Company stock that
are earned with respect to deferred stock awards. Directors may elect to have all or a portion of their fees earned for their
service on the Board invested in shares of the Company’s common stock. The Company is not required to contribute to the
Deferred Compensation Plan, but at its sole discretion, can make additional contributions on behalf of the participants. Deferred
amounts are not subject to forfeiture and are deemed invested among investment funds offered under the Deferred
Compensation Plan, as directed by each participant. Payments of deferred amounts (as adjusted for earnings and losses) are
payable following separation from service or at a date or dates elected by the participant at the time the deferral is elected.
Payments of deferred amounts are generally made in either a lump sum or in annual installments over a period not exceeding 15
years. During fiscal 2010, the Deferred Compensation Plan was amended to allow for cash deferrals made by members of the
Board of Directors to be invested in shares of the Company’s common stock. Such elections are irrevocable and will be settled
in shares of common stock. All deferred amounts are payable in the form in which they were made, except for Board of
Directors fees invested in shares of the Company’s common stock, which are settled in shares of Company common stock.
Earlier distributions are not permitted, except in the case of an unforeseen hardship.
The Company has established a rabbi trust that serves as an investment to shadow the Deferred Compensation Plan
liability. The assets of the rabbi trust are general assets of the Company and, as such, would be subject to the claims of creditors
in the event of bankruptcy or insolvency. Investments of the rabbi trust consist of mutual funds and Company common stock.
The Deferred Compensation Plan liability, excluding Company common stock, is included within Other long-term liabilities,
and changes in the balance, except those relating to payments, are recognized as compensation expense within Selling, general,
and administrative expenses. The value of the mutual funds in the rabbi trust is included in Other assets and related earnings
58
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and losses are recognized as investment income or loss, within Selling, general, and administrative expenses. Company stock
deferrals are included within the equity section of the Company’s Consolidated Balance Sheets as Treasury stock and as
Deferred compensation. Deferred stock is recorded at fair market value at the time of deferral, and any subsequent changes in
fair market value are not recognized.
Legal Contingencies
The Company reserves for the outcome of litigation and contingencies when it determines an adverse outcome is
probable and can estimate losses. Estimates are adjusted as facts and circumstances require. The Company expenses the costs to
resolve litigation as incurred, net of amounts, if any, recovered through insurance coverage.
Foreign Currency Translation and Transactions
The Company has determined that the local currencies of its Canadian and Asian subsidiaries are their functional
currencies. In accordance with FASB ASC 830—Foreign Currency Matters, the assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the current rates of exchange existing at period-end, and revenues and expenses are
translated at average monthly exchange rates. Related translation adjustments are reported as a separate component of
stockholders’ equity. The Company also transacts certain business in foreign denominated currencies primarily with its
Canadian subsidiary purchasing inventory in U.S. dollars, and there are inter-company charges between various subsidiaries.
Fair Value Measurement and Financial Instruments
FASB ASC 820—Fair Value Measurement provides a single definition of fair value, together with a framework for
measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities.
This topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date and establishes a three-level hierarchy, which encourages an
entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The
three levels of the hierarchy are defined as follows:
•
•
•
Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or
liabilities
Level 2 - inputs to the valuation techniques that are other than quoted prices, but are observable for the assets or
liabilities, either directly or indirectly
Level 3 - inputs to the valuation techniques that are unobservable for the assets or liabilities
The Company’s cash and cash equivalents, accounts receivable, investments in the rabbi trust, accounts payable, and
revolving loan are all short-term in nature. As such, their carrying amounts approximate fair value and fall within Level 1 of the
fair value hierarchy. The Company stock included in the Deferred Compensation Plan is not subject to fair value measurement.
The Company’s derivative assets and liabilities include foreign exchange forward contracts that are measured at fair
value using observable market inputs such as forward rates, the Company’s credit risk, and counterparties’ credit risks. Based
on these inputs, the Company’s derivative assets and liabilities are classified within Level 2 of the fair value hierarchy.
The Company’s assets measured at fair value on a nonrecurring basis include long-lived assets, such as intangible assets,
fixed assets, and ROU assets. The Company reviews the carrying amounts of such assets when events indicate that their
carrying amounts may not be recoverable. Any resulting asset impairment would require that the asset be recorded at its fair
value. The resulting fair value measurements of the assets are considered to fall within Level 3 of the fair value hierarchy.
Revenues
Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in
an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company recognizes revenue, including shipping and handling fees billed to customers, upon purchase at the
Company’s retail stores or when received by the customer if the product was purchased via e-commerce, net of coupon
redemptions and anticipated sales returns. The Company deferred sales of $3.6 million and $5.3 million within Accrued
expenses and other current liabilities as of January 29, 2022 and January 30, 2021, respectively, based upon estimated time of
delivery, at which point control passes to the customer. Sales tax collected from customers is excluded from revenue.
59
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the sale of goods with a right of return, the Company recognizes revenue for the consideration it expects to be
entitled to and calculates an allowance for estimated sales returns based upon the Company’s sales return experience.
Adjustments to the allowance for estimated sales returns in subsequent periods have not been material based on historical data,
thereby reducing the uncertainty inherent in such estimates. The allowance for estimated sales returns, which is recorded in
Accrued expenses and other current liabilities, was $1.0 million as of January 29, 2022 and January 30, 2021.
The Company’s private label credit card is issued to customers for use exclusively at The Children’s Place stores and
online at www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com, and credit is extended to such customers
by a third-party financial institution on a non-recourse basis to the Company. The private label credit card includes multiple
performance obligations for the Company, including marketing, promoting the program on behalf of the bank and the operation
of a loyalty rewards program. Included in the agreement with the third-party financial institution was an upfront bonus paid to
the Company. The upfront bonus is recognized as revenue and allocated between brand and reward obligations. As the license
of the Company’s brand is the predominant item in the performance obligation, the amount allocated to the brand obligation is
recognized on a straight-line basis over the initial term. The amount allocated to the reward obligation is recognized on a point-
in-time basis as redemptions under the loyalty program occur.
In measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer,
the Company takes into account the related elements of variable consideration, such as additional bonuses, including profit-
sharing, over the life of the program. Similar to the upfront bonus, the usage-based royalties and bonuses are recognized as
revenue and allocated between the brand and reward obligations. The amount allocated to the brand obligation is recognized on
a straight-line basis over the initial term. The amount allocated to the reward obligation is recognized on a point-in-time basis as
redemptions under the loyalty program occur. In addition, the annual profit-sharing amount is estimated and recognized
quarterly within an annual period when earned. The additional bonuses are amortized over the contract term based on
anticipated progress against future targets and level of risk associated with achieving the targets.
The Company has a points-based customer loyalty program in which customers earn points based on purchases and other
promotional activities. These points can be redeemed for coupons to discount future purchases. A contract liability is estimated
based on the standalone selling price of benefits earned by customers through the program and the related redemption
experience under the program. The value of each point earned is recorded as deferred revenue and is included within Accrued
expenses and other current liabilities. The total contract liabilities related to this program were $5.0 million and $2.7 million as
of January 29, 2022 and January 30, 2021, respectively.
The Company’s policy with respect to gift cards is to record revenue as and when the gift cards are redeemed for
merchandise. The Company recognizes gift card breakage income in proportion to the pattern of rights exercised by the
customer when the Company expects to be entitled to breakage and the Company determines that it does not have a legal
obligation to remit the value of the unredeemed gift card to the relevant jurisdiction as unclaimed or abandoned property. Gift
card breakage is recorded within Net sales. Prior to their redemption, gift cards are recorded as a liability within Accrued
expenses and other current liabilities. The liability is estimated based on expected breakage that considers historical patterns of
redemption.
The Company has an international program of territorial agreements with franchisees. The Company generates revenues
from the franchisees from the sale of product and, in certain cases, sales royalties. The Company recognizes revenue on the sale
of product to franchisees when the franchisee takes ownership of the product. The Company records net sales for royalties when
the applicable franchisee sells the product to customers. Under certain agreements, the Company receives a fee from each
franchisee for exclusive territorial rights and based on the opening of new stores. The Company records these territorial fees as
deferred revenue and amortizes the fee into Net sales over the life of the territorial agreement.
Cost of Sales (exclusive of depreciation and amortization)
In addition to the cost of inventory sold, the Company includes certain buying, design, and distribution expenses,
shipping and handling costs on merchandise sold directly to customers, and letter of credit fees in Cost of sales. The Company
records all occupancy costs in Cost of sales, except for administrative office buildings, which are recorded in Selling, general,
and administrative expenses. All depreciation is reported on a separate line in the Company’s Consolidated Statements of
Operations.
Stock-based Compensation
The Company’s stock-based compensation plans are administered by the Human Capital & Compensation Committee of
the Board of Directors. The Human Capital & Compensation Committee is comprised of independent members of the Board of
60
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Directors. Effective May 20, 2011, the shareholders approved the 2011 Equity Incentive Plan (the “Equity Plan”). The Equity
Plan allows the Human Capital & Compensation Committee to grant multiple forms of stock-based compensation, such as stock
options, stock appreciation rights, restricted stock awards, deferred stock awards, and performance stock awards.
The Company accounts for stock-based compensation in accordance with the provisions of FASB ASC 718—
Compensation—Stock Compensation. These provisions require, among other things: (a) the fair value at grant date of all stock
awards be expensed over their respective vesting periods; (b) the amount of cumulative compensation cost recognized at any
date must at least be equal to the portion of the grant-date value of the award that is vested at that date; and (c) that
compensation expense include a forfeiture estimate for those shares not expected to vest. The fair value of all stock awards is
based on the closing price of the Company’s common stock on the grant date. Also, in accordance with these provisions, for
those awards with multiple vest dates, the Company recognizes compensation cost on a straight-line basis over the requisite
service period for the entire award. 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.
Advertising and Marketing Costs
The Company expenses the cost of advertising over the period the advertising is run or displayed. Advertising and other
marketing costs are recorded in Selling, general, and administrative expenses and amounted to $44.3 million, $31.1 million, and
$35.0 million in Fiscal 2021, Fiscal 2020, and Fiscal 2019, respectively. Deferred advertising, marketing, and promotional
costs, which principally relate to advertisements that have not yet been exhibited or services that have not yet been received,
were $1.4 million and $0.8 million at January 29, 2022 and January 30, 2021, respectively, and were recorded within Prepaid
expenses and other current assets in the Company’s Consolidated Balance Sheets.
Earnings per Common Share
The Company reports its earnings per share in accordance with FASB ASC 260—Earnings Per Share, which requires
the presentation of both basic and diluted earnings per share on the Consolidated Statements of Operations. The diluted
weighted average common shares include adjustments for the potential effects of outstanding stock options, Deferred Awards,
and Performance Awards (as both terms are used in “Note 11. Stock-Based Compensation” to these consolidated financial
statements), but only in the periods in which such effect is dilutive under the treasury stock method. Included in basic and
diluted weighted average common shares are those shares, due to participants in the Deferred Compensation Plan, which are
held in treasury stock. Anti-dilutive stock awards are comprised of unvested deferred, restricted, and performance shares which
would have been anti-dilutive in the application of the treasury stock method in accordance with FASB ASC 260—Earnings
Per Share.
In accordance with this topic, the following table reconciles share amounts utilized to calculate basic and diluted net
income per common share:
Basic weighted average common shares
Dilutive effect of stock awards
Diluted weighted average common shares
Recently Issued Accounting Updates
Adopted in Fiscal 2021
Fiscal Years Ended
January 29,
2022
January 30,
2021
February 1,
2020
14,597
273
14,870
(in thousands)
14,631
—
14,631
15,547
106
15,653
In December 2019, the FASB issued guidance related to the accounting for income taxes. The guidance aims to simplify
the accounting for income taxes by removing certain exceptions to the general principles within the previous guidance and by
clarifying and amending the previous guidance. The guidance was effective for annual reporting periods, and interim periods
within those years, beginning after December 15, 2020. The Company adopted this guidance in the first quarter of Fiscal 2021.
The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
61
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. REVENUES
The following table presents the Company’s revenues disaggregated by geography:
Net sales:
South
Northeast
West
Midwest
International and other
Total net sales
January 29,
2022
Fiscal Years Ended
January 30,
2021
(in thousands)
February 1,
2020
$
724,375 $
579,348 $
659,519
412,785
277,162
242,392
258,650
325,124
219,686
197,697
200,743
429,857
290,290
234,621
256,380
$ 1,915,364 $ 1,522,598 $ 1,870,667
As discussed in “Note 1. Basis of Presentation and Summary of Significant Accounting Policies”, gift cards are recorded
as a liability within Accrued expenses and other current liabilities. The following table provides the reconciliation of the
contract liability related to gift cards:
Balance at January 30, 2021
Gift cards sold
Gift cards redeemed
Gift card breakage
Balance at January 29, 2022
3. INTANGIBLE ASSETS
January 29,
2022
(in thousands)
$
13,634
25,085
(23,617)
(3,031)
$
12,071
On April 4, 2019, the Company acquired certain intellectual property and related assets (the “Gymboree Assets”) of
Gymboree Group, Inc. and related entities, which included the worldwide rights to the names “Gymboree” and “Crazy 8” and
other intellectual property, including trademarks, domain names, copyrights, and customer databases. These intangible assets,
inclusive of acquisition costs, are recorded in the long-term assets section of the Consolidated Balance Sheets.
The Company’s intangible assets were as follows:
Gymboree tradename (1)
Crazy 8 tradename (1)
Customer databases (2)
Total intangibles, net
Useful Life
Gross Amount
January 29, 2022
Accumulated
Amortization
(in thousands)
Net Amount
Indefinite
$
69,953 $
5 years
3 years
4,000
3,000
$
76,953 $
— $
(2,261)
(2,827)
(5,088) $
69,953
1,739
173
71,865
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THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Gymboree tradename (1)
Crazy 8 tradename (1)
Customer databases (2)
Total intangibles, net
Useful Life
Gross Amount
January 30, 2021
Accumulated
Amortization
(in thousands)
Net Amount
Indefinite
$
69,953 $
5 years
3 years
4,000
3,000
$
76,953 $
— $
(1,461)
(1,827)
(3,288) $
69,953
2,539
1,173
73,665
____________________________________________
(1)
(2)
Included within Tradenames, net on the Consolidated Balance Sheets.
Included within Other assets on the Consolidated Balance Sheets.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
Property and equipment:
Land and land improvements
Building and improvements
Material handling equipment
Leasehold improvements
Store fixtures and equipment
Capitalized software
Construction in progress
Less accumulated depreciation and amortization
Property and equipment, net
January 29,
2022
January 30,
2021
(in thousands)
$
3,403 $
36,045
64,989
197,436
212,613
320,716
8,170
843,372
3,403
36,133
58,034
216,989
226,404
296,967
15,211
853,141
(688,366)
(671,340)
$
155,006 $
181,801
During Fiscal 2021, the Company reviewed its store related long-lived assets for indicators of impairment, and
performed a recoverability test if indicators were identified. Based on the results of the analysis performed, the Company
recorded asset impairment charges of $1.5 million, inclusive of ROU assets, primarily related to the impairment of two stores
during Fiscal 2021.
During Fiscal 2020, the Company reviewed its store related long-lived assets for 749 stores with a total net book value of
$43.6 million for indicators of impairment, and performed a recoverability test if indicators were identified. Based on the results
of the analysis performed, the Company recorded asset impairment charges of $38.5 million, inclusive of ROU assets, primarily
related to the impairment of 419 stores during Fiscal 2020.
During Fiscal 2019, the Company reviewed its store related long-lived assets for 924 stores with a total net book value of
$65.0 million for indicators of impairment, and performed a recoverability test if indicators were identified. Based on the results
of the analysis performed, the Company recorded asset impairment charges of $6.0 million during Fiscal 2019, of which $3.2
million related to the impairment of 29 stores, and $2.8 million related to the write-down of information technology systems.
63
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
Prepaid income taxes
Prepaid cloud computing
Prepaid maintenance contracts
Prepaid property expense
Other
January 29,
2022
January 30,
2021
(in thousands)
$
54,043 $
43,752
7,187
3,709
1,678
9,458
3,836
2,433
281
5,558
Total Prepaid expenses and other current assets
$
76,075 $
55,860
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
Accrued salaries and benefits
Accrued property expenses
Customer liabilities
Accrued capital expenditures
Deferred revenue for MyPlace Rewards loyalty program
Deferred revenue
Accrued freight
Sales taxes and other taxes payable
Accrued marketing
Insurance reserves
Accrued store expenses
Accrued professional fees
Other
January 29,
2022
January 30,
2021
(in thousands)
$
44,494 $
33,817
18,990
11,354
5,277
4,971
4,613
4,196
4,147
4,015
3,487
2,696
2,114
20,315
5,756
12,904
3,443
2,669
6,306
4,811
13,936
3,206
4,113
3,893
1,488
20,162
Total Accrued expenses and other current liabilities
$
130,669 $
116,504
7. LEASES
The following components of lease expense were recognized in the Company’s Consolidated Statements of Operations:
January 29,
2022
Fiscal Years Ended
January 30,
2021
(in thousands)
February 1,
2020
$
113,681 $
128,373 $
149,006
39,711
44,085
64,228
$
153,392 $
172,458 $
213,234
Fixed operating lease cost
Variable operating lease cost (1)
Total operating lease cost
64
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
____________________________________________
(1)
Includes short term leases with lease periods of less than 12 months as well as lease abatements accounted for as reductions to variable lease costs under
the COVID-19 expedient of $12.1 million and $12.9 million for Fiscal 2021 and Fiscal 2020, respectively.
As of January 29, 2022, the weighted-average remaining operating lease term was 4.3 years, and the weighted-average
discount rate for operating leases was 5.2%. Cash paid for amounts included in the measurement of operating lease liabilities
in Fiscal 2021 was $172.5 million. ROU assets obtained in exchange for new operating lease liabilities were $14.0 million in
Fiscal 2021.
As of January 29, 2022, the maturities of operating lease liabilities were as follows:
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: imputed interest
Present value of operating lease liabilities
8. DEBT
January 29, 2022
(in thousands)
$
$
98,415
52,337
30,478
18,384
16,066
33,945
249,625
(23,767)
225,858
On November 16, 2021, the Company completed the refinancing of its previous $360.0 million asset-based revolving
credit facility (“Previous ABL Credit Facility”) and previous $80.0 million term loan with a new lending group led by an
affiliate of Wells Fargo Bank, National Association (“Wells Fargo”) by entering into a fourth amendment to its Credit
Agreement, dated as of May 9, 2019, with the lenders party thereto. The new debt consists of a revolving credit facility with
$350.0 million of availability (the “ABL Credit Facility”) and a $50.0 million term loan (the “Term Loan”). In connection with
the refinancing, the Company recorded a charge of $3.7 million, which is included within Interest expense on the Consolidated
Statements of Operations and consists of a prepayment penalty and the write-off of unamortized deferred financing costs and
debt discount.
ABL Credit Facility and Term Loan
The Company and certain of its subsidiaries maintain the $350 million ABL Credit Facility and the $50 million Term
Loan with Wells Fargo, Truist Bank, Bank of America, N.A., HSBC Business Credit (USA) Inc., and JPMorgan Chase Bank,
N.A., as lenders (collectively, the “Lenders”) and Wells Fargo, as Administrative Agent, Collateral Agent, Swing Line Lender
and Term Agent. Both the ABL Credit Facility and the Term Loan mature in November 2026, and both of these debt facilities
have lower interest rates, reduced reporting requirements, and increased flexibility under the covenants compared to the
Previous ABL Credit Facility and Previous Term Loan.
The ABL Credit Facility includes a $25 million Canadian sublimit and a $50 million sublimit for standby and
documentary letters of credit.
Borrowings outstanding under the ABL Credit Facility bear interest, at the Company’s option, at:
(i)
the prime rate plus a margin of 0.375% or 0.625% based on the amount of the Company’s average excess
availability under the facility; or
(ii) the London InterBank Offered Rate, or “LIBOR”, for an interest period of one, three, or six months, as selected by
the Company, plus a margin of 1.125% or 1.375% based on the amount of the Company’s average excess
availability under the facility.
65
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company is charged an unused line fee of 0.20% on the unused portion of the commitments. Letter of credit fees
range from 0.563% to 0.683% for commercial letters of credit and range from 0.625% to 0.875% for standby letters of
credit. Letter of credit fees are determined based on the amount of the Company’s average excess availability under the facility.
The amount available for loans and letters of credit under the Credit Agreement 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.
The outstanding obligations under the ABL Credit Facility may be accelerated upon the occurrence of certain events,
including, among others, non-payment, breach of covenants, the institution of insolvency proceedings, defaults under other
material indebtedness, and a change of control, subject, in the case of certain defaults, to the expiration of applicable grace
periods. The Company is not subject to any early termination fees.
The ABL Credit Facility contains covenants, which include conditions on stock buybacks and the payment of cash
dividends or similar payments. These covenants also limit the ability of the Company and its subsidiaries to incur certain liens,
to incur certain indebtedness, to make certain investments, acquisitions, or dispositions or to change the nature of its business.
Credit extended under the ABL Credit Facility is secured by a first priority security interest in substantially all of the
Company’s U.S. and Canadian assets other than intellectual property, certain furniture, fixtures, equipment, and pledges of
subsidiary capital stock, and a second priority security interest in the Company’s intellectual property, certain furniture,
fixtures, equipment, and pledges of subsidiary capital stock.
The table below presents the components of the Company’s ABL Credit Facility and Previous ABL Credit Facility:
Credit facility maximum
Borrowing base (1)
Outstanding borrowings
Letters of credit outstanding—standby
Utilization of credit facility at end of period
Availability (2)
Interest rate at end of period
Average end of day loan balance during the period
Highest end of day loan balance during the period
Average interest rate
____________________________________________
January 29,
2022
January 30,
2021
$
(in millions)
$
350.0
279.7
175.3
7.4
182.7
360.0
282.2
169.8
8.2
178.0
$
97.0
$
104.2
1.6 %
4.2 %
Fiscal Years Ended
January 29,
2022
January 30,
2021
$
$
187.0
269.7
3.6 %
216.2
275.6
3.8 %
(1)
(2)
Lower of the credit facility maximum or the total borrowing base collateral.
The sub-limit availability for letters of credit was $42.6 million and $41.8 million at January 29, 2022 and January 30, 2021, respectively.
The Term Loan bears interest, payable monthly, at (a) the LIBOR Rate plus 2.50% for any portion that is a LIBOR loan,
or (b) the base rate plus 1.75% for any portion that is a base rate loan. The Term Loan is pre-payable at any time without
penalty, and does not require amortization. For Fiscal 2021, the Company recognized $5.9 million in interest expense related to
the Term Loan and the Previous Term Loan.
The Term Loan is secured by a first priority security interest in the Company’s intellectual property, certain furniture,
fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the collateral securing the
66
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ABL Credit Facility on a first-priority basis. The Term Loan is guaranteed by each of the Company’s subsidiaries that
guarantee the ABL Credit Facility and shares substantially the same covenants as provided in the ABL Credit Facility.
Both the ABL Credit Facility and the Term Loan contain customary events of default, which include (subject in certain
cases to customary grace and cure periods), nonpayment of principal or interest, breach of other covenants, failure to pay
certain other indebtedness, and certain events of bankruptcy, insolvency or reorganization.
9. COMMITMENTS AND CONTINGENCIES
Commitments
As of January 29, 2022, the Company entered into various purchase commitments for the next 12 months for
merchandise for re-sale of approximately $365.0 million and approximately $18.0 million for equipment, construction, and
other non-merchandise commitments. The Company also has operating lease and standby letters of credit commitments of
$249.6 million and $7.4 million, respectively.
Legal and Regulatory Matters
The Company is a defendant in Rael v. The Children’s Place, Inc., a purported class action, pending in the U.S. District
Court, Southern District of California. In the initial complaint filed in February 2016, the plaintiff alleged that the Company
falsely advertised discount prices in violation of California’s Unfair Competition Law, False Advertising Law, and Consumer
Legal Remedies Act. The plaintiff filed an amended complaint in April 2016, adding allegations of violations of other state
consumer protection laws. In August 2016, the plaintiff filed a second amended complaint, adding an additional plaintiff and
removing the other state law claims. The plaintiffs’ second amended complaint sought to represent a class of California
purchasers and sought, among other items, injunctive relief, damages, and attorneys’ fees and costs.
The Company engaged in mediation proceedings with the plaintiffs in December 2016 and April 2017. The parties
reached an agreement in principle in April 2017, and signed a definitive settlement agreement in November 2017, to settle the
matter on a class basis with all individuals in the U.S. who made a qualifying purchase at The Children’s Place from February
11, 2012 through January 28, 2020, the date of preliminary approval by the court of the settlement. The Company submitted its
memorandum in support of final approval of the class settlement on March 2, 2021. On March 29, 2021, the court granted final
approval of the class settlement and denied plaintiff’s motion for attorney’s fees, with the amount of attorney’s fees to be
decided after the class recovery amount has been determined. The settlement provides merchandise vouchers for qualified class
members who submit valid claims, as well as payment of legal fees and expenses and claims administration expenses. Vouchers
were distributed to class members on November 15, 2021 and they will be eligible for redemption in multiple rounds through
November 2023. In connection with the settlement, the Company recorded a reserve for $5.0 million in its consolidated
financial statements in the first quarter of 2017.
The Company is also involved in various legal proceedings arising in the normal course of business. In the opinion of
management, any ultimate liability arising out of these proceedings will not have a material adverse effect on the Company’s
financial position, results of operations, or cash flows.
10. STOCKHOLDERS’ EQUITY
Share Repurchase Programs
In March 2018, the Board of Directors authorized a $250.0 million share repurchase program (the “2018 Share
Repurchase Program”). In November 2021, the Board of Directors approved another $250.0 million share repurchase program,
which added to the remaining availability under the 2018 Share Repurchase Program. Under these programs, the Company may
repurchase shares on the open market at current market prices at the time of purchase or in privately negotiated transactions.
The timing and actual number of shares repurchased under a program will depend on a variety of factors, including price,
corporate and regulatory requirements, and other market and business conditions. The Company may suspend or discontinue
the programs at any time and may thereafter reinstitute purchases, all without prior announcement. As of January 29, 2022,
there was $257.3 million remaining under these programs. From March 2020 through July 2021, the Company suspended share
repurchases, other than to satisfy withholding tax requirements of equity award recipients, due to the COVID-19 pandemic.
67
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pursuant to the Company’s practice, including due to restrictions imposed by the Company’s insider trading policy
during black-out periods, the Company withholds and repurchases shares of vesting stock awards and makes payments to taxing
authorities as required by law to satisfy the withholding tax requirements of all equity award recipients. The Company’s
payment of the withholding taxes in exchange for the surrendered shares constitutes a repurchase of its common stock. The
Company also acquires shares of its common stock in conjunction with liabilities owed under the Company’s Deferred
Compensation Plan, which are held in treasury.
The following table summarizes the Company’s share repurchases:
Share repurchases related to:
Share repurchase program
Fiscal Years Ended
January 29, 2022
January 30, 2021
February 1, 2020
Shares
Amount
Shares
Amount
Shares
Amount
(in thousands)
1,025
85,648
294
15,490
1,585
131,393
Shares acquired and held in treasury
4
278
6
209
4
271
In accordance with FASB ASC 505—Equity, the par value of the shares retired is charged against Common stock and
the remaining purchase price is allocated between Additional paid-in capital and Retained earnings. The portion charged against
Additional paid-in capital is determined using a pro-rata allocation based on total shares outstanding. For all shares retired in
Fiscal 2021, Fiscal 2020, and Fiscal 2019, $66.5 million, $10.6 million, and $108.0 million was charged to Retained earnings,
respectively.
Dividends
In March 2020, the Company announced it had temporarily suspended its dividend payments due to the COVID-19
pandemic.
Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to
approval by the Company’s Board of Directors based on a number of factors, including business and market conditions, the
Company’s financial performance, and other investment priorities.
11. STOCK-BASED COMPENSATION
The Company generally grants time vesting stock awards (“Deferred Awards”) and performance-based stock awards
(“Performance Awards”) to employees at management levels. The Company also grants Deferred Awards to its non-employee
directors. Deferred Awards are granted in the form of restricted stock units that require each recipient to complete a service
period. Deferred Awards generally vest ratably over three years, except for those granted to non-employee directors, which
generally vest over one year. Performance Awards are granted in the form of restricted stock units which have performance
criteria that must be achieved for the awards to vest in addition to a service period requirement. With the approval of the Human
Capital & Compensation Committee, the Company may settle vested Deferred Awards and Performance Awards to the
employee 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 2021, employees may earn from 0% to 300% of their target shares and for
Performance Awards granted in Fiscal 2020 and Fiscal 2019, employees may earn from 0% to 250% of their Target Shares,
based on the terms of the award and the Company’s 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.
68
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the Company’s stock-based compensation expense:
Deferred Awards
Performance Awards
Total stock-based compensation expense (1)
____________________________________________
Fiscal Years Ended
January 29,
2022
January 30,
2021
February 1,
2020
(in thousands)
$
$
13,061 $
14,100 $
18,910
17,881
216
(2,691)
30,942 $
14,316 $
16,219
(1)
Stock-based compensation expense recorded within Cost of sales (exclusive of depreciation and amortization) amounted to $3.3 million, $3.4 million, and
$3.6 million in Fiscal 2021, Fiscal 2020, and Fiscal 2019, respectively. All other stock-based compensation expense is included in Selling, general, and
administrative expenses.
The Company recognized a tax benefit related to stock-based compensation expense of $2.6 million, $3.8 million, and
$4.3 million for Fiscal 2021, Fiscal 2020, and Fiscal 2019, respectively.
At January 29, 2022, the Company had 596,216 shares available for grant under the Equity Plan.
Changes in the Company’s Unvested Stock Awards
Deferred Awards
Fiscal Years Ended
January 29, 2022
January 30, 2021
February 1, 2020
Number of
Shares
(in thousands)
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Grant Date
Fair Value
Number of
Shares
(in thousands)
Number of
Shares
(in thousands)
Weighted
Average
Grant Date
Fair Value
Unvested Deferred Awards at beginning
of year
Granted
Vested
Forfeited
550 $
157
(229)
(11)
Unvested Deferred Awards at end of year
467 $
55.43
76.59
63.73
92.10
57.60
377 $
410
97.88
41.73
299 $
99.98
264
102.21
(161)
107.55
(126)
105.24
(76)
550 $
82.07
55.43
(60)
112.09
377 $
97.88
Total unrecognized stock-based compensation expense related to unvested Deferred Awards was $14.4 million as of
January 29, 2022, which will be recognized over a weighted average period of approximately 1.7 years.
The fair value of Deferred Awards that vested during Fiscal 2021, Fiscal 2020, and Fiscal 2019 was $14.6 million, $5.3
million, and $13.5 million, respectively.
69
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Performance Awards
January 29, 2022
Fiscal Years Ended
January 30, 2021
February 1, 2020
Number of
Shares(1)
(in thousands)
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Grant Date
Fair Value
Number of
Shares(1)
(in thousands)
Number of
Shares(1)
(in thousands)
Weighted
Average
Grant Date
Fair Value
Unvested Performance Awards at
beginning of year
Granted
Shares earned in excess of (below)
target
Vested shares, including shares earned
in excess of target
Forfeited
Unvested Performance Awards at end
of year
350 $
164
74.37
75.01
342 $
144
99.97
52.16
352 $
201
90.66
98.49
(22)
65.34
(101)
118.00
181
75.83
(119)
(7)
89.44
90.22
(4)
(31)
107.51
107.24
(354)
(38)
76.36
110.77
366 $
70.01
350 $
74.37
342 $
99.97
____________________________________________
(1)
For awards for which the performance period is complete, the number of unvested shares is based on actual shares that will vest upon completion of the
service period. For awards for which the performance period is not yet complete, the number of unvested shares is based on the participants earning their
target shares at 100%.
The cumulative expense recognized for Performance Awards reflects changes in the probability that the performance
criteria will be achieved as they occur. Based on the current number of Performance Awards expected to be earned, total
unrecognized stock-based compensation expense related to unvested Performance Awards was $13.2 million as of January 29,
2022, which will be recognized over a weighted average period of approximately 1.8 years.
The fair value of Performance Awards that vested during Fiscal 2021, Fiscal 2020, and Fiscal 2019 was $10.6 million,
$0.1 million, and $33.9 million, respectively.
12. INCOME TAXES
The components of Income (loss) before provision (benefit) for income taxes were as follows:
Domestic
Foreign
(in thousands)
$
198,173 $
(250,876) $
58,857
39,118
Total income (loss) before provision (benefit) for income taxes
$
257,030 $
(211,758) $
36,660
51,757
88,417
Fiscal Years Ended
January 29,
2022
January 30,
2021
February 1,
2020
70
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of the Company’s Provision (benefit) for income taxes consisted of the following:
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Fiscal Years Ended
January 29,
2022
January 30,
2021
February 1,
2020
(in thousands)
$
29,406
$
(45,072)
$
7,389
7,218
212
5,728
44,013
(39,132)
14,517
8,780
2,549
25,846
(14,274)
(15,968)
(2,019)
(32,261)
1,810
1,186
6,757
9,753
4,240
1,066
58
5,364
Total provision (benefit) for income taxes
Effective tax rate
$
69,859
$
(71,393)
$
15,117
27.2 %
33.7 %
17.1 %
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act allows net
operating losses (“NOLs”) incurred in taxable years 2018, 2019, and 2020 to be carried back to each of the five preceding
taxable years to offset 100% of taxable income and to generate a refund of previously paid income taxes. Pursuant to the
CARES Act, the Company carried back the Fiscal 2020 tax loss of approximately $150.0 million to prior years and the resulting
income tax receivable of $41.1 million is included within Prepaid expenses and other current assets on the Consolidated
Balance Sheets.
A reconciliation between the calculated tax provision (benefit) based on the U.S. federal statutory rate of 21.0% and the
effective tax rate for Fiscal 2021, Fiscal 2020, and Fiscal 2019 follows:
Fiscal Years Ended
January 29,
2022
January 30,
2021
February 1,
2020
Calculated income tax provision (benefit) at U.S. federal statutory rate
State and local income taxes, net of federal benefit
Foreign tax rate differential (1)
Non-deductible expenses
Excess tax detriment (benefit) related to stock compensation
$
Unrecognized tax benefits
Change in valuation allowance
Global intangible low-taxed income
Federal tax credits
CARES Act Carryback (2)
Other
(in thousands)
53,976 $
14,394
(3,598)
7,301
(293)
1,050
358
1,476
(44,471) $
(12,447)
(5,791)
2,654
2,051
1,150
(10)
7,815
18,568
1,779
(5,019)
1,491
(1,914)
1,304
(21)
836
(2,882)
(1,422)
(1,790)
—
(20,954)
(1,923)
32
—
(117)
Total provision (benefit) for income taxes
$
69,859 $
(71,393) $
15,117
____________________________________________
(1) The Company has substantial operations in Hong Kong, which has a lower statutory income tax rate as compared to the U.S. The Company’s foreign
effective tax rate for Fiscal 2021, Fiscal 2020, and Fiscal 2019 was 16.6%, 7.7%, and 13.2%, respectively. This rate fluctuates from year to year in
response to changes in the mix of income by country, as well as changes in tax laws in foreign jurisdictions.
71
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) The CARES Act permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. The Fiscal 2020 tax
loss of approximately $150.0 million was carried back to earlier tax years when the corporate tax rate was 35.0%, compared to the current corporate tax
rate of 21.0%, resulting in a tax benefit of $21.0 million.
The assessment of the amount of value assigned to the Company’s deferred tax assets under the applicable accounting
rules is judgmental. The Company is required to consider all available positive and negative evidence in evaluating the
likelihood that it will be able to realize the benefit of the Company’s deferred tax assets in the future. Such evidence includes
scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and the results of recent
operations. Since this evaluation requires consideration of events that may occur some years into the future, there is an element
of judgment involved. Realization of the Company’s deferred tax assets is dependent on generating sufficient taxable income in
future periods. The Company believes that it is more likely than not that future taxable income will be sufficient to recover
substantially all of the value assigned to the Company’s deferred tax assets. However, if future events cause the Company to
conclude that it is not more likely than not that it will be able to recover all of the value assigned to its deferred tax assets, the
valuation allowance would be adjusted accordingly.
The tax effects of temporary differences which give rise to deferred tax assets and liabilities were as follows:
Operating lease liabilities
Right-of-use assets
Stock-based compensation
Reserves
Inventory
Property and equipment, net
Capitalized research and development, net
Tradenames and customer databases, net
Prepaid expenses
Foreign and state tax on unremitted earnings
Net operating loss carryforward
Tax credits
Charitable contributions
Valuation allowance
Total deferred tax asset, net
January 29,
2022
January 30,
2021
(in thousands)
$
59,283 $
86,241
(51,617)
(75,159)
2,863
12,475
4,570
(6,296)
3,569
(2,200)
(1,481)
(1,554)
2,900
1,746
—
843
16,302
1,880
(7,406)
2,984
(1,617)
(817)
(1,554)
11,240
10,581
2,977
(1,149)
(916)
$
23,109 $
45,579
The Company has state NOL carryforwards of $41.4 million which expire within four and nineteen years, foreign NOL
carryforwards of $0.7 million which does not expire and $1.2 million which expires in five years. The Company also has an
Alternative Minimum Tax credit (“AMT”) in Puerto Rico of $0.6 million.
The Company has concluded that it is more likely than not that certain deferred tax assets cannot be used in the
foreseeable future, principally the foreign net operating loss carryforwards and the AMT credit in Puerto Rico. Accordingly, a
valuation allowance has been established for these tax benefits. However, to the extent these tax benefits are realized in the
future, the reduction of the valuation allowance will reduce income tax expense accordingly.
On December 22, 2017, the U.S. government passed the Tax Cuts and Jobs Act (the “Tax Act”), which resulted in
complex changes to the U.S. tax code including, but not limited to, the reduction of the corporate tax rate from 35% to 21% and
a move from a global tax regime to a modified territorial regime which required U.S. companies to pay a mandatory one-time
transition tax on historical offshore earnings that had not been repatriated to the U.S. The remaining unpaid transition tax,
which begins to be repaid in 2024, amounted to $14.9 million at January 29, 2022, and is shown as Long-term income taxes
payable on the Consolidated Balance Sheets.
While the Company is no longer permanently reinvested to the extent earnings were subject to the transition tax under
the Tax Act, no additional income taxes have been provided on any earnings subsequent to the transition tax or for any
additional outside basis differences inherent in the Company’s foreign subsidiaries, as these amounts continue to be
72
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
permanently reinvested in foreign operations. Determining the amount of the unrecognized deferred tax liability related to any
additional outside basis differences in the Company’s foreign subsidiaries (i.e., basis differences in excess of that subject to the
one-time transition tax) is not practicable. The unremitted foreign earnings earned subsequent to the transition tax, which are
permanently reinvested, were $178.4 million as of January 29, 2022.
Uncertain Tax Benefits
Tax positions are evaluated in a two-step process. First, the Company determines whether it is more-likely-than-not that
a tax position will be sustained upon examination. Second, if a tax position meets the more-likely-than-not recognition
threshold, it is measured to determine the amount of benefit to recognize in the financial statements. The tax position is
measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement.
A reconciliation of the gross amounts of unrecognized tax benefits, excluding accrued interest and penalties, is as
follows:
Beginning Balance
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Impact of foreign currency translation
Ending Balance
Fiscal Years Ended
January 29,
2022
January 30,
2021
(in thousands)
$
8,060 $
1,155
67
(317)
(28)
6,655
1,256
120
—
29
$
8,937 $
8,060
Unrecognized tax benefits of $8.7 million, excluding accrued interest and penalties, at January 29, 2022 would affect the
Company’s effective tax rate in future periods, if recognized. The Company expects to reverse reserves for unrecognized tax
benefits of approximately $6.7 million in the next 12 months as a result of settlements with taxing authorities or the expiration
of statutes of limitations.
The Company accrues interest and penalties related to unrecognized tax benefits as part of the provision for income
taxes. At January 29, 2022 and January 30, 2021, accrued interest and penalties of $0.5 million and $0.2 million, respectively,
were included in unrecognized tax benefits. Interest, penalties, and reversals thereof, net of taxes, amounted to expense of $0.3
million in Fiscal 2021 and $0.1 million in Fiscal 2020.
The Company is subject to tax in the U.S. and foreign jurisdictions, including Canada and Hong Kong. The Company
files a consolidated U.S. income tax return for federal income tax purposes. The Company is no longer subject to income tax
examinations by U.S. federal, state and local or foreign tax authorities for tax years 2016 and prior, with the exception of Hong
Kong, which is open through tax year 2013 due to an ongoing tax examination.
13. RETIREMENT AND SAVINGS PLANS
401(k) Plan
The Company has adopted The Children’s Place 401(k) Savings Plan (the “401(k) Plan”), which qualifies under
Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”). The 401(k) Plan is a defined contribution plan
established to provide retirement benefits for employees. The 401(k) Plan is employee funded up to an elective annual deferral
amount and also provides for Company matching contributions up to a certain percentage of the employee’s salary.
The 401(k) Plan is available for all U.S. employees of the Company. Following guidance in IRS Notice 98-52 related to
the design-based alternative, or “safe harbor,” 401(k) plan method, the Company modified its 401(k) Plan for Company match
contributions for non-highly compensated associates, as defined in the Code. For non-highly compensated associates, the
Company matches the first 3% of the participant’s contributions and 50% of the next 2% of the participant’s contributions, and
the Company match contribution vests immediately. For highly compensated associates, the Company has the discretion to
match the lesser of 50% of the participant’s contributions or 2.5% of the participant’s covered compensation and the Company
73
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
match contribution vests over five years. Due to the COVID-19 pandemic, the Company suspended the Company's portion of
the 401(k) match on June 1, 2020, which was subsequently reinstated on January 1, 2021. The Company’s matching
contributions were $3.5 million in Fiscal 2021, $1.4 million in Fiscal 2020, and $3.5 million in Fiscal 2019.
Deferred Compensation Plan
The Deferred Compensation Plan liability, excluding Company stock, was $2.2 million at January 29, 2022 and
January 30, 2021. The value of the assets held in the rabbi trust was $2.2 million at January 29, 2022 and January 30, 2021. The
cost of the Company’s stock repurchased was $3.4 million and $3.2 million at January 29, 2022 and January 30, 2021,
respectively.
Other Plans
Under statutory requirements, the Company contributes to retirement plans for its operations in Canada, Puerto Rico, and
Asia. Contributions under these plans were $0.6 million, $0.7 million, and $0.7 million in Fiscal 2021, Fiscal 2020, and Fiscal
2019, respectively.
14. SEGMENT INFORMATION
In accordance with FASB ASC 280—Segment Reporting, the Company reports segment data based on geography: The
Children’s Place U.S. and The Children’s Place International. Each segment includes an e-commerce business located
at www.childrensplace.com, www.gymboree.com, and www.sugarandjade.com. Included in The Children’s Place U.S. segment
are the Company’s U.S. and Puerto Rico-based stores and revenue from the Company’s U.S.-based wholesale business.
Included in The Children’s Place International segment are the Company’s Canadian-based stores, revenue from the
Company’s Canadian-based wholesale business, and revenue from international franchisees. The Company measures its
segment profitability based on operating income, defined as income before interest and taxes. Net sales and direct costs are
recorded by each segment. Certain inventory procurement functions, such as production and design, as well as corporate
overhead, including executive management, finance, real estate, human resources, legal, and information technology services,
are managed by The Children’s Place U.S. segment. Expenses related to these functions, including depreciation and
amortization, are allocated to The Children’s Place International segment based primarily on net sales. The assets related to
these functions are not allocated. The Company periodically reviews these allocations and adjusts them based upon changes in
business circumstances. Net sales to external customers are derived from merchandise sales, and the Company has no
customers that individually account for more than 10% of its net sales. As of January 29, 2022, The Children’s Place U.S.
had 589 stores and The Children’s Place International had 83 stores. As of January 30, 2021, The Children’s Place U.S.
had 648 stores and The Children’s Place International had 101 stores.
74
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables provide segment level financial information for Fiscal 2021, Fiscal 2020, and Fiscal 2019:
January 29,
2022
Fiscal Years Ended
January 30,
2021
(in thousands)
February 1,
2020
Net sales:
The Children’s Place U.S.
The Children’s Place International (1)
Total net sales
Operating income (loss):
The Children’s Place U.S.
The Children’s Place International
Total operating income (loss)
Operating income (loss) as a percentage of net sales:
The Children’s Place U.S.
The Children’s Place International
Total operating income (loss) as a percentage of net sales
Depreciation and amortization:
The Children’s Place U.S.
The Children’s Place International
Total depreciation and amortization
Capital expenditures:
The Children’s Place U.S.
The Children’s Place International
Total capital expenditures
$ 1,723,887 $ 1,372,079 $ 1,671,165
199,502
$ 1,915,364 $ 1,522,598 $ 1,870,667
191,477
150,519
$
$
253,419 $
22,229
275,648 $
(196,565) $
(3,350)
(199,915) $
77,989
18,369
96,358
14.7 %
11.6 %
14.4 %
$
$
$
$
53,984
4,433
58,417
28,551
756
29,307
$
$
$
$
(14.3) %
(2.2) %
(13.1) %
61,074
5,331
66,405
29,955
630
30,585
$
$
$
$
4.7 %
9.2 %
5.2 %
67,416
7,372
74,788
56,598
904
57,502
____________________________________________
(1)
Net sales from The Children’s Place International are primarily derived from Canadian operations. The Company’s foreign subsidiaries, primarily in
Canada, have operating results based in foreign currencies and are thus subject to the fluctuations of the corresponding translation rates into U.S. dollars.
Total assets:
The Children’s Place U.S.
The Children’s Place International
Total assets
January 29,
2022
January 30,
2021
(in thousands)
$
951,401 $ 1,054,339
85,788
86,059
$ 1,037,460 $ 1,140,127
75
THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Geographic Information
The Company’s long-lived assets were located in the following countries:
Long-lived assets (1):
United States
Canada
Asia
Total long-lived assets
January 29,
2022
January 30,
2021
(in thousands)
$
415,548 $
521,304
16,868
397
25,355
806
$
432,813 $
547,465
____________________________________________
(1)
The Company’s long-lived assets are comprised of net Property and equipment, ROU assets, Tradenames, and Other assets.
76
(a)(3) Exhibits.
Exhibit
Description
3.1
3.2
4.1(1)
4.2(1)
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7(*)
10.8(*)
10.9
10.11
10.12(*)
10.13
10.16(*)
Amended and Restated Certificate of Incorporation of the Company dated May 31, 2016 filed as Exhibit
3.1 to the registrant’s Current Report on Form 8-K filed on June 7, 2016 is incorporated by reference
herein.
Sixth Amended and Restated By-Laws of the Company filed as Exhibit 3.2 to the registrant’s Form 8-K
filed on June 7, 2016, is incorporated by reference herein.
Form of Certificate for Common Stock of the Company filed as an exhibit to the registrant’s Registration
Statement No. 333‑31535 on Form S-1, is incorporated by reference herein.
Amended Form of Certificate for Common Stock of the Company filed as Exhibit 4.2 to the registrant’s
Annual Report on Form 10-K for the period ended January 28, 2017, is incorporated by reference herein.
Description of capital stock of the Company filed as Exhibit 4.3 to the registrant’s Annual Report on
Form 10-K for the period ended February 1, 2020, is incorporated by reference herein.
Lease Agreement as of August 12, 2003 between Orlando Corporation and The Children’s Place
(Canada), LP, together with Indemnity Agreement as of August 12, 2003 between the Company and
Orlando Corporation, together with Surrender of Lease as of August 12, 2003 between the Company and
Orlando Corporation and Orion Properties Ltd. (Canadian Distribution Center) filed as Exhibit 10.2 to the
registrant’s Quarterly Report on Form 10‑Q for the period ended November 1, 2003, is incorporated by
reference herein.
Form of Indemnity Agreement between the Company and certain members of management and the Board
of Directors filed as Exhibit 10.7 to registrant’s Quarterly Report on Form 10-Q for the period ended
August 2, 2008, is incorporated by reference herein.
Lease Agreement between The Children’s Place Services Company, LLC and 500 Plaza Drive Corp.
effective as of March 12, 2009 (500 Plaza Drive), Secaucus, New Jersey filed as Exhibit 10.67 to the
registrant’s Annual Report on Form 10-K for the period ended January 31, 2009, is incorporated by
reference herein.
Guaranty between the Company and 500 Plaza Drive Corp. effective as of March 12, 2009 filed as
Exhibit 10.68 to the registrant’s Annual Report on Form 10-K for the period ended January 31, 2009, is
incorporated by reference herein.
The First Lease Modification Agreement, dated as of August 27, 2009, between The Children’s Place
Services Company, LLC and 500 Plaza Drive Corp. filed as Exhibit 10.3 to the Registrant’s Quarterly
Report on Form 10-Q for the period ended August 1, 2009, is incorporated by reference herein.
The Company Nonqualified Deferred Compensation Plan effective January 1, 2010 filed as Exhibit 10.82
to the registrant’s Annual Report on Form 10-K for the period ended January 30, 2010, is incorporated by
reference herein.
Amended and Restated Employment Agreement, dated as of March 28, 2011, by and between the
Company and Jane T. Elfers filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for
the quarterly period ended April 30, 2011, is incorporated by reference herein.
Amendment No. 1 as of March 23, 2012 to Amended and Restated Employment Agreement dated as of
March 28, 2011, by and between the Company and Jane T. Elfers filed as Exhibit 10.31 to the
Registrant’s Annual Report on Form 10-K for the period ended January 28, 2012, is incorporated by
reference herein.
Form of Amended and Restated Change in Control Agreement filed as Exhibit 10.41 to the registrant’s
Annual Report on Form 10-K for the period ended January 29, 2011, is incorporated by reference herein.
Agreement dated May 22, 2015, by and among The Children’s Place, Inc., Macellum SPV II, LP,
Barington Companies Equity Partners, L.P., Jonathan Duskin, James A. Mitarotonda, certain of their
affiliates listed on Schedule A to the Agreement, and Robert L. Mettler filed as Exhibit 10.1 to the
registrant’s Current Report on Form 8-K filed on May 29, 2015, is incorporated herein by reference.
The Company Profit Sharing/401(k) Plan Adoption Agreement No.#001 for use with Fidelity Basic Plan
Document No. 17 entered into by the Company and Fidelity Management Trust Company on September
11, 2015 as filed as Exhibit 10.28 to the registrant’s Annual Report on Form 10-K for the period ended
January 30, 2016, is incorporated by reference herein.
The Children’s Place, Inc. Fourth Amended and Restated 2011 Equity Incentive Plan filed as Annex B to
the registrant’s Definitive Proxy Statement on Schedule 14A filed on April 2, 2021, is incorporated by
reference herein.
Form of Performance-Based Restricted Stock Unit Award Agreement under the 2011 Equity Incentive
Plan (Senior Vice President & above) filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form
10-Q for the period ended May 4, 2019, is incorporated by reference herein.
77
Exhibit
10.17(*)
10.18(*)
10.19(*)
10.20(*)
10.21
10.22
10.23(+)
10.24
10.25
10.26(*)
10.27
10.28(*)
10.29(+)(*)
10.30(*)
Description
Form of Performance-Based Restricted Stock Unit Award Agreement under the 2011 Equity Incentive
Plan (below Senior Vice President) filed as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-
Q for the period ended May 4, 2019, is incorporated by reference herein.
Letter Agreement dated February 13, 2019 between The Children’s Place Services Company, LLC and
Claudia Lima-Guinehut filed as Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the
period ended May 4, 2019, is incorporated by reference herein.
Letter Agreement dated May 25, 2020 between The Children’s Place Services Company, LLC and Leah
Swan filed as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the period ended May 2,
2020, is incorporated by reference herein.
Amended and Restated Credit Agreement, dated as of May 9, 2019, by and among the Company and The
Children’s Place Services Company, LLC, as borrowers, The Children’s Place (International), LLC, The
Children’s Place Canada Holdings, Inc., the childrensplace.com, inc., TCP IH II, LLC, TCP International
IP Holdings, LLC and TCP International Product Holdings, LLC, as guarantors, Wells Fargo Bank,
National Association (successor by merger to Wells Fargo Retail Finance, LLC), as Administrative Agent
and Collateral Agent, L/C Issuer, Swing Line Lender and as a lender and Bank of America, N.A., HSBC
Bank USA, N.A. and JPMorgan Chase Bank, N.A., as lenders, filed as Exhibit 10.5 to the registrant’s
Quarterly Report on Form 10-Q for the period ended May 4, 2019, is incorporated by reference herein.
First Amendment to Amended and Restated Credit Agreement, dated April 24, 2020, by and among the
Company and The Children's Place Services Company, LLC, as borrowers, The Children's Place
(International), LLC, The Children's Place Canada Holdings, Inc., the childrensplace.com, inc., TCP IH
II, LLC, TCP International IP Holdings, LLC and TCP International Product Holdings, LLC, as
guarantors, Wells Fargo Bank, National Association (successor by merger to Wells Fargo Retail Finance,
LLC), as Administrative Agent and Collateral Agent, L/C Issuer, Swing Line Lender and as a lender and
HSBC Bank USA, N.A. and JPMorgan Chase Bank, N.A., as lenders, filed as Exhibit 10.1 to the
registrant’s Quarterly Report on Form 10-Q for the period ended May 2, 2020, is incorporated by
reference herein.
Joinder and Second Amendment to Amended and Restated Credit Agreement and Other Loan
Documents, dated as of October 5, 2020, among the Company, the Borrowers identified on Schedule I
thereto, TCP Brands, LLC, TCP Investment Canada I Corp., collectively, the New Guarantors, the
Guarantors identified on Schedule II thereto, the Lenders and Wells Fargo Bank, National Association
(successor by merger to Wells Fargo Retail Finance, LLC), as Administrative Agent and Collateral
Agent, L/C Issuer, Swing Line Lender and as a lender, filed as Exhibit 4.2 to the registrant’s Current
Report on Form 8-K filed on October 6, 2020, is incorporated by reference herein.
Third Amendment to Amended and Restated Credit Agreement, dated as of April 23, 2021, by and
among the Company, the Borrowers identified on Schedule I thereto, the Guarantors identified on
Schedule II thereto, the Lenders and Wells Fargo Bank, National Association (successor by merger to
Wells Fargo Retail Finance, LLC), as Administrative Agent, Collateral Agent, L/C Issuer, and Swing
Line Lender.
Joinder and Fourth Amendment to Amended and Restated Credit Agreement and Other Loan Documents,
dated as of November 15, 2021, among the Company, the Borrowers identified on Schedule I thereto,
TCP Brands, LLC, The Children’s Place International, LLC, collectively the New Borrowers, the
Guarantors identified on Schedule II thereto, the Lenders and Wells Fargo Bank, National Association, as
Administrative Agent, Collateral Agent, L/C Issuer, Swing Line Lender and Term Agent, filed as Exhibit
10.4 to the registrant’s Quarterly Report on Form 10-Q for the period ended October 30, 2021.
Asset Purchase Agreement, dated March 1, 2019, by and among TCP Brands, LLC, as buyer, and
Gymboree Group, Inc. and its subsidiaries, as sellers, filed as Exhibit 10.6 to the registrant’s Quarterly
Report on Form 10-Q for the period ended May 4, 2019, is incorporated by reference herein.
Form of Performance-Based Restricted Stock Unit Award Agreement under the 2011 Equity Incentive
Plan (Senior Vice President & above), filed as Exhibit 10.3 to the registrant’s Quarterly Report on Form
10-Q for the period ended May 2, 2020, is incorporated by reference herein.
The Fifth Lease Modification Agreement, dated as of January 29, 2021, by and between The Children’s
Place Services Company, LLC and Hancock S-REIT SECA LLC filed as Exhibit 10.24 to the registrant’s
Annual Report on Form 10-K for the period ended January 30, 2021, is incorporated by reference herein.
Form of Performance-Based Restricted Stock Unit Award Agreement under the 2011 Equity Incentive
Plan (Senior Vice President & above) filed as Exhibit 10.25 to the registrant’s Annual Report on Form
10-K for the period ended January 30, 2021, is incorporated by reference herein.
Form of Time-Based Restricted Stock Unit Award Agreement under the 2011 Equity Incentive Plan
(Senior Vice President & above).
Letter Agreement dated February 16, 2021 between The Children’s Place Services Company, LLC and
Robert Helm filed as Exhibit 10.27 to the registrant’s Annual Report on Form 10-K for the period ended
January 30, 2021, is incorporated by reference herein.
78
Exhibit
10.31(*)
21.1(+)
23.1(+)
31.1(+)
31.2(+)
32(+)
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
Description
Letter Agreement dated July 21, 2021 between The Children’s Place Services Company, LLC and Jared
Shure filed as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the period ended July
31, 2021, is incorporated by reference herein.
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm Ernst & Young, LLP.
Certificate of Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
Certificate of Principal Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
XBRL Taxonomy Extension Schema.
XBRL Taxonomy Extension Calculation Linkbase.
XBRL Taxonomy Extension Definition Linkbase.
XBRL Taxonomy Extension Label Linkbase.
XBRL Taxonomy Extension Presentation Linkbase.
________________________________________
(1) Exhibit numbers are identical to the exhibit numbers incorporated by reference to such registration statement.
(*) Compensation Arrangement.
(+) Filed herewith.
* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange
Act of 1934 and otherwise are not subject to liability.
(b) Exhibits. The exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated by reference.
(c) Financial Statement Schedules and Other Financial Statements.
All other financial statement schedules are omitted from this Annual Report on Form 10-K, as they are not required or
applicable or the required information is included in the financial statements or notes thereto.
ITEM 16.
FORM 10-K SUMMARY.
Omitted at registrant’s option.
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE CHILDREN’S PLACE, INC.
By:
/S/ Jane T. Elfers
Jane T. Elfers
Chief Executive Officer and President
March 25, 2022
80
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/S/ Norman Matthews
Chairman of the Board
March 25, 2022
Norman Matthews
/S/ Jane T. Elfers
Jane T. Elfers
Director, Chief Executive Officer and President March 25, 2022
(Principal Executive Officer)
/S/ Robert Helm
Robert Helm
Chief Financial Officer
(Principal Financial Officer)
/S/ Michael Rinaldo
Michael Rinaldo
Chief Accounting Officer
(Principal Accounting Officer)
March 25, 2022
March 25, 2022
/S/ Joseph Alutto
Joseph Alutto
Director
March 25, 2022
/S/ John E. Bachman
Director
John E. Bachman
March 25, 2022
/S/ Marla Beck
Marla Beck
Director
March 25, 2022
/S/ Elizabeth Boland
Director
Elizabeth Boland
/S/ John A. Frascotti
Director
John A. Frascotti
/S/ Tracey Griffin
Tracey Griffin
/S/ Joseph Gromek
Joseph Gromek
/S/ Katherine Kountze
Katherine Kountze
/S/ Debby Reiner
Debby Reiner
Director
Director
Director
Director
81
March 25, 2022
March 25, 2022
March 25, 2022
March 25, 2022
March 25, 2022
March 25, 2022
* This document, together with the Annual Report on Form 10-K for the fiscal year ended January 29, 2022, constitutes our 2021 Annual Report to Stockholders. † As of March 25, 2022 Supplement* The Children’s Place, Inc. Board of Directors and Executive Officers † Board of Directors Executive Officers Norman Matthews (Chairman of the Board) Retired; formerly President of Federated Department Stores Jane T. Elfers Chief Executive Officer and President, The Children’s Place, Inc. Joseph Alutto, Dr. Distinguished Professor of Organizational Behavior - Emeritus, The Ohio State University John E. Bachman Retired; formerly Operations Leader of U.S. Assurance Practice at PricewaterhouseCoopers, LLP and formerly a partner at the firm Marla Beck Formerly Chief Executive Officer of Bluemercury, Inc. Elizabeth Boland Chief Financial Officer of Bright Horizons Family Solutions Inc. John A. Frascotti Special Advisor and former President and Chief Operating Officer of Hasbro, Inc. Tracey R. Griffin Chief Financial Officer and Chief Operating Officer of Framebridge, Inc. Katherine Kountze Executive Vice President and Chief Information Officer of DentaQuest Joseph Gromek Retired; formerly President and Chief Executive Officer, The Warnaco Group, Inc. Jane T. Elfers Chief Executive Officer and President Leah Swan Chief Operating Officer Robert Helm Chief Financial Officer Claudia Lima-Guinehut Senior Vice President, Global Merchandising and Strategic Partnerships Jared Shure Senior Vice President, General Counsel and Corporate Secretary Debby Reiner President, Global Clients at Grey Global Group (cid:3)