UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON,
D.C. 20549
______________
FORM 10-K
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x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended February 2, 2008
OR
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o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from _______________ to _____________
Commission
File Number: 000-07258
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CHARMING SHOPPES,
INC.
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(Exact
Name of Registrant as Specified in Its
Charter)
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PENNSYLVANIA
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23-1721355
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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450 WINKS LANE,
BENSALEM, PA 19020
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(215)
245-9100
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(Address
of principal executive offices) (Zip
Code)
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(Registrant’s
telephone number, including Area Code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each
Class
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Name of Each Exchange
on Which Registered
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Common
Stock (par value $.10 per share)
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The
NASDAQ Stock Market LLC
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Stock
Purchase Rights
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The
NASDAQ Stock Market LLC
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Securities
registered pursuant to Section 12(g) of the Act:
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None
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(Title
of Class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act:
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Yes
x
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No
o
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Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act:
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Yes
o
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No
x
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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:
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Yes
x
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No
o
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Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K:x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act):
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Large
Accelerated Filer x
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Accelerated
Filer o
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Non-accelerated
Filer o
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Smaller
Reporting Company o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
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Yes
o
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No
x
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The
aggregate market value of the outstanding common stock of the registrant held by
non-affiliates as of August 4, 2007 (the last day of the registrant’s most
recently completed second fiscal quarter), based on the closing price on August
3, 2007, was approximately $1,165,407,157.
As of
March 24, 2008, 113,251,845 shares of the registrant’s common stock were
outstanding.
DOCUMENTS INCORPORATED BY
REFERENCE
Certain
information required by Part III of this Form 10-K is incorporated by reference
herein from the registrant’s definitive proxy statement for its 2008 annual
shareholders meeting, which is expected to be filed within 120 days after the
end of the fiscal year covered by this Annual Report.
CHARMING SHOPPES,
INC.
FORM 10-K ANNUAL
REPORT
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TABLE OF
CONTENTS
(Continued)
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Item
8
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Financial
Statements and Supplementary Data (Continued)
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We are a
multi-brand, multi-channel specialty apparel retailer with a leading market
share in women’s plus-size specialty apparel. Our Retail Stores
segment operates retail stores and related E-commerce websites under the
following distinct names: LANE BRYANT®, LANE BRYANT
OUTLET®, FASHION BUG®, CATHERINES PLUS
SIZES®, PETITE
SOPHISTICATE®, and PETITE
SOPHISTICATE OUTLET®. Our
Direct-to-Consumer segment operates numerous apparel, accessories, footwear, and
gift catalogs and related E-commerce websites through our Crosstown Traders
business, which we acquired in June 2005. During the year ended
February 2, 2008 (“Fiscal 2008”) the sale of plus-size apparel represented
approximately 74% of our total net sales. Through our multiple
channels, fashion content, and broad merchandise assortments, we seek to appeal
to customers from a broad range of socioeconomic, demographic, and cultural
groups. As of February 2, 2008 we operated 2,409 stores in 48
states.
LANE BRYANT® is a
widely recognized brand name in plus-size fashion. Through private
labels such as VENEZIA®, CACIQUE®, and LANE
BRYANT®, we offer
fashionable and sophisticated apparel in plus-sizes 14 – 28, including intimate
apparel, wear-to-work, and casual sportswear, as well as
accessories. LANE BRYANT has a loyal customer base, generally ranging
in age from 35 to 55 years old, which shops for fashionable merchandise in the
moderate price range. Our 795 LANE BRYANT retail stores are located
in 46 states, in a combination of destination malls, lifestyle centers, and
strip malls, and average approximately 5,900 square feet. During
Fiscal 2008 our LANE BRYANT website (lanebryant.com) averaged more
than 2.4 million unique visitors per month and has an established on-line
community.
In Fiscal
2006 we introduced the LANE BRYANT intimate apparel side-by-side store, which
pairs LANE BRYANT’s casual and wear-to-work sportswear assortments with an
expanded line of CACIQUE intimates as well as additional national brands,
presented in a double store-front. As a result of a successful
testing period during Fiscal 2006, many of our LANE BRYANT retail store openings
and relocations for Fiscal 2007 and Fiscal 2008 were in the new side-by-side
format. This larger footprint of approximately 7,300 square feet per
combined store compares with the full-line LANE BRYANT store footprint of
approximately 5,700 square feet. As of February 2, 2008 we operated 108
stores (which are included in the 795 stores operated by LANE BRYANT) in the
LANE BRYANT intimate apparel side-by-side format.
LANE BRYANT
OUTLET® is the
only national chain exclusively offering women’s plus-size apparel in the outlet
sales channel. Through our private labels and selected national
brands we offer fashionable and sophisticated apparel in plus-sizes
14 – 28, including
intimate apparel, wear-to-work, casual sportswear, and accessories, as well as
footwear and social occasion apparel. As of February 2, 2008 we operated 101
LANE BRYANT OUTLET stores in 35 states throughout the country. LANE
BRYANT OUTLET stores average approximately 5,900 square feet.
FASHION BUG® stores
specialize in selling a wide variety of plus-size, misses, junior, and girls
apparel, accessories, intimate apparel, and footwear. FASHION BUG
customers generally range in age from 20 to 49 years old and shop in the
low-to-moderate price range. Our 989 FASHION BUG stores are located
in 44 states, primarily in strip shopping centers, and average approximately
8,700 square feet. During Fiscal 2008 our FASHION BUG website (fashionbug.com) averaged more
than 900,000 unique visitors per month.
CATHERINES PLUS
SIZES® is
particularly known for extended sizes (over size 28) and petite
plus-sizes. CATHERINES offers classic apparel and accessories for
wear-to-work and casual lifestyles. CATHERINES customers generally
range in age from 40 to 65 years old, shop in the moderate price range, and are
concerned with fit and value. Our 468 CATHERINES stores are located
in 44 states, primarily in strip shopping centers, and average approximately
4,200 square feet. During Fiscal 2008 our CATHERINES website (catherines.com) averaged more
than 463,000 unique visitors per month.
PETITE SOPHISTICATE
OUTLET® is the
only national chain exclusively offering women’s petite-size apparel in the
outlet sales channel. PETITE SOPHISTICATE OUTLET targets women 35 –
55 years old and offers traditional and contemporary apparel in casual and
career assortments. We offer clothing tailored to women 4'11''
– 5'4'' who wear petite sizes 0 – 14. As of February 2, 2008 we
operated 52 PETITE SOPHISTICATE OUTLET stores in 23 states throughout the
country. These stores average approximately 2,700 square feet, and
substantially all of the stores operate with a LANE BRYANT OUTLET store in
side-by-side locations. These side-by-side locations average a
combined total of approximately 9,200 square feet. The chain also has
a marketing and informational website (petitesophisticate.com).
CROSSTOWN TRADERS is a
direct marketer of women’s apparel, footwear, accessories, and specialty
gifts. Crosstown Traders markets women’s apparel through its OLD
PUEBLO TRADERS®, BEDFORD FAIR
LIFESTYLES®, WILLOW RIDGE®, LEW MAGRAM®, BROWNSTONE
STUDIO®, INTIMATE
APPEAL®, MONTEREY BAY
CLOTHING COMPANY®, COWARD® SHOE, SHOETRADER™
and other catalog titles and related E-commerce sites, and markets food and
specialty gift products through its FIGI’S® catalog and
related E-commerce site. During Fiscal 2008 the LANE BRYANT catalog
trademark, which had been licensed to a third party, reverted to us and we
launched our LANE BRYANT WOMAN™ catalog. The LANE BRYANT WOMAN
catalog offers clothing, footwear, and intimate apparel in an expanded range of
plus sizes at a value price point. We also launched our related
website (lanebryantcatalog.com) to
complement the catalog launch. During Fiscal 2008 our Crosstown
Traders websites collectively averaged approximately 777,000 unique visitors per
month.
Financial
information by business segment for each of our last three fiscal years is
included in “Item
8. Financial Statements and Supplementary Data: Notes to Consolidated
Financial Statements; NOTE 19. SEGMENT
REPORTING”
below.
Stores
Our 2,409
retail stores (as of February 2, 2008) are primarily located in suburban areas
and small towns. Approximately 76% of these stores are located in
strip shopping centers and lifestyle centers, with the remainder located in
community and regional malls. The majority of our FASHION BUG,
CATHERINES, and outlet stores are strip-center based. Over the past
few years LANE BRYANT has expanded into strip and lifestyle centers, and has
demonstrated success in such locations. The percentage of LANE BRYANT
stores located in strip and lifestyle shopping centers has grown to
approximately 44%, with the remaining stores located primarily in mall
centers.
We
believe that our customers visit strip shopping centers frequently as a result
of the tenant mix and convenience of strip shopping centers. Our
long-term real estate strategy is to continue to increase the percentage of
total stores in strip and lifestyle centers, primarily through growth at the
LANE BRYANT brand. Availability of strip and lifestyle center retail
space significantly outpaces mall expansion. In addition, we benefit
in strip and lifestyle centers from substantially lower occupancy costs as
compared to occupancy costs in malls.
Our
retail store merchandise displays enable our customers to assemble coordinated
and complete outfits that satisfy many of their lifestyle needs. We
frequently test and implement new store designs and fixture packages that are
aimed at providing an effective merchandise presentation. We relocate
or remodel our stores as appropriate to convey a fresh and contemporary shopping
environment. We emphasize customer service, including the presence of
helpful salespeople in the stores, layaway plans, customer loyalty programs, and
acceptance of merchandise returns for cash or credit within a reasonable time
period. Typically, our stores are open seven days per week, eleven
hours per day Monday through Saturday and seven hours on Sunday.
Our store
openings, closings, and number of locations over the past three fiscal years are
as follows:
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Year
Ended
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||||||||||||
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February
2,
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February
3,
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January
28,
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2008
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2007
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2006
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Store Activity (1):
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Number
of stores open at beginning of
period
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2,378
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2,236
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2,221
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Opened
during
period
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103 | (2) | 198 | (3) |
70
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|||||||
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Closed
during
period
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(72 | ) | (56 | ) | (55 | ) | ||||||
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Number
of stores open at end of
period
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2,409
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2,378
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2,236
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|||||||||
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Number of Stores Open at End of
Period by Brand:
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FASHION
BUG
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989
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1,009
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1,025
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LANE
BRYANT
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896 | (4) | 859 | (4) |
748
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CATHERINES
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468
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465
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463
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Other(5)
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56
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45
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0
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Number
of stores open at end of
period
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2,409
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2,378
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2,236
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____________________
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(1) Excludes 2 outlet
stores in Fiscal 2008 and Fiscal 2007 and 3 outlet stores in Fiscal 2006
operated by Crosstown Traders, Inc.
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(2) Includes 19 LANE
BRYANT OUTLET stores, 37 LANE BRYANT intimate apparel side-by-side stores,
7 PETITE SOPHISTICATE OUTLET stores, and 4 PETITE SOPHISTICATE
stores.
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(3) Includes 82 LANE
BRYANT OUTLET stores and 45 PETITE SOPHISTICATE OUTLET
stores.
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(4) Includes 101 LANE
BRYANT OUTLET stores in Fiscal 2008 and 82 LANE BRYANT OUTLET stores in
Fiscal 2007.
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(5) Includes PETITE
SOPHISTICATE OUTLET and PETITE SOPHISTICATE stores.
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We
continue to seek additional locations that meet our financial and operational
objectives. In February 2008 we announced a significant reduction in
the number of planned store openings and the closing of approximately 150
under-performing stores during the year ending January 31, 2009 (“Fiscal 2009”)
in response to the continuing weak retail and economic environment existing at
the end of Fiscal 2008 (see “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
OVERVIEW” below). Our
planned store activity by brand for Fiscal 2009 is as follows:
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Openings
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Closings
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Relocations
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FASHION
BUG
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4
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95-101
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9-12
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LANE
BRYANT
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31-38 | (1) |
41-50
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35-45 | (2) | |||||||
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CATHERINES
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6-7
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10
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4-5
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Other
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4-6 | (3) | 4-9 | (4) |
0
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|||||||
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Total
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45-55
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150-170
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48-62
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____________________
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(1) Includes 10-13 LANE
BRYANT intimate apparel side-by-side stores and 6-9 LANE BRYANT OUTLET
stores.
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(2) Includes 13-16
conversions to LANE BRYANT Intimate Apparel side-by-side
stores.
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(3) PETITE SOPHISTICATE
OUTLET stores.
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(4) Includes 0-5 PETITE
SOPHISTICATE OUTLET stores and 4 PETITE SOPHISTICATE
stores.
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All
retail stores are operated under our direct management. Each store
has a manager and an assistant manager or supervisor who is in daily operational
control of the location. We also employ district managers who travel
to all stores in their district on a frequent basis to supervise store
operations. Each district manager has responsibility for an average
of 12 stores. Regional managers who report to a Vice President of
Stores supervise the district managers. Generally, we appoint store
managers from the group of assistant managers and district managers from the
group of store managers. We seek to motivate our store personnel
through internal advancement and promotion, competitive wages, and various
incentive, medical, and retirement plans. We centrally develop store
operations, merchandising, and buying policies, and assign to individual store
management the principal duties of display, selling, and reporting through
point-of-sale terminals.
Merchandising and
Buying
We employ
a merchandising and buying strategy that is focused on providing an attractive
selection of apparel and accessories that reflect the fashion preferences of the
core customer for each of our retail store brands. Separate
merchandise groups for each of our brands conduct merchandise purchasing using
buyers supervised by one or more merchandise managers. We believe
that specialization of buyers within our brands enhances the distinctiveness of
our brands and their offerings. In addition, we use domestic and
international fashion market guidance, fashion advisory services, proprietary
design, and in-store and E-commerce testing to determine the optimal product
assortments for each of our brands. We believe that this approach
results in greater success in predicting customer preferences while reducing our
inventory investment and risk. We also seek to maintain high quality
standards with respect to merchandise fabrication, construction, and
fit. Our merchandising and buying philosophy, coupled with
enhancements in inventory management, helps facilitate the timely and orderly
purchase and flow of merchandise. This enables our stores to offer
fresh product assortments on a regular basis.
At the
end of Fiscal 2008, in connection with the consolidation of our CATHERINES
operations and additional streamlining initiatives, we consolidated the
marketing and merchandising operations for our FASHION BUG, CATHERINES, and
outlet stores at our Bensalem, Pennsylvania complex and established our
Fashion Retail Group. We expect this combined group to benefit from
improved coordination among the Retail Stores brands as well as cost savings
from the consolidation. Maintaining the specialization of buyers
within each brand will continue to enhance each brand’s identity and
distinctiveness.
We
continually refine our merchandise assortments to reflect the needs and demands
of our diverse customer groups and the demographics of each store
location. At LANE BRYANT we offer a combination of fashion basics,
seasonal fashions, and high fashion in casual and wear-to-work merchandise as
well as intimate apparel and accessories. We translate current trends
into plus-sizes and strive to be first to market with our
styles. During Fiscal 2008 we launched the “Right Fit by Lane
Bryant™” campaign, which supports our new core denim and career pant assortments
using new fit technology. At FASHION BUG we offer a broad assortment
of both casual and wear-to-work apparel in plus, misses, junior, and girls sizes
at low-to-moderate prices. FASHION BUG’s plus- and misses-size
merchandise typically reflects established fashion trends and includes a broad
offering of ready-to-wear apparel as well as footwear, accessories, intimate
apparel, and seasonal items, such as outerwear. During Fiscal 2008
our FASHION BUG stores began offering Gitano® brand fashionable
casual merchandise under our exclusive licensing agreement (Gitano® is a registered
trademark of Wrangler Apparel Corp.). At CATHERINES we offer a broad
assortment of plus-size merchandise in classic styles designed to provide
“head-to-toe” dressing for our customers. CATHERINES features casual
and career sportswear, dresses, intimate apparel, suits, and accessories in a
variety of plus-sizes, including petites and extended
sizes. CATHERINES has developed a unique expertise in the fit,
design, and manufacturing of extended sizes, making it one of the few retailers
to emphasize these sizes. During Fiscal 2008 we launched the “Right
Fit by Catherines™” campaign, which supports new core denim and career pant
assortments using new fit technology for the CATHERINES brand.
LANE
BRYANT OUTLET features products developed exclusively for our outlet stores,
which include updated key items and best-sellers from our full-line LANE BRYANT
brand. Selected national brands and expanded categories, such as
intimate apparel, footwear, and social occasion, are also offered at LANE BRYANT
OUTLET. PETITE SOPHISTICATE OUTLET offers career and casual
sportswear in sizes 0-14. The brand provides traditional, updated
classics, and collections to meet the customers’ everyday work and casual needs,
with an emphasis on outfitting.
For
stores that are identified as having certain attributes we use our distribution
capabilities to stock the stores with products specifically targeted to such
attributes. Our merchandising staff obtains store-wide and brand-wide
inventory information generated by merchandise information systems that use
point-of-sale terminals. The status of our merchandise can be tracked
from the placement of our initial order for the merchandise to the actual sale
to our customer. Based on this data, our merchandise managers compare
budgeted-to-actual sales and make merchandising decisions as needed, including
re-order, markdowns, and changes in the buying plans for upcoming
seasons. In addition, we continue to work to improve inventory
turnover by better managing the flow of seasonal merchandise to our stores
across all geographic regions.
We employ
a realistic pricing strategy for our stores that is aimed at setting the initial
price markup of fashion merchandise in order to increase the percentage of sales
at the original ticketed price. We believe this strategy has resulted
in a greater degree of credibility with the customer. However, our
pricing strategy typically does allow sufficient margin to permit merchandise
discounts in order to stimulate customer purchases when necessary.
Our
stores experience a normal seasonal sales pattern for the retail apparel
industry, with peak sales typically occurring during the spring and December
holiday seasons. We generally build inventory levels before these
peak sales periods. To maintain current and fashionable inventory we
reduce the price of slow-moving merchandise throughout the year. Much
of our merchandise is developed for one or more of our six seasons: spring,
summer, summer-fall transitional, fall, holiday, and holiday-spring
transitional. End-of-season sales are conducted with the objective of
carrying a minimal amount of seasonal merchandise over from one season to
another. Retail Stores segment sales for the four quarters of Fiscal
2008, as a percent of annual Retail Stores segment sales, were 26.4%, 26.5%,
22.7%, and 24.4%, respectively.
Marketing and
Promotions
We use
several types of advertising to stimulate retail store customer
traffic. We primarily use targeted direct-mail advertising to
preferred customers selected from a database of approximately 27.6 million
proprietary credit card, third-party credit card, and cash customers who have
purchased merchandise from us within the past three years. We may
also use radio, television, and newspaper advertising and fashion shows to
stimulate traffic at certain strategic times of the year. We also use
pricing policies, displays, store promotions, and convenient store hours to
attract customers. We maintain websites for our LANE BRYANT, FASHION
BUG, CATHERINES, and PETITE SOPHISTICATE brands that provide information
regarding current fashions and promotions. We believe that, with the
planning and guidance of our specialized home-office personnel, each brand
provides such displays and advertising as may be necessary to feature certain
merchandise or certain promotional selling prices from time to
time.
We offer
our FASHION BUG, LANE BRYANT, CATHERINES, and PETITE SOPHISTICATE retail store
customers various loyalty card programs. Customers who join these
programs are entitled to various benefits, including discounts and rebates on
purchases during the membership period. Customers join some of these
programs by paying an annual membership fee. These membership fee
programs include those administered by our proprietary credit card programs as
well as those administered outside of our proprietary credit card
programs. The proprietary credit card programs provide customers with
the option to cancel their membership within 30 days, entitling them to a full
refund of their annual fee. Other programs are offered that do not
require the payment of a membership fee but allow cardholders to earn points for
purchases using a proprietary credit card, which may be redeemed for merchandise
coupons upon the accumulation of a specified number of
points. Additional information on our loyalty card programs is
included in “Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations; CRITICAL ACCOUNTING
POLICIES; Revenue
Recognition” below.
figure® magazine, our
bi-monthly fashion and lifestyle magazine for women, features clothing and
fashions from our brands. The magazine covers topics such as: beauty;
health and fitness; home, food, and entertaining; relationships; and social and
community issues. The magazine also advertises our Crosstown Traders
catalogs. figure magazine
is available by subscription, and is also sold in all of our stores and at
selected newsstands and supermarkets, including certain national
booksellers. Since its inception in August 2003 the magazine has
grown to a per-issue circulation of more than 522,000 copies.
Sourcing
To meet
the demands of our customers we access both the domestic wholesale and overseas
markets for our retail store merchandise purchases. This allows us to
maintain flexible lead times, respond quickly to current fashion trends, and
replenish merchandise inventory as necessary. During Fiscal 2008 we
purchased merchandise from approximately 690 suppliers located throughout the
world. We use our overseas sourcing operations, which generally
require longer lead times, primarily to purchase fashion-basic merchandise for
our stores. In Fiscal 2008 our overseas sourcing operations accounted
for approximately 40% of retail store merchandise purchases. Overseas
sourcing by brand, as a percent of merchandise purchases, was approximately 37%
for FASHION BUG, 41% for LANE BRYANT, 36% for CATHERINES, and 58% for LANE
BRYANT OUTLET and PETITE SOPHISTICATE OUTLET. We also purchase a
portion of our LANE BRYANT merchandise from Mast Industries, Inc. (“Mast”), a
contract manufacturer and apparel importer that is a wholly-owned subsidiary of
Limited Brands, Inc. These purchases from Mast accounted for
approximately 5% of our total retail store merchandise purchases and
approximately 16% of merchandise purchases for LANE BRYANT during Fiscal
2008. No other vendor accounted for more than 2% of total retail
store merchandise purchases during Fiscal 2008.
We pay
for a majority of our merchandise purchases outside the United States on an open
account basis. We pay for the remainder of our purchases outside the
United States through corporate-issued letters of credit and, to a lesser
extent, through bank-issued letters of credit where we are the importer of
record. To date, we have not experienced difficulties in purchasing
merchandise overseas or importing such merchandise into the United
States. Should events such as political instability or a natural
disaster result in a disruption of normal activities in any single country with
which we do business, we believe that we would have adequate alternative sources
of supply.
Distribution and
Logistics
We
currently operate two distribution centers for our Retail Stores
segment. For our FASHION BUG, LANE BRYANT OUTLET, PETITE
SOPHISTICATE, and PETITE SOPHISTICATE OUTLET stores we operate a distribution
center in Greencastle, Indiana. This facility, which is located on a
150-acre tract of land, contains a building of approximately 1,000,000 square
feet. We estimate that this facility has the capacity to service up
to approximately 1,800 stores. For our LANE BRYANT and CATHERINES
stores we operate a distribution center in White Marsh, Maryland. The
White Marsh facility is located on 28 acres of land and contains a building of
approximately 513,000 square feet, which is currently designed to service up to
approximately 1,800 stores.
Substantially
all of our merchandise purchases are received at these distribution facilities,
where they are prepared for distribution to our stores. Automated
sorting systems in the distribution centers enhance the flow of merchandise from
receipt to quality control inspection, receiving, ticketing, packing, and final
shipment. Merchandise is shipped to each store principally by common
carriers. We use computerized automated distribution attributes to
combine shipments when possible and improve the efficiency of the distribution
operations.
Inventory
and fulfillment activities for our store-related E-commerce operations are
handled by a third-party warehouse facility in Indianapolis,
Indiana. We utilize approximately 530,000 square feet of space that
is used for merchandise receipt, storage, picking, packing, shipping, and
returns processing. A majority of this merchandise is received from
our Greencastle and White Marsh distribution centers.
Our
distribution and logistics operations provide adequate capacity for the
foreseeable future, and we continually evaluate our overall long-term
distribution and logistics requirements.
DIRECT-TO-CONSUMER
SEGMENT
We
established our Direct-to-Consumer segment in June 2005 with the acquisition of
Crosstown Traders, Inc. Crosstown Traders operates multiple catalog
titles and related websites, with the majority of revenues derived from the
catalog sales of women's apparel, footwear, and accessories, of which plus-sizes
are an important component. Crosstown Traders also derives revenues
from the catalog sales of food and gifts, a substantial majority of which occur
during the December holiday season. In addition to catalog and
catalog-related E-commerce operations, Crosstown Traders operates two catalog
outlet stores.
The
acquisition of Crosstown Traders has provided us with an infrastructure for the
development and expansion of our Direct-to-Consumer segment, which includes our
catalog and catalog-related E-commerce sales distribution
channels. In October 2007 the LANE BRYANT catalog trademark, which
had been licensed to a third party, reverted to us and we launched our LANE
BRYANT WOMAN catalog and related website.
The
Direct-to-Consumer segment provides an additional channel to serve our
customers’ lifestyle needs with targeted marketing media and merchandise
offerings in a wide range of color and size selections not generally available
in our retail stores. In addition, we believe that mail order
catalogs and catalog-related E-commerce serve as a cost-efficient means of
building brand awareness as well as testing market acceptance of new products
and new brands.
Merchandising and
Buying
Generally,
the initial sourcing of new merchandise for a catalog begins six to nine months
before the catalog is mailed. We target each of our catalogs to its
particular market by offering a focused assortment of merchandise designed to
meet the needs and preferences of each catalog’s customers. Through
market research and ongoing testing of new products and concepts, we develop a
separate merchandise strategy for each catalog, including appropriate
merchandise assortments, price points, mailing plans, and product
presentation. We seek to develop exclusive or private label products
for a number of our catalogs on an ongoing basis to further differentiate each
catalog’s identity.
Our
FIGI’S food and specialty gift catalog experiences a peak sales period during
the December holiday season, with approximately 80% of its annual sales
occurring during our fourth quarter. We generally build inventory
before this peak sales period.
Marketing and
Promotions
Our
catalogs range in size from approximately 16-120 pages, with 4-12 editions per
year depending on the seasonality and fashion content of the products
offered. We may mail each edition several times each season with
slight variations in format and content. We mailed approximately 236
million catalogs during Fiscal 2008. Our circulation strategy is
focused on mailing to existing customers and acquiring new customers through
targeted prospecting.
We use
our own creative staff or outside creative agencies to develop the designs,
layout, copy, feel, and theme of our catalogs. Each of our catalogs
has an E-commerce-enabled website that offers all of a particular catalog’s
merchandise and more extensive offerings than any single issue of a print
catalog. Customers can request catalogs and place orders not only for
website merchandise, but also for merchandise from any current print catalog
already mailed. The website for each catalog is prominently promoted
within each catalog.
We
maintain all of our catalog, internet, retail customer, and transaction data in
multi-channel customer databases. This cross-channel customer
database contains detailed purchasing information and certain demographic
information about our customers, E-mail addresses, and the names and addresses
of individuals who have requested catalogs from us. This database
enables us to analyze how our customers use our various channels to
shop.
We
continuously analyze our customers’ responses to our catalog mailings and
E-commerce promotions in order to understand our customers’ profit
contribution. We have developed our own customer selection criteria
to segment our customer list according to many variables, allowing our marketing
department to analyze each segment's buying patterns. We review the
results of each of our catalog mailings. The results are used to
further refine the frequency and selectivity of our catalog mailings in an
effort to maximize response rates and profitability. We also analyze
historical purchasing patterns of existing customers, including recency,
frequency, and monetary activity, to assist in merchandising and customer
targeting and in an effort to increase sales to existing customers.
We also
acquire lists of prospective customers by renting or exchanging lists with
database cooperatives and other sources, including direct
competitors. Our most productive prospects tend to come from customer
lists of other women's apparel catalogs. We also rent our customer
lists to others, including direct competitors. In order to determine
which prospective customers will receive a particular catalog mailing, we
analyze available information concerning such prospects, including historical
profit contribution for comparable customer segments and, to the extent
possible, use the same type of statistical modeling techniques used to target
mailings to our own customers.
We strive
to develop promotional formats that will stimulate customer purchases from our
catalogs and websites. Successful promotional formats include
different catalog wraps, multiple-unit purchase discounts, free shipping, and
promotional tag lines such as “last chance” offers. We also market
our E-commerce websites in our catalogs as well as through
e-mail marketing and in our figure
magazine. These marketing channels have been the principal marketing
mechanism to reach our E-commerce target audience.
Leveraging
its experience in handling direct-to-consumer transactions, Crosstown Traders
continues to refine its technology infrastructure and customer service processes
to make catalog shopping as convenient as possible. We maintain toll
free numbers, accessible 24 hours a day seven days a week (except for major
holidays), to accept orders and catalog requests and to answer order and
credit-account-related questions. We utilize a 900-seat call center
network in three locations in Wisconsin and Arizona supported by
integrated system platforms designed to provide uninterrupted services to our
customers. Telephone calls are answered by knowledgeable call-center
associates, who process customer orders, answer questions on merchandise and its
availability, and identify opportunities for cross-selling additional
merchandise. These customer service associates also assist customers
in the selection of merchandise and can provide detailed information regarding
size, color, fit, and other merchandise features. Many order taking,
order status, and other service inquiry functions can also be conducted on
Crosstown Traders’ E-commerce sites, allowing customers to browse and shop at
their own pace.
Our
call-center associates enter order data into an online computerized system,
which systematically updates its customer database and permits us to measure
customer responses to our individual merchandise and catalog
mailings. Much of the sales and inventory information is available to
our buying staff on a real-time basis throughout the business day. We
have achieved efficiencies in order processing and fulfillment that permit the
shipment of many orders the following business day.
Sourcing
We use
domestic and overseas wholesale markets for our Direct-to-Consumer merchandise
purchases. During Fiscal 2008 we purchased merchandise from
approximately 1,100 suppliers located throughout the United
States. Additionally, we purchased approximately 9% of our
merchandise through a third-party agent and its overseas sourcing
network. We expect to reduce our volume of purchases with the
third-party agent during Fiscal 2009 through the use of our overseas sourcing
operations. No other single vendor accounted for more than 4% of
total Direct-to-Consumer merchandise purchases during Fiscal 2008.
Distribution and
Logistics
For our
Direct-to-Consumer segment, we operate several distribution centers that handle
receiving, quality control inspection, and distribution directly to our
Direct-to-Consumer catalog and E-commerce customers and a 900-seat call center
network, which are supported by integrated systems platforms. A
288,000 square foot leased facility in Tucson, Arizona ships approximately
2,400,000 packages per year to customers of our OLD PUEBLO TRADERS, MONTEREY BAY
CLOTHING COMPANY, and INTIMATE APPEAL catalogs. A separate 108,000
square foot leased facility in Tucson, which became fully operational in the
first quarter of Fiscal 2007, ships approximately 1,200,000 packages per year
and services footwear for all catalogs and catalog-related E-commerce
sites. A 240,000 square foot leased facility in Wilmington, North
Carolina ships approximately 2,200,000 packages per year to customers of our
BEDFORD FAIR, WILLOW RIDGE, LANE BRYANT WOMAN, BROWNSTONE STUDIO, and LEW MAGRAM
catalogs. We own 125,000 square-feet of automated distribution center
space in Marshfield, Wisconsin which serves as the main distribution area for
our FIGI’S catalog and ships approximately 2,300,000 packages per
year. A 122,000 square-foot leased facility in Stevens Point,
Wisconsin and a 46,000 square-foot owned facility in Neillsville, Wisconsin also
service FIGI’S.
Our
distribution and logistics operations provide adequate capacity for the
foreseeable future and we continually evaluate our overall long-term
distribution and logistics requirements.
PROPRIETARY CREDIT
PROGRAMS
We seek
to encourage sales through the promotion of our proprietary credit
cards. We believe that our credit cards act as promotional vehicles
by engendering customer loyalty, creating a substantial base for targeted
direct-mail promotion, and encouraging incremental sales. Our FASHION
BUG, LANE BRYANT, CATHERINES, PETITE SOPHISTICATE, and Crosstown Traders brands
each offer our customers the convenience of proprietary credit card
programs.
Our
FASHION BUG credit card program accounted for approximately 33% of FASHION BUG
retail sales in Fiscal 2008 and has approximately 2.1 million active
accounts. Our CATHERINES credit card program accounted for
approximately 34% of CATHERINES retail sales in Fiscal 2008 and has
approximately 0.6 million active accounts. Our Crosstown Traders
credit card program accounted for approximately 30% of Crosstown Traders apparel
sales in Fiscal 2008 and has approximately 1.6 million active
accounts.
The LANE
BRYANT credit card program accounted for approximately 29% of LANE BRYANT retail
sales in Fiscal 2008 and has approximately 1.7 million active
accounts. Prior to November 2007 we used a third-party bank to
finance and service the LANE BRYANT credit card program. This
third-party bank provided new account approval, credit authorization, billing,
and account collection services. Under a non-recourse agreement with
the third-party bank that expired in October 2007 we were reimbursed with
respect to sales generated by the credit cards. In accordance with
the terms of the agreement, we exercised our option to purchase the LANE BRYANT
portfolio and purchased the portfolio on November 1, 2007 pursuant to a purchase
agreement with the third-party bank. Subsequent to purchasing the
portfolio, we re-launched the LANE BRYANT proprietary credit card program with
the issuance of approximately 2.4 million new credit cards in connection with a
new loyalty card program designed to stimulate store traffic and sales at our
LANE BRYANT stores.
We
launched the PETITE SOPHISTICATE credit card during the third quarter of Fiscal
2007. This program accounted for approximately 19% of PETITE
SOPHISTICATE and PETITE SOPHISTICATE OUTLET retail sales in Fiscal 2008 and has
approximately 37 thousand active accounts. In February 2008 we
announced an initiative to close our full-line PETITE SOPHISTICATE stores (which
will not affect our PETITE SOPHISTICATE OUTLET stores).
We
launched the LANE BRYANT CATALOG credit card during the third quarter of Fiscal
2008. This program accounted for approximately 29% of LANE BRYANT
WOMAN catalog apparel sales in Fiscal 2008 and has approximately 33 thousand
active accounts.
We
control credit policies and service the FASHION BUG, CATHERINES, PETITE
SOPHISTICATE, LANE BRYANT CATALOG, and Crosstown Traders proprietary credit card
files and, through various agreements, we securitize and sell the credit card
receivables generated by these programs. As of our acquisition of the
LANE BRYANT portfolio on November 1, 2007 we also control credit card policies
and service the LANE BRYANT credit card file, and securitize and sell the credit
card receivables generated by this program.
In
addition to our Crosstown Traders credit card program, FIGI’S, one of Crosstown
Traders’ non-apparel catalog brands, offers interest-free, three-payment credit
terms over three months to its customers, with the first payment due on a
defined date 30 to 60 days after a stated holiday.
A more
comprehensive description of our proprietary credit programs and our asset
securitization process is included in “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations; FINANCIAL
CONDITION; Off-Balance-Sheet
Arrangements” and“Item 8. Financial
Statements and Supplementary Data: Notes to Consolidated Financial Statements;
NOTE
17. ASSET SECURITIZATION” below.
COMPETITION
The
women's specialty retail apparel and direct-to-consumer businesses are highly
competitive, with numerous competitors, including individual and chain fashion
specialty stores, department stores, discount stores, catalog retailers, and
Internet-based retailers. We cannot reasonably estimate the number of
our competitors due to the large number of women’s apparel and
direct-to-consumer retailers. The primary elements of competition
common to both our Retail Stores segment and our Direct-to-Consumer segment are
merchandise style, size, selection, fit, quality, display, price, attractive
website/catalog layout, efficient fulfillment of website and catalog mail
orders, and personalized service to our customers. For our Retail
Stores segment, store location, design, advertising, and promotion are also
significant elements of competition.
EMPLOYEES
As of the
end of Fiscal 2008 we employed approximately 30,200 associates, which included
approximately 19,900 part-time employees. In addition, we hire a
number of temporary employees during the December holiday
season. Approximately 80 of our employees are represented by unions
whose contracts are currently due to expire in August 2009. We
believe that our overall relationship with these unions and our employees in
general is satisfactory.
TRADEMARKS AND
SERVICEMARKS
We own,
or are in the process of obtaining, all rights to the trademarks and trade names
we believe are necessary to conduct our business as presently
operated. “FASHION BUG®”, “FASHION BUG
PLUS®”, “FIGURE®”, “L.A. BLUES®”, “STUDIO
1940®”, “CATHERINES®”, “CATHERINES PLUS
SIZES®”, “MAGGIE
BARNES®”, “ANNA
MAXWELL®”, “LIZ&ME®”, “SERENADA®”, “RIGHT FIT BY
CATHERINES™ “, “LANE BRYANT®”, “LANE BRYANT
OUTLET®”, LANE BRYANT
WOMAN™”, “VENEZIA®”, “CACIQUE®”, “RIGHT FIT BY
LANE BRYANT™”, “PETITE SOPHISTICATE®”, “PETITE
SOPHISTICATE OUTLET®”, “OLD PUEBLO
TRADERS®”, “BEDFORD FAIR
LIFESTYLES®”, “BEDFORD FAIR
SHOESTYLES®”, “WILLOW
RIDGE®”, “LEW MAGRAM®”, “BROWNSTONE
STUDIO®”, “INTIMATE
APPEAL®”, “MONTEREY BAY
CLOTHING COMPANY®”, “HOME ETC®”, “COWARD®”, “FIGI’S®”, “SHOETRADER™”,
and several other trademarks and servicemarks of lesser importance to us have
been registered or are in the process of being registered with the United States
Patent and Trademark Office and in other countries.
We also
own the following Internet domain name registrations: catherines.com, charming.com,
charmingshoppes.com, fashionbug.com, fashionbugcard.com, fashionbugplus.com,
figuremagazine.com, lanebryant.com, lanebryantcatalog.com,
petitesophisticate.com, bedfordfair.com, brownstonestudio.com, cowardshoe.com,
intimateappeal.com, lewmagram.com, willowridgecatalog.com, oldpueblotraders.com,
shoetrader.com, shopthebay.com, figis.com and others of lesser
importance.
EXECUTIVE OFFICES
Charming
Shoppes, Inc. was incorporated in Pennsylvania in 1969. Our principal
offices are located at 450 Winks Lane, Bensalem, Pennsylvania
19020. Our telephone number is (215) 245-9100.
Copies of
our annual reports 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 Securities Exchange Act of 1934, as amended, are
available free of charge on or through our website at www.charmingshoppes.com as
soon as reasonably practicable after we electronically file such material with,
or furnish it to, the Securities and Exchange Commission (“SEC”). Our
historical filings can also be read and copied at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549 or can be accessed directly from
the SEC’s website at www.sec.gov. Information
on the operation of the Public Reference Room can be obtained by calling the SEC
at (800) 732-0330. See “PART III; Item 10. Directors,
Executive Officers, and Corporate Governance” below for additional
information that is available on our Internet website.
You
should carefully consider and evaluate all of the information in this annual
report on Form 10-K and the documents incorporated by reference into this
report, including the risk factors listed below. Any of these risks
could materially and adversely affect our business, financial condition, and
operating results, and could cause our actual results to differ materially from
our plans, projections, or other forward-looking statements included in “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” below
and elsewhere in this Report on Form 10-K and in our other public
filings. The occurrence of one or more of these risks could also
materially and adversely affect the price of our common stock.
RISKS RELATED TO OUR BUSINESS AND
INDUSTRY
Our business is dependent upon our
ability to accurately predict rapidly changing fashion trends, customer
preferences, and other fashion-related factors.
Customer
tastes and fashion trends are volatile and tend to change rapidly, particularly
for women's apparel. Our success depends in part on our ability to
effectively predict and respond to quickly changing fashion tastes and consumer
demands, and to translate market trends into appropriate, saleable product
offerings. If we are unable to successfully predict or respond to
changing styles or trends and misjudge the market for our products or any new
product lines, our sales will be lower and we may be faced with a substantial
amount of unsold inventory or missed sales opportunities. In
response, we may be forced to rely on additional markdowns or promotional sales
to dispose of excess or slow-moving inventory, which could have a material
adverse effect on our business, financial condition, and results of
operations.
Existing and increased competition
in the women's retail apparel and direct-to-consumer markets may reduce our net
revenues, profits, and market share.
The
women's specialty retail apparel and direct-to-consumer markets are highly
competitive. Our competitors include individual and chain fashion
specialty stores, department stores, discount stores, catalog retailers, and
Internet-based retailers. As a result of this competition, we are
required to effectively market and competitively price our products to consumers
in diverse markets, and we may experience pricing pressures, increased marketing
expenditures, and loss of market share, which could have a material adverse
effect on our business, financial condition, and results of
operations. We believe that the principal bases upon which we compete
are merchandise style, size, selection, fit, quality, display, price, attractive
website/catalog layout, efficient fulfillment of website and catalog mail
orders, and personalized service to our customers, as well as store location,
design, advertising, and promotion. Other women's apparel and
direct-to-consumer companies with greater financial resources, marketing
capabilities, or brand recognition may enter the plus-size
business. We cannot give assurance that we will be able to compete
successfully against existing or future competitors.
During
Fiscal 2008 we made certain changes in our management as part of an effort to
improve our competitive position. We cannot assure that these changes
in management will achieve an improvement in our competitive
position.
A slowdown in the United States
economy, an uncertain economic outlook, and escalating energy costs could lead
to reduced consumer demand for our products in the
future.
Consumer
spending habits, including spending for our products, are affected by, among
other things, prevailing economic conditions, levels of employment, salary
levels, wage rates, availability of consumer credit, consumer confidence, and
consumer perception of economic conditions. A general slowdown in the
United States economy, an uncertain economic outlook, and escalating energy
costs have adversely affected consumer spending habits and customer traffic,
which has resulted in a reduction in our net sales. A prolonged
economic downturn could have a material adverse effect on our business,
financial condition, and results of operations.
Maintaining and improving our
operating margins are dependent on our ability to successfully control our
operating costs.
In order
to maintain or improve our operating margins we need to successfully manage our
operating costs. Our inability to successfully manage labor costs,
increases in certain costs vital to catalog operations, such as postage, paper,
and acquisition of prospects, occupancy costs, or other operating costs, or our
inability to take advantage of opportunities to reduce operating costs, would
adversely affect our operating margins and our results of
operations. We are subject to the Fair Labor Standards Act and
various state and Federal laws and regulations governing such matters as minimum
wages, exempt status classification, overtime, and employee
benefits. Changes in Federal or state laws or regulations regarding
minimum wages or other employee benefits could cause us to incur additional wage
and benefit costs, which could adversely affect our results of
operations. In addition, we may be unable to obtain adequate
insurance coverage for our operations at a reasonable cost.
During
Fiscal 2008 we began the implementation of our plan for the consolidation of
operations and a new organizational structure at our CATHERINES
brand. In February 2008 we announced additional initiatives and
actions designed to: streamline our business operations and further sharpen our
focus on our core businesses, including the closing of our full-line PETITE
SOPHISTICATE stores; reduce operating expenses and capital expenditures; improve
cash flow; and enhance shareholder value. We cannot assure the
realization of our anticipated annualized expense savings or other benefits from
the implementation of these plans.
We may not be able to obtain
sufficient working capital financing.
Our
business requires substantial investment in our inventory for a long period
before sales of that inventory occur. Consequently, we require
significant amounts of working capital financing. We depend on the
availability of credit to fund our working capital, including credit we receive
from our suppliers and their agents, on our credit card securitization program,
and on our revolving credit facility. If we are unable to obtain
sufficient financing at an affordable cost, we might be unable to adequately
merchandise our stores, E-commerce, or catalog businesses, which could have a
material adverse effect on our business, financial condition, and results of
operations.
We have
traditionally relied upon the securitization market to finance our proprietary
credit card receivables. The current disruption in the securitization
market caused by, among other things, an increased default rate on residential
mortgage loans, an increase in the number of rating downgrades with respect to
bonds issued in connection with the securitization of loans, the lack of
liquidity in the bond market, and the financial condition of many companies that
typically participate in this market may negatively affect our ability to enter
into financing arrangements on terms and conditions that are favorable to
us. An inability to enter into a favorable securitization series or
satisfactory alternative financing arrangements could adversely affect our
financial condition.
Our operating results fluctuate from
season to season.
Our
retail store and direct-to-consumer operations experience seasonal fluctuations
in net sales and consequently in operating income, with peak sales typically
occurring during the Easter, Labor Day, and December holiday
seasons. In addition, extreme or unseasonable weather can affect our
sales. Any decrease in net sales or margins during our peak selling
periods, or in the availability of working capital needed in the months before
these periods, could have a material adverse effect on our business, financial
condition, and results of operations.
We
usually order merchandise in advance of peak selling periods and sometimes
before new fashion trends are confirmed by customer purchases. We
must carry a significant amount of inventory, including perishable products for
our FIGI’S food and gift catalog, before the peak selling periods. If
we are not successful in selling our inventory, especially during our peak
selling periods, we may be forced to rely on markdowns or promotional sales to
dispose of the inventory or we may not be able to sell the inventory at all,
which could have a material adverse effect on our business, financial condition,
and results of operations.
We face challenges in managing our
recent growth.
Our
operating challenges and management responsibilities are increasing as we
continue to grow and expand into new store formats and additional distribution
channels. Successful growth will require that we continue to expand
and improve our internal systems and our operations, including our distribution
infrastructure.
Our
growth plan for our Retail Stores segment depends on our ability to open and
operate new retail stores and to convert, where applicable, the formats of
existing stores on a profitable basis. In addition, we will need to
identify, hire, and retain a sufficient number of qualified personnel to work in
our stores. During Fiscal 2007 we entered the outlet distribution
channel and in Fiscal 2008 we expanded the number of stores in this
channel. During Fiscal 2008 we also expanded the number of stores
using a double-store-front format. In addition, we re-launched our
LANE BRYANT credit card program and related loyalty card program during Fiscal
2008.
During
Fiscal 2008 the LANE BRYANT catalog trademark, which was licensed to a third
party, reverted to us and we launched our LANE BRYANT WOMAN catalog and a
related website. Growth in our Direct-to-Consumer segment is
dependent on sufficient response rates to our catalogs and Internet websites and
access to new customers, which may not occur.
These
objectives have created, and may continue to create, additional demands on our
staff and on our operating systems. We cannot assure the successful
implementation of our business plan for our Retail Stores and Direct-to-Consumer
segments, or that we will achieve our objectives as quickly or as effectively as
we hope.
We depend on key personnel and may
not be able to retain or replace these employees or recruit additional qualified
personnel.
Our
success and our ability to execute our business strategy depend largely on the
efforts and abilities of our Chief Executive Officer, Dorrit J. Bern, and her
management team. The loss of services of one or more of our key
personnel could have a material adverse effect on our business, as we may not be
able to find suitable management personnel to replace departing executives on a
timely basis. We do not maintain key-person life insurance policies
with respect to any of our employees.
Our business plan is largely
dependent upon continued growth in the plus-size women’s apparel
market.
Our
business is primarily focused on sales of plus-size women’s apparel, which
represents a majority of our total net sales. Our operating results
could be adversely affected by a lack of continued growth in the plus-size
women’s apparel market.
We could be materially and adversely
affected if any of our distribution or fulfillment centers are shut
down.
We
operate distribution centers in Greencastle, Indiana, and Baltimore County,
Maryland, and we operate catalog fulfillment centers in Tucson, Arizona;
Marshfield, Wisconsin; Stevens Point, Wisconsin; and Wilmington, North
Carolina. In addition, we use third-party freight consolidators and
service providers in Indianapolis, Indiana; Abingdon, Maryland; Los Angeles,
California; Miami, Florida; and North Bergen, New Jersey. Most of the
merchandise we purchase is shipped directly to our distribution and fulfillment
centers or freight consolidators where it is prepared for shipment to the
appropriate stores or to the customer. If any of our distribution
centers, fulfillment centers, or freight consolidators were to shut down or lose
significant capacity for any reason, the other locations may not be able to
adequately support the resulting additional distribution demands, in part
because of capacity constraints and in part because each location services a
particular brand or brands. As a result, we could incur significantly
higher costs and longer lead times associated with distributing our products to
our stores or customers during the time it takes for us to reopen or replace the
affected distribution center, fulfillment center, or freight
consolidator.
The occurrence of, or threat of, a
natural disaster, war, acts of terrorism or other armed conflict on the United
States or international economies may negatively impact the availability of
merchandise and otherwise adversely impact our
business.
The
occurrence of, or threat of, a natural disaster, war, acts of terrorism, or
other armed conflict could negatively affect our ability to obtain merchandise
for sale in our stores or through our direct-to-consumer business. A
significant portion of our merchandise is imported from other
countries. If imported goods become difficult or impossible to bring
into the United States and we cannot obtain such merchandise from other sources
at similar costs, our net sales and profit margins may be adversely
impacted. If commercial transportation is curtailed or substantially
delayed our business may be adversely impacted, as we may have difficulty
shipping merchandise to our distribution centers, fulfillment centers, freight
consolidators, stores, or our direct-to-consumer customers. As a
result of the occurrence of, or threat of, a natural disaster or acts of
terrorism in the United States we may be required to suspend operations in some
or all of our stores, which could have a material adverse impact on our
business, financial condition, and results of operations.
Our inability to successfully manage
customer service or fulfillment for our E-commerce websites or our catalog
business could adversely impact our operating
results.
Successful
management of our E-commerce and catalog operations is dependent on our ability
to maintain efficient and uninterrupted customer service and order
fulfillment. Inadequate systems capacity, a disruption or slowdown in
telecommunications services, changes in technology, changes in government
regulations, systems issues, security breaches, a failure to integrate order
management systems, or customer privacy issues could result in reduced sales or
increases in operating expenses as a result of our efforts or our inability to
remedy such issues. In addition, we may not be able to hire
sufficient qualified associates to support our E-commerce or catalog operations
during peak periods, especially during the December holiday
season. The occurrence of one or more of these events could adversely
affect our E-commerce or catalog businesses.
We rely on foreign sources of
production.
We
purchase a significant portion of our apparel directly in foreign markets and
indirectly through domestic vendors with foreign sources. We face a
variety of risks generally associated with doing business in foreign markets and
importing merchandise from abroad. Such risks include (but are not
necessarily limited to):
|
●
|
political
instability;
|
|
●
|
increased
security requirements applicable to imported goods;
|
|
●
|
trade
restrictions;
|
|
●
|
imposition
of or changes in duties, quotas, taxes, and other charges on
imports;
|
|
●
|
currency
and exchange risks;
|
|
●
|
issues
relating to compliance with domestic or international labor
standards;
|
|
●
|
concerns
over anti-dumping;
|
|
●
|
delays
in shipping; or
|
|
●
|
increased
costs of transportation.
|
New
requirements could be proposed that would have an impact on the trading status
of certain countries and could include retaliatory duties or other trade
sanctions that, if enacted, could increase the cost of products purchased from
suppliers in such countries or restrict the importation of products from such
countries. In addition, the decreased value of the U.S. dollar
against foreign currencies has increased the cost of products that we purchase
from foreign markets and additional weakening of the U.S. dollar in relation to
those foreign currencies will further increase our costs. The future
performance of our business will depend on our foreign suppliers and may be
adversely affected by the factors listed above, which are beyond our
control.
Issues of global workplace
conditions may adversely affect our business.
If any
one of our manufacturers or vendors fails to operate in compliance with
applicable laws and regulations, is perceived by the public as failing to meet
certain labor standards in the United States, or employs unfair labor practices,
our business could be adversely affected. Current global workplace
concerns of the public include perceived low wages, poor working conditions, age
of employees, and various other employment standards. These
globalization issues may affect the available supply of certain manufacturers'
products, which may result in increased costs to us. Furthermore, a
negative customer perception of any of our key vendors or their products may
result in a lower customer demand for our apparel.
We depend on strip shopping center
and mall traffic and our ability to identify suitable store locations for our
Retail Stores segment.
Our sales
are dependent in part on a high volume of strip shopping center and mall
traffic. Strip shopping center and mall traffic may be adversely
affected by, among other things, economic downturns, the closing of anchor
stores, or changes in customer shopping preferences. A decline in the
popularity of strip shopping center or mall shopping among our target customers
could have a material adverse effect on our business. To take
advantage of customer traffic and the shopping preferences of our customers we
need to maintain or acquire stores in desirable locations. We cannot
assure that desirable store locations will continue to be
available. Acquisition of additional store locations is also
dependent on our ability to successfully negotiate lease terms for such
locations. In addition, the timely opening of new store locations
could be adversely affected by delays in obtaining necessary permits and
approvals, lack of availability of construction materials and labor, or work
stoppages.
We may be unable to protect our
trademarks and other intellectual property rights.
We
believe that our trademarks and servicemarks 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 servicemarks on a worldwide
basis. Nevertheless, there can be no assurance that the actions we
have taken to establish and protect our trademarks and servicemarks will be
adequate to prevent imitation of our products by others or to prevent others
from seeking to block sales of our products as a violation of their trademarks,
servicemarks, or proprietary rights. Also, others may assert rights
in, or ownership of, our trademarks and other proprietary rights and we may not
be able to successfully resolve these types of conflicts to our
satisfaction. In addition, the laws of certain foreign countries may
not protect proprietary rights to the same extent as do the laws of the United
States.
We may acquire or divest businesses
or enter into joint ventures or strategic alliances, which may materially affect
our business, financial condition, and operating
results.
We
continually evaluate our portfolio of businesses and may decide to buy or sell
businesses or enter into joint ventures or other strategic
alliances. Significant acquisitions and alliances may increase
demands on management, financial resources, and information and internal control
systems. Our success with respect to acquisitions and alliances will
depend, in part, on our ability to manage and integrate acquired businesses and
alliances with our existing businesses and to successfully implement, improve,
and expand our systems, procedures, and controls. In addition, we may
divest existing businesses, which would cause a decline in revenues and may make
our financial results more volatile. If we fail to integrate and
manage acquired businesses successfully or to manage the risks associated with
divestitures, joint ventures, or other alliances, our business, financial
condition, and operating results could be materially and adversely
affected.
Anti-takeover provisions in our
governing documents and Pennsylvania law may discourage other companies from
attempting to acquire us.
Some
provisions of our articles of incorporation and bylaws and of Pennsylvania law
may discourage some transactions where we would otherwise experience a change in
control. For example, our articles of incorporation and bylaws
contain provisions that:
|
●
|
classify
our board into three classes, with one class being elected each
year;
|
|
●
|
do
not permit cumulative voting;
|
|
●
|
permit
our board to issue "blank check" preferred stock without shareholder
approval;
|
|
●
|
require
certain advance notice procedures with regard to the nomination of
candidates for election as directors, other than nominations by or at the
direction of our board;
|
|
●
|
prohibit
us from engaging in some types of business combinations with a holder of
10% or more of our voting securities without super-majority shareholder or
board approval;
|
|
●
|
prevent
our directors from being removed without cause except upon super-majority
shareholder approval; and
|
|
●
|
prevent
a holder of 20% or more of our common stock from taking certain actions
without certain approvals.
|
We also
have adopted a Shareholder Rights Plan. This plan may make it more
difficult and more expensive to acquire us, and may discourage open market
purchases of our common stock or a non-negotiated tender or exchange offer for
such stock and, accordingly, may limit a shareholder's ability to realize a
premium over the market price of our common stock in connection with any such
transaction.
Failure to comply with the
provisions of the Sarbanes-Oxley Act of 2002 could adversely affect our
business.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 we are required to include our
assessment of the effectiveness of our internal control over financial reporting
in our annual reports. Our independent registered public accounting
firm is required to report on whether or not they believe that we maintained, in
all material respects, effective internal control over financial
reporting. If we are unable to maintain effective internal control
over financial reporting, we could be subject to regulatory sanctions and a
possible loss of public confidence in the reliability of our financial
reporting. Such a failure could result in our inability to provide
timely and/or reliable financial information and could adversely affect our
business.
We could be required to repurchase
our 1.125% Senior Convertible Notes due May 1, 2014 for cash prior to maturity
of the notes.
During
Fiscal 2008 we issued $275.0 million principal amount of 1.125% Senior
Convertible Notes due May 1, 2014 (the “1.125% Notes”) in a private offering for
resale to qualified institutional buyers pursuant to Rule 144A under The
Securities Act of 1933. The holders of the 1.125% Notes could require
us to repurchase the principal amount of the notes for cash before maturity of
the notes under certain circumstances (see “Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements; NOTE 8. LONG-TERM DEBT” below). Such a
repurchase would require significant amounts of cash and could adversely affect
our financial condition.
New accounting rules or regulations
or changes in existing rules or regulations could adversely impact our reported
results of operations.
Changes
to existing accounting rules or the adoption of new rules could have an adverse
effect on our reported results of operations. The Financial
Accounting Standards Board (“FASB”) has issued a proposed FASB Staff Position
(“FSP”) that, if adopted, would apply to any convertible debt instrument that
may be settled in whole or in part with cash upon conversion, which would
include our 1.125% Senior Convertible Notes due May 2014. If the
proposed FSP is approved in 2008 we would be required to adopt the proposal as
of February 3, 2009 (the beginning of Fiscal 2010), with retrospective
application to financial statements for periods prior to the date of
adoption. As compared to our current accounting for the 1.125% Notes,
adoption of the proposal would reduce long-term debt, increase stockholders’
equity, and reduce net income and earnings per share. Adoption of the
proposal would not affect our cash flows.
Changes in estimates related to our
evaluation of property, plant, equipment, goodwill, or intangible assets for
impairment could adversely affect our reported results of
operations.
We make
certain significant assumptions, estimates, and projections related to the
useful lives of our property, plant, and equipment and the valuation of goodwill
and intangible assets related to acquisitions. The carrying amount
and/or useful life of these assets are subject to periodic valuation tests for
impairment. Impairment results when the carrying value of an asset
exceeds the undiscounted (or for goodwill and indefinite-lived intangible assets
the discounted) future cash flows associated with the asset. If
actual experience were to differ materially from the assumptions, estimates, and
projections used to determine useful lives or the valuation of property, plant,
equipment, goodwill, or intangible assets, a write-down for impairment of the
carrying value of the assets, or acceleration of depreciation or amortization of
the assets, could result. Such a write-down or acceleration of
depreciation or amortization could have an adverse impact on our reported
results of operations. During Fiscal 2008 we recognized non-cash
impairment charges of $86.8 million related to our Crosstown Traders goodwill
and $11.4 million related to our Crosstown Traders trademarks.
Item 1B. Unresolved Staff
Comments
Not
applicable.
We lease
all our stores with the exception of three stores that we
own. Typically, our store leases have initial terms of 5 to 20 years
and generally contain provisions for co-tenancies, renewal options, additional
rents based on a percentage of sales, and payment of real estate taxes and
common area charges. In addition, we lease certain of our corporate
office, distribution center, warehouse, and other administrative
facilities. Additional information with respect to our real estate
leases is included in “Item
8. Financial Statements and Supplementary Data: Notes to Consolidated
Financial Statements; NOTE
18. LEASES” below.
With
respect to leased stores open as of February 2, 2008 the following table shows
the number of store leases expiring during the calendar periods indicated,
assuming the exercise of our renewal options:
|
Period
|
Number of
Leases Expiring(1)
|
|
2008
|
153(2)
|
|
2009 –
2013
|
654
|
|
2014
– 2018
|
561
|
|
2019
– 2023
|
606
|
|
2024
– 2028
|
373
|
|
2029
– 2033
|
45
|
|
Thereafter
|
14
|
|
____________________
|
|
|
(1) Excludes 2 Crosstown
Traders outlet stores.
|
|
|
(2) Includes 77 stores
on month-to-month
leases.
|
|
Additional
information with respect to facilities that we own or lease is as
follows:
|
Size in
|
Leased/
|
||
|
Sq. Feet
|
Location
|
Owned
|
Description
|
|
1,000,000
|
Greencastle,
IN
|
Owned
|
FASHION
BUG, LANE BRYANT OUTLET, and PETITE SOPHISTICATE OUTLET distribution
center
|
|
513,000
|
White
Marsh, MD
|
Owned
|
LANE
BRYANT and CATHERINES distribution center
|
|
288,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders distribution center
|
|
240,000
|
Wilmington,
NC
|
Leased
|
Crosstown
Traders distribution center
|
|
213,000
|
Memphis,
TN
|
Owned
|
Warehouse
(currently leased to a third party)
|
|
145,000
|
Bensalem,
PA
|
Owned
|
Corporate
headquarters, technology center, and administrative
offices
|
|
142,000
|
Bensalem,
PA
|
Leased
|
FASHION
BUG, CATHERINES, and outlet division home offices and corporate
administrative offices
|
|
135,000
|
Columbus,
OH
|
Leased
|
LANE
BRYANT home office
|
|
125,000
|
Marshfield,
WI
|
Owned
|
Crosstown
Traders distribution center
|
|
122,000
|
Stevens
Point, WI
|
Leased
|
Crosstown
Traders distribution and call centers
|
|
108,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders distribution center
|
|
71,000
|
Marshfield,
WI
|
Owned
|
Crosstown
Traders warehouse
|
|
64,000
|
Marshfield,
WI
|
Owned
|
Crosstown
Traders administrative offices and call center
|
|
63,000
|
Memphis,
TN
|
Owned
|
Currently
idle
|
|
52,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders offices
|
|
46,000
|
Neillsville,
WI
|
Owned
|
Crosstown
Traders distribution center
|
|
40,000
|
Marshfield,
WI
|
Owned
|
Crosstown
Traders warehouse
|
|
36,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders offices
|
|
30,000
|
Miami
Township, OH
|
Leased
|
Spirit
of America National Bank (our wholly-owned credit card bank subsidiary)
and credit operations
|
|
23,000
|
Hong
Kong, PRC
|
Owned
|
International
sourcing offices
|
|
17,000
|
New
York, NY
|
Leased
|
E-commerce
operations
|
|
16,000
|
Marshfield,
WI
|
Owned
|
Crosstown
Traders manufacturing facility
|
|
15,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders offices
|
|
12,000
|
Hangzhou,
PRC
|
Leased
|
International
sourcing offices
|
Item 3. Legal
Proceedings
On March
7, 2008 we filed a lawsuit against Crescendo Partners II, L.P. and its general
partner Crescendo Investments II, LLC; Crescendo Partners III, L.P. and its
general partner Crescendo Investments III, LLC; and Myca Master Fund, Ltd. and
its investment manager Myca Partners, Inc. operating jointly under the name of
The Charming Shoppes Full Value Committee, and certain of their principals and
nominees for election to our Board of Directors, including Arnaud Ajdler, Eric
Rosenfeld and Robert Frankfurt, for violating federal securities
laws.
In the
Federal lawsuit, filed on March 7, 2008 in the United States District Court,
Eastern District of Pennsylvania, we asserted that the defendants have filed
with the Securities and Exchange Commission materially misleading and incomplete
documents in violation of Section 13(d) of the Securities Exchange Act of 1934
as part of their campaign to nominate three directors to our board of
directors. On March 25, 2008 we amended this complaint to add claims
that the defendants’ proposed proxy solicitation is materially misleading and
incomplete in violation of Section 14(a) of the Securities Exchange Act and that
the proposed election of any of the defendants’ nominees to the board would
violate Section 8 of the Clayton Antitrust Act.
We have
asked the Court to enjoin the defendants from making any additional false or
misleading public statements and false and misleading public filings regarding
Charming Shoppes, from taking or attempting to take any further steps in
furtherance of their unlawful conduct and scheme, to make immediate corrective
disclosure of all material facts and cure the material misstatements and
omissions and to divest themselves in an orderly fashion of any and all shares
of our stock that they unlawfully acquired in violation of the Federal
securities laws.
Other
than the foregoing and other ordinary routine litigation incidental to our
business, there are no pending material legal proceedings that we or any of our
subsidiaries are a party to, or of which any of their property is the
subject. There are no proceedings that are expected to have a
material adverse effect on our financial condition or results of
operations.
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
The
following list contains certain information relative to our executive
officers. There are no family relationships among any of our
executive officers.
Dorrit J. Bern, 57, has served
as Chairman of the Board of Directors since January 1997. She has
also served as President and Chief Executive Officer since September
1995. Ms. Bern’s term as a Director expires in June
2008. With effect from February 1, 2008 we entered into an employment
agreement with Ms. Bern describing her duties and obligations as Chief Executive
Officer.
Joseph M. Baron, 60, has
served as Executive Vice President and Chief Operating Officer since
2002.
James G. Bloise, 64, has
served as Executive Vice President – Supply Chain Management, Information
Technology, and Shared Business Services since December 2005 and as Senior Vice
President – Supply Chain Management from 2002 to December 2005.
Michel Bourlon, 48, has served
as Executive Vice President – Sourcing since March 2004. Before that,
he served as Managing Director of Eddie Bauer International (Hong Kong) Ltd.,
from September 1997 to February 2004.
Anthony A. DeSabato, 59, has
served as Executive Vice President – Corporate and Labor Relations, and Business
Ethics since July 2003. Before that, he served as Executive Vice
President and Corporate Director of Human Resources since 1990, and he has been
employed by us since 1987.
Eric M. Specter, 50, has
served as Executive Vice President – Chief Financial Officer
since January 1997, and he has been employed by us since 1983.
Colin D. Stern, 59, has served
as Executive Vice President and General Counsel since 1990, and he has been
employed by us since 1989. He has also served as Secretary since
February 1998.
Gale H. Varma, 57, has served
as Executive Vice President – Human Resources since July 2003. Before
that, she served as Division Vice President – Human Resources and Ethics Officer
for the Prudential Institutional Employee Benefits division of Prudential
Financial Services, a division of Prudential Insurance Company of America, from
September 1997 to April 2003.
Timothy M. White, 49, has
served as Executive Vice President – Chief Marketing Officer since October 2007
and as Senior Vice President – Marketing from July 2006 to October
2007. Before that he served as Senior Vice President – Marketing for
Linens-N-Things from June 2002 to June 2006.
John J. Sullivan, 61, has
served as Senior Vice President – Corporate Controller since April 2007 and as
Vice President –
Corporate Controller since October 1998.
Our
common stock is traded on the over-the-counter market and quoted on the NASDAQ
National Market (“NASDAQ”) under the symbol “CHRS,” and is listed and traded on
the Chicago Board Options Exchange (“CBOE”) and Pacific Stock Exchange (“PCX”)
under the symbol “QSR.” The following table sets forth the high and
low sale prices for our common stock during the indicated periods, as reported
by NASDAQ.
|
Fiscal
2008
|
Fiscal
2007
|
|||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
1st
Quarter
|
$ |
13.38
|
$ |
11.33
|
$ |
15.18
|
$ |
11.90
|
||||||||
|
2nd
Quarter
|
12.92
|
9.16
|
14.90
|
9.97
|
||||||||||||
|
3rd
Quarter
|
9.72
|
6.79
|
15.35
|
9.69
|
||||||||||||
|
4th
Quarter
|
7.34
|
4.01
|
15.57
|
12.30
|
||||||||||||
The
approximate number of holders of record of our common stock as of March 24, 2008
was 1,689. This number excludes individual stockholders holding stock
under nominee security position listings.
We have
not paid any dividends since 1995 and we do not expect to declare or pay any
dividends on our common stock in the near future. The payment of
future dividends is within the discretion of our Board of Directors and will
depend upon our future earnings, if any, our capital requirements, our financial
condition, and other relevant factors. Our existing revolving credit
facility allows the payment of dividends on our common stock subject to
maintaining a minimum level of Excess Availability (as defined in the facility
agreement) for 30 days before and immediately after the payment of such
dividends. (See “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
FINANCIAL
CONDITION; Financing;
Long-term Debt” and “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
8. LONG-TERM DEBT” below).
Information
regarding our equity compensation plans appears in “Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters” below.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers:
|
Total
|
Maximum
|
|||||||||||||||
|
Number
|
Number
of
|
|||||||||||||||
|
of
Shares
|
Shares
that
|
|||||||||||||||
|
Total
|
Purchased
as
|
May Yet
be
|
||||||||||||||
|
Number
|
Average
|
Part of
Publicly
|
Purchased
|
|||||||||||||
|
of
Shares
|
Price
Paid
|
Announced
Plans
|
Under the
Plans
|
|||||||||||||
|
Period
|
Purchased
|
per
Share
|
or
Programs
|
or
Programs
|
||||||||||||
|
|
||||||||||||||||
|
November
4, 2007 through December 1, 2007
|
503,097 | (1) | $ |
7.05
|
500,000 | (4) | ||||||||||
|
December
2, 2007 through January 5, 2008
|
801,074 | (2) |
5.12
|
800,000 | (4) | |||||||||||
|
January
6, 2008 through February 2, 2008
|
958,185 | (3) |
4.94
|
953,132 | (4) | |||||||||||
|
Total
|
2,262,356
|
$ |
5.48
|
2,253,132
|
(4)(5) | |||||||||||
|
____________________
|
||||||||||||||||
|
(1) Includes 3,097
shares ($6.55 average price paid per share) withheld for the payment of
payroll taxes on employee stock awards that vested during the period and
500,000 shares ($7.06 average price paid per share) purchased in the open
market (see Note (4) below).
|
||||||||||||||||
|
(2) Includes 1,074
shares ($4.82 average price paid per share) withheld for the payment of
payroll taxes on employee stock awards that vested during the period and
800,000 shares ($5.12 average price paid per share) purchased in the open
market (see Note (4) below)
|
||||||||||||||||
|
(3) Includes 5,053
shares ($4.94 average price paid per share) withheld for the payment of
payroll taxes on employee stock awards that vested during the period and
953,132 shares ($4.94 average price paid per share) purchased in the open
market (see Note (4) below)
|
||||||||||||||||
|
(4) In
Fiscal 1998 we publicly announced that our Board of Directors granted
authority to repurchase up to 10,000,000 shares of our common
stock. In Fiscal 2000 we publicly announced that our Board of
Directors granted authority to repurchase up to an additional 10,000,000
shares of our common stock. In Fiscal 2003 the Board of Directors
granted an additional authorization to repurchase 6,350,662 shares of
common stock issued to Limited Brands, Inc. (“Limited Brands”) in
connection with our acquisition of LANE BRYANT. From Fiscal 1998
through November 3, 2007 we repurchased a total of 22,597,969 shares of
stock, which included shares purchased on the open market as well as
shares repurchased from Limited Brands. During the period from
November 4, 2007 through February 2, 2008 we repurchased a total of
2,253,132 shares of stock ($5.48 average price paid per share) in the open
market under these programs. As of February 2, 2008, 1,499,561 shares
of our common stock remain available for repurchase under these
programs. The repurchase programs have no expiration
date.
|
||||||||||||||||
|
(5) On
November 8, 2007 we publicly announced that our Board of Directors granted
authority to repurchase shares of our common stock up to an aggregate
value of $200 million. Shares may be purchased in the open market or
through privately-negotiated transactions, as market conditions
allow. As of February 2, 2008 no shares have been purchased under
this plan. This repurchase program has no expiration
date.
|
||||||||||||||||
The
following graph shows a five-year comparison of cumulative total returns on our
Common Stock, the Russell 2000 Composite Index, and the Dow Jones U.S. Retailers
– Apparel Index:
The above
chart was plotted using the following data:
|
2/1/03
|
1/31/04
|
1/29/05
|
1/28/06
|
2/3/07
|
2/2/08
|
|
|
Charming
Shoppes, Inc.
|
$100
|
$176
|
$240
|
$375
|
$394
|
$205
|
|
Russell
2000 Composite Index
|
100
|
105
|
112
|
135
|
151
|
138
|
|
Dow
Jones U.S. Retailers – Apparel Index
|
100
|
134
|
162
|
184
|
223
|
176
|
The
following table presents selected financial data taken from our audited
financial statements for our five fiscal years ended as of January 31, 2004
through February 2, 2008 and should be read in conjunction with “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
and “Item
8. Financial Statements and Supplementary Data.”
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
FIVE-YEAR COMPARATIVE
SUMMARY
|
Year
Ended
|
||||||||||||||||||||
|
Feb. 2,
|
Feb. 3,
|
Jan. 28,
|
Jan. 29,
|
Jan. 31,
|
||||||||||||||||
|
(Dollars in thousands, except
per share amounts)
|
2008(1)
|
2007(1)(2)
|
2006(1)
|
2005
|
2004
|
|||||||||||||||
|
Operating Statement
Data:
|
||||||||||||||||||||
|
Net
sales
|
$ |
3,009,953
|
$ |
3,067,517
|
$ |
2,755,725
|
$ |
2,334,736
|
$ |
2,288,363
|
||||||||||
|
Cost
of goods sold, buying, catalog, and occupancy
expenses
|
2,198,865
|
2,141,884
|
1,914,347
|
1,642,650
|
1,645,499
|
|||||||||||||||
|
Selling,
general, and administrative expenses
|
777,461
|
753,109
|
678,753
|
577,301
|
558,248
|
|||||||||||||||
|
Impairment
of goodwill and trademarks
|
98,219 | (3) |
0
|
0
|
0
|
0
|
||||||||||||||
|
Restructuring
charges
|
14,357 | (4) |
0
|
0
|
0
|
0
|
||||||||||||||
|
Expenses
related to cost reduction plan
|
0
|
0
|
0
|
605 | (5) | 11,534 | (5) | |||||||||||||
|
Total
operating expenses
|
3,088,902
|
2,894,993
|
2,593,100
|
2,220,556
|
2,215,281
|
|||||||||||||||
|
Income/(loss)
from operations
|
(78,949 | ) |
172,524
|
162,625
|
114,180
|
73,082
|
||||||||||||||
|
Other
income
|
8,793
|
8,345
|
7,687
|
3,098
|
2,192
|
|||||||||||||||
|
Interest
expense
|
(10,552 | ) | (14,746 | ) | (17,911 | ) | (15,610 | ) | (15,609 | ) | ||||||||||
|
Income/(loss)
before income taxes and extraordinary item
|
(80,708 | ) |
166,123
|
152,401
|
101,668
|
59,665
|
||||||||||||||
|
Income
tax provision
|
3,617
|
57,200
|
53,010
|
37,142
|
21,623
|
|||||||||||||||
|
Income/(loss)
before extraordinary item
|
(84,325 | ) |
108,923
|
99,391
|
64,526
|
38,042
|
||||||||||||||
|
Extraordinary
item, net of income taxes
|
912
|
0
|
0
|
0
|
0
|
|||||||||||||||
|
Net
income/(loss)
|
$ | (83,413 | ) | $ |
108,923
|
$ |
99,391
|
$ |
64,526
|
$ |
38,042
|
|||||||||
|
Basic
income/(loss) per share:
|
||||||||||||||||||||
|
Income/(loss)
before extraordinary item
|
$ | (.70 | ) | $ |
.89
|
$ |
.83
|
$ |
.56
|
$ |
.34
|
|||||||||
|
Net
income/(loss)
|
$ | (.69 | ) | $ |
.89
|
$ |
.83
|
$ |
.56
|
$ |
.34
|
|||||||||
|
Basic
weighted average common shares outstanding
|
121,160
|
122,388
|
119,831
|
116,196
|
112,491
|
|||||||||||||||
|
Diluted
income/(loss) per share:
|
||||||||||||||||||||
|
Income/(loss)
before extraordinary item
|
$ | (.70 | ) | $ |
.81
|
$ |
.76
|
$ |
.52
|
$ |
.33
|
|||||||||
|
Net
income/(loss)
|
$ | (.69 | ) | $ |
.81
|
$ |
.76
|
$ |
.52
|
$ |
.33
|
|||||||||
|
Diluted
weighted average common shares and equivalents
outstanding
|
121,160
|
139,763
|
137,064
|
133,174
|
128,558
|
|||||||||||||||
|
____________________
|
||||||||||||||||||||
|
(1) Includes the
results of operations of Crosstown Traders, Inc. from the date of
acquisition (June 2, 2005). See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
2. ACQUISITION OF CROSSTOWN TRADERS, INC.”
below.
|
||||||||||||||||||||
|
(2) Fiscal
2007 consisted of 53 weeks.
|
||||||||||||||||||||
|
(3)
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
13. IMPAIRMENT OF GOODWILL AND TRADEMARKS”
below.
|
||||||||||||||||||||
|
(4)
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
14. RESTRUCTURING CHARGES”
below.
|
||||||||||||||||||||
|
(5) In
March 2003 we announced a cost reduction plan designed to take advantage
of the centralization of corporate administrative services and to realize
certain efficiencies in order to improve profitability. Costs
incurred in connection with the plan during Fiscal 2004 included
$2,980,000 of workforce reduction costs, $3,691,000 of lease termination
and related costs, $4,195,000 of accelerated depreciation (a non-cash
charge), and $668,000 of other facility closure costs. The cost
reduction plan was substantially completed during Fiscal 2004. During
Fiscal 2005 we revised the estimated sublease income on our Hollywood,
Florida credit facility, which was closed in connection with the plan, and
recognized an additional $605,000 of lease termination
costs.
|
||||||||||||||||||||
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
FIVE-YEAR COMPARATIVE
SUMMARY
(Continued)
|
Year
Ended
|
||||||||||||||||||||
|
Feb. 2,
|
Feb. 3,
|
Jan. 28,
|
Jan. 29,
|
Jan. 31,
|
||||||||||||||||
|
(Dollars in thousands, except
per share amounts)
|
2008(1)
|
2007(1)(2)
|
2006(1)
|
2005
|
2004
|
|||||||||||||||
|
Performance
Data:
|
||||||||||||||||||||
|
Net
return on average stockholders’ equity
|
(9.9 | )% | 12.4 | % | 13.2 | % | 10.1 | % | 6.7 | % | ||||||||||
|
Net
return on average total assets
|
(5.0 | ) |
6.6
|
6.9
|
5.2
|
3.3
|
||||||||||||||
|
Excluding
impairment of goodwill and trademarks,
|
||||||||||||||||||||
|
restructuring charges,
expenses related to cost
|
||||||||||||||||||||
|
reduction plan, and
extraordinary item:
|
||||||||||||||||||||
|
Net return on average
stockholders’ equity
|
2.1 | % | 12.4 | % | 13.2 | % | 10.0 | % | 7.9 | % | ||||||||||
|
Net return on average total
assets
|
1.1
|
6.6
|
6.9
|
5.2
|
3.9
|
|||||||||||||||
|
As Of
|
||||||||||||||||||||
|
Feb. 2,
|
Feb. 3,
|
Jan. 28,
|
Jan. 29,
|
Jan. 31,
|
||||||||||||||||
|
(Dollars in
thousands)
|
2008
|
2007
|
2006
|
2005
|
2004
|
|||||||||||||||
|
Balance Sheet
Data:
|
||||||||||||||||||||
|
Total
assets
|
$ |
1,613,304
|
$ |
1,705,723
|
$ |
1,572,583
|
$ |
1,303,771
|
$ |
1,173,070
|
||||||||||
|
Current
portion – long-term debt
|
8,827
|
10,887
|
14,765
|
16,419
|
17,278
|
|||||||||||||||
|
Long-term
debt
|
306,169
|
181,124
|
191,979
|
208,645
|
202,819
|
|||||||||||||||
|
Working
capital
|
467,157
|
460,620
|
344,229
|
413,989
|
266,178
|
|||||||||||||||
|
Stockholders’
equity
|
730,444
|
947,538
|
814,348
|
694,464
|
587,409
|
|||||||||||||||
|
____________________
|
|
|||||||||||||||||||
|
(1) Includes the results
of operations of Crosstown Traders, Inc. from the date of acquisition
(June 2, 2005). See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
2. ACQUISITION OF CROSSTOWN TRADERS, INC.”
below.
|
||||||||||||||||||||
|
(2) Fiscal 2007
consisted of 53 weeks.
|
||||||||||||||||||||
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”) should be read in conjunction with the financial
statements and accompanying notes included in “Item 8. Financial
Statements and Supplementary Data” below. As used in this
report the terms “Fiscal 2008,” “Fiscal 2007,” and “Fiscal 2006” refer to our
fiscal years ended February 2, 2008, February 3, 2007, and January 28, 2006,
respectively. Fiscal 2008 and Fiscal 2006 each consisted of 52 weeks,
while Fiscal 2007 consisted of 53 weeks. The term “Fiscal 2009”
refers to our fiscal year which will end on January 31, 2009. The
terms “the Company,” “we,” “us,” and “our” refer to Charming Shoppes, Inc. and,
where applicable, our consolidated subsidiaries.
FORWARD-LOOKING
STATEMENTS
With the
exception of historical information, the matters contained in the following
analysis and elsewhere in this report are “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of
1995. Such statements may include, but are not limited to,
projections of revenues, income or loss, cost reductions, capital expenditures,
liquidity, financing needs or plans, and plans for future operations, as well as
assumptions relating to the foregoing. The words “expect,” “could,”
“should,” “project,” “estimate,” “predict,” “anticipate,” “plan,” “intend,”
“believes,” and similar expressions are also intended to identify
forward-looking statements.
We
operate in a rapidly changing and competitive environment. New risk
factors emerge from time to time and it is not possible for us to predict all
risk factors that may affect us. Forward-looking statements are
inherently subject to risks and uncertainties, some of which we cannot predict
or quantify. Future events and actual results, performance, and
achievements could differ materially from those set forth in, contemplated by,
or underlying the forward-looking statements, which speak only as of the date on
which they were made. We assume no obligation to update or revise any
forward-looking statement to reflect actual results or changes in, or additions
to, the factors affecting such forward-looking statements. Given
those risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
Factors
that could cause our actual results of operations or financial condition to
differ from those described in this report include, but are not necessarily
limited to, the following, which are discussed in more detail in “Item 1A. Risk
Factors,” above:
|
●
|
Our
business is dependent upon our ability to accurately predict rapidly
changing fashion trends, customer preferences, and other fashion-related
factors, which we may not be able to successfully accomplish in the
future.
|
|
●
|
A
continuing slowdown in the United States economy, an uncertain economic
outlook, and escalating energy costs could lead to reduced consumer demand
for our products in the future.
|
|
●
|
The
women’s specialty retail apparel and direct-to-consumer markets are highly
competitive and we may be unable to compete successfully against existing
or future competitors.
|
|
●
|
We
cannot assure the successful implementation of our business plan for
Crosstown Traders, including our business plan for our LANE BRYANT WOMAN
catalog.
|
|
●
|
We
cannot assure the successful implementation of our business plans for our
outlet store distribution channel and expansion of our CACIQUE product
line through new store formats.
|
|
●
|
We
cannot assure the successful implementation of our business plan for
increased profitability and growth in our Retail Stores or
Direct-to-Consumer segments. Recent changes in management may
fail to achieve improvement in our operating results. We cannot
assure the realization of our anticipated annualized expense savings from
our restructuring announced in February 2008.
|
|
●
|
Our
business plan is largely dependent upon continued growth in the plus-size
women’s apparel market, which may not occur.
|
|
●
|
We
depend on key personnel, particularly our Chief Executive Officer, Dorrit
J. Bern, and we may not be able to retain or replace these employees or
recruit additional qualified
personnel.
|
|
●
|
We
depend on our distribution and fulfillment centers and third-party freight
consolidators and service providers, and could incur significantly higher
costs and longer lead times associated with distributing our products to
our stores and shipping our products to our E-commerce and catalog
customers if operations at any of these locations were to be disrupted for
any reason.
|
|
●
|
We
depend on the availability of credit for our working capital needs,
including credit we receive from our suppliers and their agents, and on
our credit card securitization facilities. If we were unable to
obtain sufficient financing at an affordable cost, our ability to
merchandise our stores, E-commerce, or catalog businesses would be
adversely affected.
|
|
●
|
Natural
disasters, as well as war, acts of terrorism, or other armed conflict, or
the threat of any such event may negatively impact availability of
merchandise and customer traffic to our stores, or otherwise adversely
affect our business.
|
|
●
|
We
rely significantly on foreign sources of production and face a variety of
risks generally associated with doing business in foreign markets and
importing merchandise from abroad. Such risks include (but are
not necessarily limited to) political instability; imposition of or
changes in duties or quotas; trade restrictions; increased security
requirements applicable to imports; delays in shipping; increased costs of
transportation; and issues relating to compliance with domestic or
international labor standards.
|
|
●
|
Our
Retail Stores and Direct-to-Consumer segments experience seasonal
fluctuations in net sales and operating income. Any decrease in
sales or margins during our peak sales periods or in the availability of
working capital during the months preceding such periods could have a
material adverse effect on our business. In addition, extreme
or unseasonable weather conditions may have a negative impact on our
sales.
|
|
●
|
We
may be unable to obtain adequate insurance for our operations at a
reasonable cost.
|
|
●
|
We
may be unable to protect our trademarks and other intellectual property
rights, which are important to our success and our competitive
position.
|
|
●
|
We
may be unable to hire and retain a sufficient number of suitable sales
associates at our stores. In addition, we are subject to the
Fair Labor Standards Act and various state and Federal laws and
regulations governing such matters as minimum wages, exempt status
classification, overtime, and employee benefits. Changes in
Federal or state laws or regulations regarding minimum wages or other
employee benefits could cause us to incur additional wage and benefit
costs, which could adversely affect our results of
operations.
|
|
●
|
Our
manufacturers may be unable to manufacture and deliver merchandise to us
in a timely manner or to meet our quality standards.
|
|
●
|
Our
Retail Stores segment sales are dependent upon a high volume of traffic in
the strip centers and malls in which our stores are located, and our
future retail store growth is dependent upon the availability of suitable
locations for new stores.
|
|
●
|
Inadequate
systems capacity, a disruption or slowdown in telecommunications services,
changes in technology, changes in government regulations, systems issues,
security breaches, a failure to integrate order management systems, or
customer privacy issues could result in reduced sales or increases in
operating expenses as a result of our efforts or our inability to remedy
such issues.
|
|
●
|
Successful
operation of our E-commerce websites and our catalog business is dependent
on our ability to maintain efficient and uninterrupted customer service
and fulfillment operations.
|
|
●
|
We
may be unable to manage significant increases in certain costs vital to
catalog operations, including postage, paper, and acquisition of
prospects, which could adversely affect our results of
operations.
|
|
●
|
Response
rates to our catalogs and access to new customers could decline, which
would adversely affect our net sales and results of
operations.
|
|
●
|
We
may be unable to successfully implement our plan to improve merchandise
assortments in our Retail Stores or Direct-to-Consumer
segments.
|
|
●
|
We
cannot assure the realization of our anticipated benefits from our
re-launch of the LANE BRYANT credit card program.
|
|
●
|
We
make certain significant assumptions, estimates, and projections related
to the useful lives of our property, plant, and equipment and the
valuation of goodwill and other intangible assets related to
acquisitions. The carrying amount and/or useful life of these
assets are subject to periodic and/or annual valuation tests for
impairment. Impairment results when the carrying value of an
asset exceeds the undiscounted (or for goodwill and indefinite-lived
intangible assets the discounted) future cash flows associated with the
asset. If actual experience were to differ materially from the
assumptions, estimates, and projections used to determine useful lives or
the valuation of property, plant, equipment, or intangible assets, a
write-down for impairment of the carrying value of the assets, or
acceleration of depreciation or amortization of the assets, could
result. Such a write-down or acceleration of depreciation or
amortization could have an adverse impact on our reported results of
operations. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
13. IMPAIRMENT OF GOODWILL AND TRADEMARKS”
below.
|
|
●
|
Changes
to existing accounting rules or the adoption of new rules could have an
adverse impact on our reported results of operations.
|
|
●
|
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to
include our assessment of the effectiveness of our internal control over
financial reporting in our annual reports. Our independent
registered public accounting firm is also required to report on whether or
not they believe that we maintained, in all material respects, effective
internal control over financial reporting. If we are unable to
maintain effective internal control over financial reporting we could be
subject to regulatory sanctions and a possible loss of public confidence
in the reliability of our financial reporting. Such a failure
could result in our inability to provide timely and/or reliable financial
information and could adversely affect our business.
|
|
●
|
The
holders of our 1.125% Senior Convertible Notes due May 1, 2014 could
require us to repurchase the principal amount of the notes for cash before
maturity of the notes under certain circumstances (see “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
8. LONG-TERM DEBT”
below). Such a repurchase would require significant
amounts of cash and could adversely affect our financial
condition.
|
|
●
|
The
FASB has issued a proposed FSP that would apply to any convertible debt
instrument that may be settled in whole or in part with cash upon
conversion, which would include our 1.125% Notes. If the
proposed FSP is approved in 2008 we would be required to adopt the
proposal as of February 3, 2009 (the beginning of Fiscal 2010), with
retrospective application to financial statements for periods prior to the
date of adoption. As compared to our current accounting for the
1.125% Notes, adoption of the proposal would reduce long-term debt,
increase stockholders’ equity, and reduce net income and earnings per
share. Adoption of the proposal would not affect our cash
flows.
|
|
●
|
We
continually evaluate our portfolio of businesses and may decide to acquire
or divest businesses or enter into joint venture or strategic
alliances. If we fail to integrate and manage acquired
businesses successfully or fail to manage the risks associated with
divestitures, joint ventures, or other alliances, our business, financial
condition, and operating results could be materially and adversely
affected.
|
CRITICAL ACCOUNTING
POLICIES
We have
prepared the financial statements and accompanying notes included elsewhere in
this report in conformity with United States generally accepted accounting
principles. This requires us to make estimates and assumptions that
affect the amounts reported in our financial statements and accompanying
notes. These estimates and assumptions are based on historical
experience, analysis of current trends, and various other factors that we
believe to be reasonable under the circumstances. Actual results
could differ from those estimates under different assumptions or
conditions.
We
periodically reevaluate our accounting policies, assumptions, and estimates and
make adjustments when facts and circumstances warrant. Our
significant accounting policies are described in the notes accompanying the
financial statements included elsewhere in this report. However, we
consider the following accounting policies and related assumptions to be more
critical to the preparation of our financial statements and accompanying notes
and involve the most significant management judgments and
estimates.
Revenue
Recognition
We
recognize revenue in accordance with SEC Codification of Staff Accounting
Bulletins Topic 13, “Revenue
Recognition.” Our revenues from merchandise sales are net of
sales discounts, returns, and allowances and exclude sales tax. We
record a reserve for estimated future sales returns based on an analysis of
actual returns and we defer recognition of layaway sales to the date of
delivery. A change in our actual rates of sales returns and layaway
sales experience would affect the level of revenue recognized.
Catalog
and E-commerce revenues include shipping and handling fees billed to
customers. These revenues are recognized after all of the following
have occurred: execution of the customer’s order, authorization of the
customer’s credit card has been received, and the product has been shipped to
and received by the customer. We defer recognition of revenue for
product shipped but not yet received by the customer based on an estimate of the
number of days the shipments are in-transit. A change in our actual
rates of sales returns and/or the time it takes for customers to receive our
products would affect the level of revenue recognized.
We sell
gift cards to our Retail Stores segment customers through our stores,
store-related websites, and through third parties. We recognize
revenue from gift cards when the gift card is redeemed by the
customer. Our gift cards do not currently contain expiration dates or
inactivity fees. We recognize gift card breakage (unused gift card
balances for which we believe the likelihood of redemption is remote) as net
sales based on an analysis of historical redemption patterns. A
change in the historical pattern of gift card redemptions would affect the level
of revenue recognized.
Loyalty Card
Programs
We offer
our customers various loyalty card programs. Customers that join
these programs are entitled to various benefits, including discounts and rebates
on purchases during the membership period. Customers join some of
these programs by paying an annual membership fee. For these programs
we recognize revenue as a component of net sales over the life of the membership
period based on when the customer earns the benefits and when the fee is no
longer refundable. Certain loyalty card customers earn points for
purchases which may be redeemed for merchandise coupons upon the accumulation of
a specified number of points. No membership fees are charged in
connection with these programs. Costs we incur in connection with
administering these programs are recognized in cost of goods sold as
incurred.
Accounts
Receivable
Our
FIGI’S catalog offers credit to its customers using interest-free three-payment
credit terms over three months, with the first payment due on a defined date 30
to 60 days after a stated holiday. A substantial portion of the
FIGI’S catalog business is conducted during the December holiday
season. We evaluate the collectibility of our accounts receivable
based on a combination of factors, including analysis of historical trends,
aging of accounts receivable, write-off experience, past history of recoveries,
and expectations of future performance. Significant changes in future
performance relative to our historical experience could have a material impact
on the levels of our accounts receivable valuation reserves.
Inventories
We value
our merchandise inventories at the lower of cost or market using the retail
inventory method (average cost basis). We adjust the valuation of
inventories at cost and the resulting gross margins in proportion to markdowns
and shrinkage on our retail inventories. The retail inventory method
results in the valuation of inventories at the lower of cost or market when
markdowns are currently taken as a reduction of the retail value of
inventories. Our estimation of markdowns involves certain management
judgments and estimates that significantly affect the ending inventory valuation
at cost, as well as the resulting gross margins. Our failure to
properly estimate markdowns currently could result in an overstatement or
understatement of inventory cost under the lower of cost or market
principle.
EITF
Issue 02-16, “Accounting by a
Customer (Including a Reseller) for Cash Consideration Received from a
Vendor,” addresses the accounting for cash consideration received
from a vendor, including both a reseller of the vendor’s products and an entity
that purchases the vendor’s products from a reseller. In accordance
with the provisions of EITF Issue 02-16 we defer into inventory cash received
from vendors and recognize these amounts as a reduction of cost of goods sold as
the inventory is sold. We defer the recognition of cash received from
vendors during interim periods in order to better match the recognition of the
cash consideration to the period the inventory is sold.
Deferred Catalog Advertising
Costs
We
capitalize all direct costs incurred in the development, production, and
circulation of our direct-mail catalogs until such time as the related catalogs are mailed. These capitalized costs are
subsequently amortized as a component of cost of goods sold, buying, catalog,
and occupancy expenses over the expected sales realization cycle, generally
within one to six months. Our initial estimation of the expected
sales realization cycle for a particular catalog merchandise
offering is based on, among other possible considerations, our historical sales
and sell-through experience with similar catalog merchandise
offerings, our understanding of then-prevailing fashion trends and influences,
our assessment of prevailing economic conditions, and various competitive
factors. We continually track our subsequent sales realization,
compile customer feedback for indications of future performance, reassess the
marketplace, compare our findings to our previous estimate, and adjust our
amortization accordingly. A significant change in our expected sales
and sell-through experience could have a material impact on the rate of
amortization of deferred catalog advertising costs.
Impairment of Property, Plant, and
Equipment, Intangible Assets, and Goodwill
We
evaluate the recoverability of our property, plant, and equipment and
amortizable intangible assets in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.” Under SFAS No.
144 we are required to assess our long-lived assets for recoverability whenever
events or changes in circumstances indicate that the carrying amounts of
long-lived assets may not be recoverable. We consider historical
performance and estimated future results in our evaluation of potential
impairment and compare the carrying amount of the asset to the estimated future
undiscounted cash flows expected to result from the use of the
asset. If the estimated future undiscounted cash flows are less than
the carrying amount of the asset, we write down the asset to its estimated fair
value and recognize an impairment loss. Our estimate of fair value is
generally based on either appraised value or the present value of future cash
flows, based on a number of assumptions and estimates.
If actual
experience were to differ materially from the assumptions, estimates, and
projections used to determine useful lives or the valuation of property, plant,
and equipment or amortizable intangible assets, a write-down for impairment of
the carrying value of the assets, or acceleration of depreciation or
amortization of the assets, could result.
We test
our goodwill and our indefinite-lived intangible assets in accordance with the
provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets.” We re-evaluate goodwill and other intangible assets
for impairment at least annually or more frequently if there is an indication of
possible impairment. We perform our annual impairment analysis during
the fourth quarter of our fiscal year because our fourth quarter operating
results are significant to us and are an integral part of our
analyses. In addition, we prepare our financial plan for the
following fiscal year, which is an important part of our impairment analyses,
during the fourth quarter of our fiscal year. If our re-evaluation
determines that our goodwill or other intangible assets have become impaired, a
write-down of the carrying value of the assets would result.
During
Fiscal 2008 we recognized non-cash impairment losses in connection with our
Crosstown Traders goodwill and intangible assets. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
6. GOODWILL AND INTANGIBLE ASSETS” and “NOTE 13. IMPAIRMENT OF
GOODWILL AND TRADEMARKS” below for additional discussion of our goodwill
and intangible assets and the impairment losses recognized during Fiscal
2008.
Acquisitions – Purchase Price
Allocation
We
account for acquisitions in accordance with the provisions of SFAS No. 141,
“Business
Combinations.” We assign to all identifiable assets acquired
(including intangible assets), and to all identifiable liabilities assumed, a
portion of the cost of the acquired company equal to the estimated fair value of
such assets and liabilities at the date of acquisition. We record the
excess of the cost of the acquired company over the sum of the amounts assigned
to identifiable assets acquired less liabilities assumed, if any, as
goodwill. We make the initial purchase price allocation based on the
evaluation of information and estimates available at the date of the financial
statements. As final information regarding the fair value of assets
acquired and liabilities assumed is evaluated and estimates are refined, we make
appropriate adjustments to the amounts allocated to those assets and liabilities
and make corresponding changes to the amount allocated to
goodwill. We use all available information to make these fair value
determinations and, for major business acquisitions, typically engage an outside
appraisal firm to assist in the fair value determination of the acquired
long-lived assets. If necessary, we have up to one year after the
closing date of an acquisition to finish these fair value determinations and
finalize the purchase price allocation.
Asset
Securitization
Our asset
securitization program primarily involves the sale of proprietary credit card
receivables to a special-purpose entity which in turn transfers the receivables
to a separate and distinct qualified special-purpose entity (“QSPE”). The
QSPE’s assets and liabilities are not consolidated in our balance sheet and the
receivables transferred to the QSPEs are isolated for purposes of the
securitization program. We use asset securitization to fund the
credit card receivables generated by our FASHION BUG, LANE BRYANT, CATHERINES,
PETITE SOPHISTICATE, and Crosstown Traders proprietary credit card
programs. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
17. ASSET SECURITIZATION” below for additional
discussion of our asset securitization facility.
We
account for our asset securitizations in accordance with SFAS No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities,” and SFAS No. 156, “Accounting and Servicing of Financial Assets
– an amendment of FASB Statement No. 140.” We record a beneficial
interest, referred to as the interest-only strip (“I/O strip”), which represents
the estimated present value of cash flows we expect to receive over the period
the receivables are outstanding. In addition to the I/O strip, we
recognize a servicing liability since the servicing fees we expect to receive
from the securitizations do not provide adequate compensation for servicing the
receivables. The servicing liability represents the present value of
the excess of the costs of servicing over the servicing fees we expect to
receive and is recorded at estimated fair value. We use the same
discount rate and estimated life assumptions in valuing the I/O strip and the
servicing liability. We amortize the I/O strip and the servicing
liability on a straight-line basis over the expected life of the credit card
receivables.
We use
certain valuation assumptions related to the average life of the receivables
sold and anticipated credit losses, as well as an appropriate market discount
rate, in determining the estimated value of the I/O strip and the servicing
liability. We estimate the values for these assumptions using
historical data, the impact of the current economic environment on the
performance of the receivables sold, and the impact of the potential volatility
of the current market for similar instruments in assessing the fair value of
these retained interests. Changes in the average life of the
receivables sold, discount rate, and credit-loss percentage could cause actual
results to differ materially from the estimates, and changes in circumstances
could result in significant future changes to the assumptions currently being
used.
The
following table presents the decrease in our I/O strip receivable that would
result from hypothetical adverse changes of 10% and 20% in the assumptions used
to determine the fair value of the I/O strip:
|
(In
millions)
|
10%
Change
|
20%
Change
|
||||||
|
Assumption:
|
||||||||
|
Payment
rate
|
$ |
1.7
|
$ |
3.3
|
||||
|
Residual
cash flows discount
rate
|
0.1
|
0.2
|
||||||
|
Credit
loss
percentage
|
1.7
|
3.4
|
||||||
Costs Associated With Exit or
Disposal Activities
In
accordance with the provisions of SFAS No. 146, “Accounting for Costs Associated with
Exit or Disposal Activities,” we recognize
liabilities for costs associated with an exit or disposal activity when the
liabilities are incurred. Commitment to a plan by itself does not
create an obligation that meets the definition of a liability. We
recognize one-time benefit payments over time rather than “up front” if the
benefit arrangement requires employees to render future service beyond a
“minimum retention period.” The liability for one-time benefits is
recognized as employees render service over the future service period, even if
the benefit formula used to calculate an employee’s termination benefit is based
on length of service. We use fair value for the initial measurement
of liabilities associated with exit or disposal activities. The
provisions of SFAS No. 146 result in the deferral of recognition of certain
costs for restructuring plans from the date of commitment to such a plan to the
date that costs are incurred under the plan. Severance payments that
are offered in accordance with an on-going benefit arrangement and that are
attributable to employees’ service already rendered are accounted for in
accordance with SFAS No. 112, “Employers’ Accounting for
Postemployment Benefits.”
Stock-Based
Compensation
Through
Fiscal 2006 we accounted for stock-based compensation using the intrinsic value
method in accordance with Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued
to Employees,” and disclosed as pro forma information
compensation expense for all stock options, restricted stock awards, and
restricted stock unit awards, based on an estimated fair value of the option or
award, as permitted by SFAS No. 123, “Accounting for Stock-Based
Compensation.” In accordance with SFAS No. 123 we used the
Black-Scholes pricing model to estimate the fair value of stock
options.
As of the
beginning of Fiscal 2007 we adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS
No. 123R”), a revision of SFAS No. 123. Under SFAS No. 123R we
recognize the fair value of stock-based payments as compensation expense in our
financial statements. We elected to adopt SFAS No. 123R on the
modified prospective method and did not restate prior periods. We have
provided pro forma disclosure of stock-based compensation determined in
accordance with SFAS No. 123, as previously disclosed, for Fiscal
2006.
Under
SFAS No. 123R we continue to use the Black-Scholes valuation model to
estimate the fair value of stock options, using assumptions consistent with our
pro forma disclosures under SFAS No. 123 and straight-line amortization of
stock-based compensation. We elected to calculate the initial pool of
excess tax benefits related to stock-based compensation and the related
presentation of excess tax benefits in our consolidated statements of cash flows
in accordance with the provisions of paragraph 81 of SFAS No. 123R.
The
Black-Scholes model requires estimates or assumptions as to the dividend yield
and price volatility of the underlying stock, the expected life of the option,
and a relevant risk-free interest rate. The use of different
option-pricing models and different estimates or assumptions could result in
different estimates of compensation expense under the fair value
method.
Adoption
of SFAS No. 123R generally results in the recognition of additional stock-based
compensation in the financial statements as compared to use of the intrinsic
value method. However, beginning in Fiscal 2005 we changed the
composition of our stock-based compensation awards to include primarily
restricted stock and restricted stock unit awards, which generally yield the
same compensation expense under both the intrinsic value method and SFAS No.
123R. In addition, we did not have significant unvested stock options
as of the beginning of Fiscal 2007. Accordingly, the adoption of SFAS
No. 123R did not have a material incremental impact on our income before taxes
and net income, or on our basic and diluted net income per share.
See “Item 8. Financial
Statements and Supplementary Data; NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES; Stock-based
Compensation” below for further
information on our stock-based compensation expense.
Insurance
Liabilities
We use a
combination of third-party insurance and/or self-insurance for certain risks,
including workers’ compensation, medical, dental, automobile, and general
liability claims. Our insurance liabilities are a component of
“Accrued expenses” on our consolidated balance sheet, and represent our estimate
of the ultimate cost of uninsured claims incurred as of the balance sheet
date. In estimating our self-insurance liabilities we use independent
actuarial estimates of expected losses, which are based on statistical analyses
of historical data. Loss estimates are adjusted based upon actual
claim settlements and reported claims. Although we do not expect the
amounts ultimately paid to differ significantly from our estimates,
self-insurance liabilities could be affected if future claim experience differs
significantly from the historical trends and the actuarial
assumptions. We evaluate the adequacy of these liabilities on a
regular basis, modifying our assumptions as necessary, updating our records of
historical experience, and adjusting our liabilities as
appropriate.
Operating
Leases
We lease
substantially all of our store properties as well as certain of our other
facilities and account for our store leases in accordance with SFAS No. 13,
“Accounting for
Leases.” A majority of our store leases contain lease options
that we can unilaterally exercise. The lease term we use for such
operating leases includes lease option renewal periods only in instances in
which the failure to exercise such options would result in an economic penalty
for us and exercise of the renewal option is therefore reasonably assured at the
lease inception date. Store leasehold improvement assets are
depreciated over the shorter of their useful life or the lease term, as
determined above.
For
leases that contain rent escalations, the lease term for recognition of
straight-line rent expense commences on the date we take possession of the
leased property for construction purposes, which for stores is generally two
months prior to a store opening date. Similarly, landlord incentives
or allowances under operating leases (tenant improvement allowances) are
recorded as a deferred rent liability and recognized as a reduction of rent
expense on a straight-line basis over the lease term, commencing on the date we
take possession of the leased property for construction purposes.
Senior Convertible
Notes
On April
30, 2007 we issued $250.0 million in aggregate principal amount of our 1.125%
Senior Convertible Notes due May 2014 (the “1.125% Notes”) in a private offering
for resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended. On May 11, 2007 the initial
purchasers of the 1.125% Notes exercised their over-allotment option and
purchased an additional $25.0 million in aggregate principal amount of the
notes.
We
accounted for the issuance of the 1.125% Notes in accordance with the guidance
in EITF Issue 90-19, “Convertible Bonds with Issuer
Option to Settle for Cash upon Conversion” and EITF Issue 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.” Paragraph 11(a) of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” provides that contracts issued or
held by an entity that are both (1) indexed to the entity’s own common stock and
(2) classified in stockholders’ equity in its statement of financial position
are not considered to be derivative instruments under SFAS No. 133 if the
provisions of EITF Issue 00-19 are met. Accordingly, we have
recorded the 1.125% Notes as long-term debt in our condensed consolidated
balance sheet as of February 2, 2008.
Concurrent
with the issuance of the 1.125% Notes we entered into privately negotiated
common stock call options and warrants with affiliates of the initial
purchasers. We accounted for the call options and warrants in
accordance with the guidance in EITF Issue 00-19. The call options
and warrants meet the requirements of EITF Issue 00-19 to be accounted for as
equity instruments. Accordingly, the cost of the call options and the
proceeds from the sale of the warrants are included in additional paid-in
capital in our condensed consolidated balance sheet as of February 2,
2008.
In
accordance with SFAS No. 128, “Earnings Per Share,” the
1.125% Notes will have no impact on our diluted net income per share until the
price of our common stock exceeds the conversion price. Prior to
conversion we will include any dilutive effect of the 1.125% notes or the
warrants in the calculation of diluted net income per share using the treasury
stock method. The call options are excluded from the calculation of
diluted net income per share because their effect would be
anti-dilutive.
We will
be required on a quarterly basis to monitor the 1.125% Notes, call options, and
warrants for compliance with the provisions of EITF Issue 00-19 and paragraph
11(a) of SFAS No. 133. Should the issuance of the 1.125% Notes, the
purchase of the call options, or the sale of the warrants fail to continue to
qualify under the provisions of EITF Issue 00-19 or paragraph 11(a) of SFAS No.
133, we would be required to recognize derivative instruments in connection with
the transaction, include the effects of the transaction in assets or liabilities
instead of equity, and recognize changes in the fair values of the assets or
liabilities in consolidated net income as they occur until the provisions of
EITF Issue 00-19 and paragraph 11(a) of SFAS No. 133 are met.
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 8. LONG-TERM
DEBT” below for
further details of the transaction.
Income
Taxes
We
adopted the provisions of FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109,” effective as of February 4,
2007. FIN No. 48 prescribes the minimum recognition threshold a tax
position is required to meet before being recognized in the financial
statements. FIN No. 48 also provides guidance on de-recognition,
measurement, classification, interest and penalties, accounting in interim
periods, expanded disclosures regarding tax uncertainties, and
transition. FIN No. 48 applies to all tax positions related to income taxes
subject to SFAS No. 109, “Accounting for Income
Taxes.”
Under FIN
No. 48 we recognize a tax benefit when a tax position is more-likely-than-not to
be sustained upon examination, based solely on its technical
merits. We measure the recognized benefit as the largest amount of
benefit which is more-likely-than-not to be realized on ultimate settlement,
based on a cumulative probability basis. We recognize a tax position
failing to qualify for initial recognition in the first interim period in which
it meets the FIN No. 48 recognition standard, or is resolved through
negotiation, litigation, or upon expiration of the statute of
limitations. We de-recognize a previously recognized tax position if
we subsequently determine that the tax position no longer meets the
more-likely-than-not threshold of being sustained. As of February 4,
2007 we recognized a cumulative-effect adjustment of $5.0 million, increasing
our liability for unrecognized tax benefits, interest, and penalties and
reducing the February 4, 2007 balance of retained earnings for differences
between amounts recognized in our balance sheets prior to the adoption of FIN
No. 48 and amounts reported after adoption. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 7. INCOME
TAXES” below for
further details of our adoption of FIN No. 48.
We
adopted the provisions of FSP FIN 48-1, “Definition of Settlement in FASB
Interpretation No. 48,” effective with our adoption of FIN No.
48. Accordingly, we consider a tax position to be “effectively
settled” upon completion of an examination by a taxing authority without being
legally extinguished. For tax positions considered effectively
settled we recognize the full amount of the tax benefit, even if (1) the tax
position is not considered more-likely-than-not to be sustained solely on the
basis of its technical merits, and (2) the statute of limitations remains
open. The adoption of FSP FIN 48-1 did not have a material effect on
our financial position or results of operations.
This
overview of our Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) presents a high-level summary of more
detailed information contained elsewhere in this Report on Form
10-K. The intent of this overview is to put this detailed information
into perspective and to introduce the discussion and analysis contained in this
MD&A. Accordingly, this overview should be read in conjunction
with the remainder of this MD&A and with the financial statements and other
detailed information included in this Report on Form 10-K and should not be
separately relied upon.
During
Fiscal 2008 we faced a number of business-specific issues that, when combined
with the challenging retail and economic environment, negatively impacted our
short-term results, particularly during the second half of the
year.
At our
Retail Stores segment, the lack of more compelling merchandise assortments and
rapidly changing customer buying preferences coupled with a rapid decline in
consumer spending resulted in decreases in store traffic and comparable store
sales at each of our Retail Stores brands.
At our
Direct-to-Consumer segment, we continued to experience declines in response
rates to our catalog offerings from both our core customers and our prospecting
efforts. During Fiscal 2008 we established a new management team,
which implemented new creative marketing programs and product offerings that
have led to a moderation of the downward-trending catalog sales that we
experienced during the first half of Fiscal 2008.
The
impact of the above business and economic challenges accelerated during the
second half of the year and resulted in a difficult and highly promotional
retail sales environment. As a result, we continued to be more aggressive
in clearing seasonal inventories, leading to deeper-than-planned markdowns that
negatively impacted our merchandise margins. However, we believe that
these efforts have resulted in a better-positioned inventory going into the
spring season.
Initiatives
that we put in place in response to our performance and the challenging retail
and economic environment during the first half of Fiscal 2008 continued
throughout the second half of the year. We continued to focus on
managing to lower inventory levels, reducing selling, general, and
administrative expenses, and reducing our capital budget spending during the
second half of Fiscal 2008 through the reduction of certain store development
and non-critical infrastructure projects.
In
November 2007 and February 2008 we announced two initiatives to streamline
operations, reduce expenses, and improve cash flow.
In
November 2007 we announced our plan to relocate our CATHERINES operations
located in Memphis, Tennessee to our corporate headquarters in Bensalem,
Pennsylvania in conjunction with the consolidation of a number of its operating
functions. We anticipate that the execution of the new organizational
structure will result in approximately $8 million of annualized pre-tax
expense savings, primarily in the areas of payroll and occupancy
costs.
In
February 2008 we announced additional initiatives and actions in response to the
continuing weak retail and economic environment to: streamline our business
operations and further sharpen our focus on our core businesses; reduce selling,
general, and administrative expenses and capital expenditures; improve cash
flow; and enhance shareholder value. These initiatives include the
following:
|
·
|
Elimination
of approximately 150 corporate and field management
positions;
|
|
·
|
Reduction
of our Fiscal 2009 capital budget by more than $40 million as compared to
Fiscal 2008, primarily through a significant reduction in the number of
planned store openings for Fiscal
2009;
|
|
·
|
Closing
of approximately 150 under-performing stores;
and
|
|
·
|
Closing
our full-line PETITE SOPHISTICATE stores (which will not impact our PETITE
SOPHISTICATE OUTLET stores).
|
We
anticipate that the execution of these additional initiatives will result in
approximately $20 million of annualized pre-tax expense savings, primarily in
non-store payroll and the elimination of losses from the under-performing
stores.
Although
it was a challenging year, we were able to achieve the following during Fiscal
2008:
|
·
|
In
October 2007 the LANE BRYANT catalog trademark, which had been licensed to
a third party, reverted to us and we launched our LANE BRYANT WOMAN
catalog and related www.lanebryantcatalog.com
website, which offer clothing, footwear, and intimate apparel in an
expanded range of plus sizes at a value price point. During
Fiscal 2008 we made an initial pre-tax investment of approximately $11
million in the launch of the LANE BRYANT WOMAN
catalog.
|
|
·
|
In
November 2007 we acquired and securitized the LANE BRYANT proprietary
credit card portfolio, which had previously been serviced under an
agreement with a third party. We subsequently re-launched the
program with the issuance of approximately 2.4 million new credit cards in
connection with a new loyalty card program designed to stimulate traffic
and sales at our LANE BRYANT brand.
|
|
·
|
We
used proceeds from our issuance in May 2007 of our 1.125% Senior
Convertible Notes as well as cash flow from operating activities to
repurchase an aggregate total of 24.2 million shares of our common
stock.
|
While we
are committed to executing our long-term growth strategy as a multi-brand,
multi-channel retailer, we are currently facing a number of challenges that
continue to negatively impact our short-term results. As a result of
uncertain economic conditions and our expectation that consumer spending will
continue to be weak, we remain cautious for at least the first half of Fiscal
2009. In addition to the initiatives discussed above, we have
implemented the following near-term actions that are designed to enable us to
manage through this difficult retail environment:
|
·
|
Reduce
merchandise receipts and store inventory levels through at least the first
half of Fiscal 2009, which should help to reduce the level of seasonal
markdowns and help protect our prices and merchandise
margins.
|
|
·
|
Continue
to selectively reduce store payroll hours to match reduced store traffic,
and reduce corporate general and administrative
expenses.
|
|
·
|
Continue
to execute on a number of new product and marketing initiatives during the
second half of Fiscal 2008 to improve traffic and sales trends, such as
our new “Right Fit by Lane Bryant™” and “Right Fit by Catherines™”
campaigns and stocking Gitano® brand
fashionable casual merchandise offerings under our exclusive licensing
agreement.
|
|
·
|
Continue
to improve our merchandise content at LANE BRYANT by including a higher
fashion component.
|
|
·
|
Continue
to initiate new creative marketing programs and product offerings for our
catalog titles, as well as streamline apparel catalog
operations.
|
We also
expect Fiscal 2009 to benefit from the first full year of operations of our LANE
BRYANT WOMAN catalog and related www.lanebryantcatalog.com
website. Our balance sheet remains strong, with ample liquidity
through our $75.2 million of cash and available-for-sale securities and our
committed $375.0 million revolving credit facility that had no outstanding
borrowings at the end of Fiscal 2008.
RESULTS OF
OPERATIONS
Financial Summary
The
following table shows our results of operations expressed as a percentage of net
sales and on a comparative basis:
|
Percentage
Increase
|
||||||||||||||||||||
|
(Decrease)
|
||||||||||||||||||||
|
Percentage of Net
Sales(1)
|
From Prior Year(3)
|
|||||||||||||||||||
|
Fiscal
|
Fiscal
|
Fiscal
|
Fiscal
|
Fiscal
|
||||||||||||||||
|
2008
|
2007(2)
|
2006(3)
|
2008-2007
|
2007-2006(2)
|
||||||||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | (1.9 | )% | 11.3 | % | ||||||||||
|
Cost
of goods sold, buying, catalog, and
|
||||||||||||||||||||
|
occupancy
expenses
|
73.1
|
69.8
|
69.5
|
2.7
|
11.9
|
|||||||||||||||
|
Selling,
general, and administrative expenses
|
25.8
|
24.6
|
24.6
|
3.2
|
11.0
|
|||||||||||||||
|
Impairment
of goodwill and trademarks
|
3.3
|
–
|
–
|
–
|
–
|
|||||||||||||||
|
Restructuring
charges
|
0.5
|
–
|
–
|
–
|
–
|
|||||||||||||||
|
Income/(loss)
from operations
|
(2.6 | ) |
5.6
|
5.9
|
(145.8 | ) |
6.1
|
|||||||||||||
|
Other
income
|
0.3
|
0.3
|
0.3
|
5.4
|
8.6
|
|||||||||||||||
|
Interest
expense
|
0.4
|
0.5
|
0.6
|
(28.4 | ) | (17.7 | ) | |||||||||||||
|
Income
tax provision
|
0.1
|
1.9
|
1.9
|
(93.7 | ) |
7.9
|
||||||||||||||
|
Extraordinary
item, net of income taxes
|
0.0
|
–
|
–
|
–
|
–
|
|||||||||||||||
|
Net
income/(loss)
|
(2.8 | ) |
3.6
|
3.6
|
(176.6 | ) |
9.6
|
|||||||||||||
|
____________________
|
||||||||||||||||||||
|
(1) Results may not add
due to rounding.
|
||||||||||||||||||||
|
(2) Fiscal 2007
consisted of 53 weeks.
|
||||||||||||||||||||
|
(3) Includes the results
of operations of Crosstown Traders, Inc. from the date of acquisition
(June 2, 2005).
|
||||||||||||||||||||
The
following table shows our net sales by store brand:
|
Year
Ended
|
Year
Ended
|
Year
Ended
|
||||||||||||||||||||||
|
February 2,
2008
|
February 3, 2007(1)
|
January 28,
2006
|
||||||||||||||||||||||
|
Fiscal
|
Fourth
|
Fiscal
|
Fourth
|
Fiscal
|
Fourth
|
|||||||||||||||||||
|
(In
millions)
|
Year
|
Quarter
|
Year
|
Quarter
|
Year
|
Quarter
|
||||||||||||||||||
|
LANE
BRYANT(2)
|
$ |
1,232.3
|
$ |
323.3
|
$ |
1,202.3
|
$ |
357.1
|
$ |
1,057.4
|
$ |
299.8
|
||||||||||||
|
FASHION
BUG
|
992.7
|
228.6
|
1,058.3
|
269.1
|
1,049.0
|
258.6
|
||||||||||||||||||
|
CATHERINES
|
353.2
|
76.7
|
367.7
|
91.5
|
346.2
|
83.0
|
||||||||||||||||||
|
Other
retail stores(3)
|
21.1
|
6.0
|
8.1
|
6.2
|
0.0
|
0.0
|
||||||||||||||||||
|
Total
Retail Stores segment sales
|
2,599.3
|
634.6
|
2,636.4
|
723.9
|
2,452.6
|
641.4
|
||||||||||||||||||
|
Total
Direct-to-Consumer segment sales
|
408.1
|
149.0
|
427.8
|
148.2
|
298.9 | (4) |
155.8
|
|||||||||||||||||
|
Corporate
and other(5)
|
2.6
|
1.3
|
3.3
|
1.9
|
4.2
|
2.4
|
||||||||||||||||||
|
Total
net sales
|
$ |
3,010.0
|
$ |
784.9
|
$ |
3,067.5
|
$ |
874.0
|
$ |
2,755.7
|
$ |
799.6
|
||||||||||||
|
____________________
|
||||||||||||||||||||||||
|
(1) Fiscal Year 2007 and
Fourth Quarter 2007 consisted of 53 weeks and 14 weeks,
respectively.
|
||||||||||||||||||||||||
|
(2) Fiscal 2008 and
Fiscal 2007 include LANE BRYANT OUTLET stores.
|
||||||||||||||||||||||||
|
(3) Includes PETITE
SOPHISTICATE and PETITE SOPHISTICATE OUTLET stores.
|
||||||||||||||||||||||||
|
(4) Includes the results
of operations of Crosstown Traders, Inc. from the date of acquisition
(June 2, 2005).
|
||||||||||||||||||||||||
|
(5) Revenue related to
loyalty card fees, net of loyalty card coupons.
|
||||||||||||||||||||||||
The
following table shows additional information related to changes in our net
sales:
|
Year
Ended
|
Year
Ended
|
|||||||||||||||
|
February 2, 2008(1)
|
February 3, 2007(1)
|
|||||||||||||||
|
Fiscal
|
Fourth
|
Fiscal
|
Fourth
|
|||||||||||||
|
Year
|
Quarter
|
Year
|
Quarter
|
|||||||||||||
|
Retail Stores
segment
|
||||||||||||||||
|
Increase/(decrease)
in comparable store sales:(2)
|
||||||||||||||||
|
Consolidated retail
stores
|
(5 | )% | (9 | )% | 1 | % | (1 | )% | ||||||||
|
LANE BRYANT
|
(6 | ) | (9 | ) |
1
|
(3 | ) | |||||||||
|
FASHION BUG
|
(4 | ) | (8 | ) | (1 | ) | (1 | ) | ||||||||
|
CATHERINES
|
(3 | ) | (11 | ) |
4
|
2
|
||||||||||
|
Sales
from new stores as a percentage of total
|
||||||||||||||||
|
consolidated prior-period net
sales:(3)
|
||||||||||||||||
|
LANE BRYANT(4)
|
6
|
3
|
6
|
7
|
||||||||||||
|
FASHION BUG
|
1
|
1
|
1
|
1
|
||||||||||||
|
CATHERINES
|
0
|
0
|
1
|
0
|
||||||||||||
|
Other retail stores(5)
|
0
|
2
|
0
|
1
|
||||||||||||
|
Prior-period
sales from closed stores as a percentage
|
||||||||||||||||
|
of total consolidated
prior-period net sales:
|
||||||||||||||||
|
LANE BRYANT
|
(1 | ) | (1 | ) | (2 | ) | (2 | ) | ||||||||
|
FASHION BUG
|
(1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||
|
CATHERINES
|
0
|
0
|
0
|
0
|
||||||||||||
|
Increase/(decrease)
in Retail Stores segment sales
|
(1 | ) | (12 | ) |
7
|
13
|
||||||||||
|
Direct-to-Consumer
segment
|
||||||||||||||||
|
Increase/(decrease)
in Direct-to-Consumer segment sales
|
(5 | ) |
1
|
– | (6) | (5 | ) | |||||||||
|
Increase/(decrease)
in consolidated total net sales
|
(2 | ) | (10 | ) | 11 | (7) | 9 | (7) | ||||||||
|
____________________
|
||||||||||||||||
|
(1) Fiscal Year 2007
consisted of 53 weeks and Fourth Quarter 2007 consisted of 14
weeks. Comparable store sales and changes in sales from new stores
and closed stores are based on equivalent 52-week and 13-week
periods. The increase/(decrease) in Retail Stores segment sales,
increase (decrease) in Direct-to-Consumer segment sales, and
increase/(decrease) in consolidated net sales are based on the 53-week and
14-week periods for Fiscal 2007 and the 52-week and 13-week periods for
Fiscal 2008 and Fiscal 2006.
|
||||||||||||||||
|
(2) “Comparable store
sales” is not a measure that has been defined under generally accepted
accounting principles. The method of calculating comparable store
sales varies across the retail industry; therefore our calculation of
comparable store sales is not necessarily comparable to similarly-titled
measures reported by other companies. We define comparable store
sales as sales from stores operating in both the current and prior-year
periods. New stores are added to the comparable store sales base 13
months after their open date. Sales from stores that are relocated
within the same mall or strip-center, remodeled, or have a legal square
footage change of less than 20% are included in the calculation of
comparable store sales. Sales from stores that are relocated outside
the existing mall or strip-center, or have a legal square footage change
of 20% or more, are excluded from the calculation of comparable store
sales until 13 months after the relocated store is opened. Stores
that are temporarily closed for a period of 4 weeks or more are excluded
from the calculation of comparable store sales for the applicable periods
in the year of closure and the subsequent year. Non-store sales, such
as catalog and E-commerce sales, are excluded from the calculation of
comparable store sales.
|
||||||||||||||||
|
(3) Includes incremental
Retail Stores segment E-commerce sales.
|
||||||||||||||||
|
(4) Includes LANE BRYANT
OUTLET stores.
|
||||||||||||||||
|
(5) Includes PETITE
SOPHISTICATE and PETITE SOPHISTICATE OUTLET stores.
|
||||||||||||||||
|
(6) Comparison is not
meaningful, as prior-year period includes sales from Crosstown Traders,
Inc. from the date of acquisition on June 2, 2005 (approximately 34
weeks).
|
||||||||||||||||
|
(7) The increase in
consolidated total net sales includes an increase of 5% for Fiscal Year
2007 and a decrease of 1% for the Fourth Quarter 2007 as a result of the
acquisition of Crosstown Traders, Inc. on June 2,
2005.
|
||||||||||||||||
The
following table sets forth information with respect to store activity for Fiscal
2008 and planned store activity for Fiscal 2009:
|
FASHION
|
LANE
|
|||||||||||||||||||
|
BUG
|
BRYANT
|
CATHERINES
|
Other(1)
|
Total
|
||||||||||||||||
|
Fiscal 2008:(2)
|
||||||||||||||||||||