"Second quarter 2009 financial results were pressured by the economic environment and the negative impact of foreign exchange," said Chuck Crovitz, the company's interim CEO. "In addition, we faced a challenging comparison as last year's second quarter was the best in the company's history. But despite these headwinds, we were pleased to have made significant progress on various initiatives including further growth in our e-commerce business, acceleration of our cost cutting efforts and the successful rollout of a new value-engineered store format."
Looking ahead, he noted that the company plans to continue to operate its business conservatively while the recession lingers, but remains confident it has the right strategies in place to drive long-term growth.
During the second quarter of 2009, the company opened 15 stores, while year-to-date openings are 21, with one store closure. According to Susan Riley, executive vice president of finance and administration, the company plans to increase its store presence in 2010 by 30, with most openings occurring during the second and third quarter.
While retail sales were down in-store, the company saw an uptick in its e-commerce business. "The total holiday buy is up about 6% over the prior year. And although in-store inventory is down slightly, we are buying more for e-commerce," Riley related. She added that the company is "very comfortable with our inventory levels."
As for its brick-and-mortar operations, Crovitz told investors that the company saw relative strength in strip and value centers. "In general, we had less negative comp in these two locations than in A and B malls," he said.
The company is also on track to meet its $20 million cost-reduction benchmark. "We're on our way to achieving this and then some," Riley said, adding that savings will be around $10 million for Q3 and Q4 2009, with $5 million realized in each quarter.
As previously announced, during the second quarter of 2009 the company also entered into an agreement with former Chairman and CEO Ezra Dabah to acquire approximately 2.45 million shares, 50% of the approximate 4.9 million shares owned by Dabah and his family, for $28.88 per share.
The Children's Place funded the purchase with approximately $75 million in cash repatriated from company subsidiaries in Hong Kong and Canada. The company closed on the share repurchase in early August, and concurrently pre-paid the principal amount of $38 million outstanding, plus accrued and unpaid interest, on its term loan. Per the sale, Dabah and Silverstein agreed to resign from the company's board. Thus ending several years' worth of corporate drama, which effectively began back in 2004, when the Children's Place bought the Disney Store North America from Disney Enterprises Inc. for about $100 million. The Children's Place subsidiary Hoop Holdings LLC, which operated the Disney Stores, subsequently filed for bankruptcy and sold the stores back to Walt Disney Co. for $65 million in April 2008. The Children's Place is currently led by Crovitz, but the company said it intends to name a permanent CEO by year's end.
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