Childrens Place, Inc. [PLCE] Filings

10-Q 1 plce-20230729.htm 10-Q plce-20230729

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 29, 2023


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number 0-23071

THE CHILDREN’S PLACE, INC.

(Exact name of registrant as specified in its charter)


Delaware						31-1241495
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

500 Plaza Drive
Secaucus, New Jersey						07094
(Address of principal executive offices)						(Zip Code)

(201) 558-2400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.10 par value	PLCE	Nasdaq Global Select Market

___________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, par value $0.10 per share, outstanding at August 24, 2023: 12,478,857.

Table of Contents

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JULY 29, 2023

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION		PAGE

Item 1.	F inancial S tatements.
	Consolidated Balance Sheets as of July 29, 2023, January 28, 2023 and July 30, 2022	1
	Consolidated Statements of Operations for the thirteen weeks and twenty-six weeks ended July 29, 2023 and July 30, 2022	2
	Consolidated Statements of Comprehensive Income (Loss) for the thirteen weeks and twenty-six weeks ended July 29, 2023 and July 30, 2022	3
	Consolidated Statements of Changes in Stockholders’ Equity for the thirteen weeks and twenty-six weeks ended July 29, 2023 and July 30, 2022	4
	Consolidated Statements of Cash Flows for the twenty-six weeks ended July 29, 2023 and July 30, 2022	6
	Notes to C onsolidated F inancial S tatements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	20
Item 3.	Quantitative and Qualitative Disclosures A bout Market Risk.	29
Item 4.	Controls and Procedures.	30

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings.	31
Item 1A.	Risk Factors.	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	31
Item 6.	Exhibits.	32

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS.

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	July 29, 2023		January 28, 2023		July 30, 2022

	(in thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	18,846	$	16,689	$	28,193

Accounts receivable	33,073		49,584		44,445
Inventories	536,980		447,795		616,436
Prepaid expenses and other current assets	65,108		47,875		59,383

Total current assets	654,007		561,943		748,457
Long-term assets:
Property and equipment, net	141,244		149,874		154,738
Right-of-use assets	112,325		155,481		167,619
Tradenames, net	70,491		70,891		71,292
Deferred income taxes	35,798		36,616		20,013
Other assets	9,220		11,476		12,339
Total assets	$	1,023,085	$	986,281	$	1,174,458

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Revolving loan	$	347,546	$	286,990	$	283,931

Accounts payable	262,369		177,147		303,776
Current portion of operating lease liabilities	65,266		78,576		78,989
Income taxes payable	2,938		6,014		2,482
Accrued expenses and other current liabilities	122,032		99,658		123,919
Total current liabilities	800,151		648,385		793,097
Long-term liabilities:

Long-term debt	49,785		49,752		49,718
Long-term portion of operating lease liabilities	63,714		96,482		112,386
Income taxes payable	9,610		17,199		18,925
Other tax liabilities	2,905		2,757		2,337
Other long-term liabilities	10,990		13,228		13,814
Total liabilities	937,155		827,803		990,277
Commitments and contingencies (see Note 8)
Stockholders’ equity:
Preferred stock, $1.00 par value, 1,000 shares authorized, 0 shares issued and outstanding	—		—		—
Common stock, $0.10 par value, 100,000 shares authorized; 12,544, 12,292, and 13,087 issued; 12,473, 12,225, and 13,023 outstanding	1,254		1,229		1,309
Additional paid-in capital	145,117		150,956		151,954
Treasury stock, at cost (71, 67, and 64 shares)	(3,884)		(3,736)		(3,587)
Deferred compensation	3,884		3,736		3,587
Accumulated other comprehensive loss	(15,964)		(16,247)		(14,614)
Retained earnings (deficit)	(44,477)		22,540		45,532
Total stockholders’ equity	85,930		158,478		184,181
Total liabilities and stockholders’ equity	$	1,023,085	$	986,281	$	1,174,458

See accompanying notes to these consolidated financial statements.

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THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022
	(in thousands, except earnings (loss) per common share)
Net sales	$	345,599	$	380,885	$	667,239	$	743,235
Cost of sales (exclusive of depreciation and amortization)	257,840		265,422		483,019		485,867

Gross profit	87,759		115,463		184,220		257,368

Selling, general, and administrative expenses	111,965		114,672		224,895		223,708
Depreciation and amortization	11,953		13,241		23,801		26,856
Asset impairment charges	782		1,379		2,532		1,379



Operating income (loss)	(36,941)		(13,829)		(67,008)		5,425
Interest expense	(7,658)		(2,603)		(13,594)		(4,313)
Interest income	17		14		51		19
Income (loss) before benefit for income taxes	(44,582)		(16,418)		(80,551)		1,131
Benefit for income taxes	(9,227)		(3,120)		(16,363)		(5,402)

Net income (loss)	$	(35,355)	$	(13,298)	$	(64,188)	$	6,533

Earnings (loss) per common share
Basic	$	(2.82)	$	(1.01)	$	(5.16)	$	0.49
Diluted	$	(2.82)	$	(1.01)	$	(5.16)	$	0.48

Weighted average common shares outstanding
Basic	12,522		13,147		12,448		13,384
Diluted	12,522		13,147		12,448		13,532

See accompanying notes to these consolidated financial statements.

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THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022
	(in thousands)
Net income (loss)	$	(35,355)	$	(13,298)	$	(64,188)	$	6,533
Other comprehensive income (loss):
Foreign currency translation adjustment	1,101		54		283		(428)


Total comprehensive income (loss)	$	(34,254)	$	(13,244)	$	(63,905)	$	6,105

See accompanying notes to these consolidated financial statements.

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THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


Thirteen Weeks Ended July 29, 2023
										Accumulated
				Additional				Retained		Other					Total
	Common Stock			Paid-In		Deferred		Earnings		Comprehensive		Treasury Stock			Stockholders’
(in thousands)	Shares	Amount		Capital		Compensation		(Deficit)		Loss		Shares	Amount		Equity











































Balance, April 29, 2023	12,473	$	1,247	$	150,846	$	3,810	$	(9,207)	$	(17,065)	(68)	$	(3,810)	$	125,821


Vesting of stock awards	119	12		(12)											—
Stock-based compensation benefit				(4,762)											(4,762)

Purchase and retirement of common stock	(48)	(5)		(955)				85							(875)
Other comprehensive income										1,101					1,101





Deferral of common stock into deferred compensation plan						74						(3)	(74)		—
Net loss								(35,355)							(35,355)
Balance, July 29, 2023	12,544	$	1,254	$	145,117	$	3,884	$	(44,477)	$	(15,964)	(71)	$	(3,884)	$	85,930



Twenty-six Weeks Ended July 29, 2023
										Accumulated
				Additional				Retained		Other					Total
	Common Stock			Paid-In		Deferred		Earnings		Comprehensive		Treasury Stock			Stockholders’
(in thousands)	Shares	Amount		Capital		Compensation		(Deficit)		Loss		Shares	Amount		Equity
Balance, January 28, 2023	12,292	$	1,229	$	150,956	$	3,736	$	22,540	$	(16,247)	(67)	$	(3,736)	$158,478


Vesting of stock awards	455	46		(46)											—
Stock-based compensation benefit				(1,679)											(1,679)
Purchase and retirement of common stock	(203)	(21)		(4,114)				(2,829)							(6,964)
Other comprehensive income										283					283




Deferral of common stock into deferred compensation plan						148						(4)	(148)		—
Net loss								(64,188)							(64,188)
Balance, July 29, 2023	12,544	$	1,254	$	145,117	$	3,884	$	(44,477)	$	(15,964)	(71)	$	(3,884)	$	85,930

See accompanying notes to these consolidated financial statements.

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THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


Thirteen Weeks Ended July 30, 2022
										Accumulated
				Additional				Retained		Other					Total
	Common Stock			Paid-In		Deferred		Earnings		Comprehensive		Treasury Stock			Stockholders’
(in thousands)	Shares	Amount		Capital		Compensation		(Deficit)		Loss		Shares	Amount		Equity











































Balance, April 30, 2022	13,422	$	1,342	$	155,097	$	3,512	$	71,913	$	(14,668)	(62)	$	(3,512)	$	213,684


Vesting of stock awards	147	15		(15)											—
Stock-based compensation expense				6,272											6,272

Purchase and retirement of common stock	(482)	(48)		(9,400)				(13,083)							(22,531)

Other comprehensive income										54					54


Deferral of common stock into deferred compensation plan						75						(2)	(75)		—
Net loss								(13,298)							(13,298)
Balance, July 30, 2022	13,087	$	1,309	$	151,954	$	3,587	$	45,532	$	(14,614)	(64)	$	(3,587)	$	184,181



Twenty-six Weeks Ended July 30, 2022
										Accumulated
				Additional				Retained		Other					Total
	Common Stock			Paid-In		Deferred		Earnings		Comprehensive		Treasury Stock			Stockholders’
(in thousands)	Shares	Amount		Capital		Compensation		(Deficit)		Loss		Shares	Amount		Equity
Balance, January 29, 2022	13,964	$	1,396	$	160,348	$	3,443	$	77,914	$	(14,186)	(61)	$	(3,443)	$	225,472


Vesting of stock awards	270	27		(27)											—
Stock-based compensation expense				13,834											13,834
Purchase and retirement of common stock	(1,147)	(114)		(22,201)				(38,915)							(61,230)




Other comprehensive loss										(428)					(428)

Deferral of common stock into deferred compensation plan						144						(3)	(144)		—
Net income								6,533							6,533
Balance, July 30, 2022	13,087	$	1,309	$	151,954	$	3,587	$	45,532	$	(14,614)	(64)	$	(3,587)	$	184,181

See accompanying notes to these consolidated financial statements.

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THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Twenty-six Weeks Ended
	July 29, 2023		July 30, 2022
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(64,188)	$	6,533


Reconciliation of net income (loss) to net cash used in operating activities:
Non-cash portion of operating lease expense	37,757		40,075
Depreciation and amortization	23,801		26,856

Non-cash stock-based compensation expense (benefit), net	(1,679)		13,834
Asset impairment charges	2,532		1,379

Deferred income tax provision	828		2,768



Other non-cash charges (income), net	331		(521)
Changes in operating assets and liabilities:
Inventories	(88,959)		(187,762)
Accounts receivable and other assets	19,215		(23,542)
Prepaid expenses and other current assets	(798)		554
Income taxes payable, net of prepayments	(23,334)		8,008
Accounts payable and other current liabilities	105,912		105,228
Lease liabilities	(41,886)		(47,928)
Other long-term liabilities	(2,237)		1,729

Net cash used in operating activities	(32,705)		(52,789)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(18,152)		(18,766)


Change in deferred compensation plan	(109)		(357)
Net cash used in investing activities	(18,261)		(19,123)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility	317,144		379,364
Repayments under revolving credit facility	(256,588)		(270,750)




Purchase and retirement of common stock, including shares surrendered for tax withholdings and transaction costs	(6,964)		(62,900)
Payment of debt issuance costs	(623)		—
Net cash provided by financing activities	52,969		45,714
Effect of exchange rate changes on cash and cash equivalents	154		(396)
Net increase (decrease) in cash and cash equivalents	2,157		(26,594)
Cash and cash equivalents, beginning of period	16,689		54,787
Cash and cash equivalents, end of period	$	18,846	$	28,193

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Net cash paid (received) for income taxes	$	5,944	$	(16,425)
Cash paid for interest	12,563		4,014
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Purchases of property and equipment not yet paid	7,344		16,171

See accompanying notes to these consolidated financial statements.

Table of Contents

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.BASIS OF PRESENTATION

Description of Business

The Children’s Place, Inc. and subsidiaries (collectively, the “Company”) is an omni-channel children’s specialty portfolio of brands with an industry-leading digital-first operating model. Its global retail and wholesale network includes four digital storefronts, more than 500 stores in North America, wholesale marketplaces and distribution in 16 countries through six international franchise partners. The Company designs, contracts to manufacture, and sells fashionable, high-quality apparel, accessories and footwear predominantly at value prices, primarily under the Company’s proprietary brands: “The Children’s Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place”.

The Company classifies its business into two segments: The Children’s Place U.S. and The Children’s Place International. Included in The Children’s Place U.S. segment are the Company’s U.S. and Puerto Rico-based stores and revenue from its U.S.-based wholesale business. Included in The Children’s Place International segment are its Canadian-based stores, revenue from the Company’s Canadian-based wholesale business, as well as revenue from international franchisees. Each segment includes an e-commerce business located at www.childrensplace.com, www.gymboree.com, www.sugarandjade.com, and www.pjplace.com. The Company also has social media channels on Instagram, Facebook, X, formerly known as Twitter, YouTube and Pinterest.

Terms that are commonly used in the notes to the Company’s consolidated financial statements are defined as follows:

•Second Quarter 2023 — The thirteen weeks ended July 29, 2023

•Second Quarter 2022 — The thirteen weeks ended July 30, 2022

•Year-To-Date 2023 — The twenty-six weeks ended July 29, 2023

•Year-To-Date 2022 — The twenty-six weeks ended July 30, 2022

•Fiscal 2023 – The fifty-three weeks ending February 3, 2024

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

•SEC — U.S. Securities and Exchange Commission

•U.S. GAAP — Generally Accepted Accounting Principles in the United States

•FASB — Financial Accounting Standards Board

•FASB ASC — FASB Accounting Standards Codification, which serves as the source for authoritative U.S. GAAP, except that rules and interpretive releases by the SEC are also sources of authoritative U.S. GAAP for SEC registrants

Basis of Presentation

The unaudited consolidated financial statements and accompanying notes to consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. As of July 29, 2023, January 28, 2023 and July 30, 2022, the Company did not have any investments in unconsolidated affiliates. FASB ASC 810—Consolidation is considered when determining whether an entity is subject to consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal recurring adjustments necessary for a fair statement of the consolidated financial position of the Company as of July 29, 2023 and July 30, 2022, the results of its consolidated operations, consolidated comprehensive income (loss), and consolidated changes in stockholders’ equity for the thirteen and twenty-six weeks ended July 29, 2023 and July 30, 2022, and consolidated cash flows for the twenty-six weeks ended July 29, 2023 and July 30, 2022. The consolidated balance sheet as of January 28, 2023 was derived from audited financial statements. Due to the seasonal nature of the Company’s business, the results of operations for the thirteen and twenty-six weeks ended July 29, 2023 and July 30, 2022 are not necessarily indicative of operating results for a full fiscal year. These consolidated financial statements should be read in conjunction with the

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

Certain prior period financial statement disclosures have been conformed to the current period presentation.

Fiscal Year

The Company’s fiscal year is a fifty-two week or fifty-three week period ending on the Saturday on or nearest to January 31.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and amounts of revenues and expenses reported during the period. Actual results could differ from the assumptions used and estimates made by management, which could have a material impact on the Company’s financial position or results of operations. Critical accounting estimates inherent in the preparation of the consolidated financial statements include impairment of long-lived assets, impairment of indefinite-lived intangible assets, income taxes, stock-based compensation, and inventory valuation.

Recent Accounting Standards Updates

There are no pending accounting standards updates that are currently expected to have a material impact on the Company’s consolidated financial statements.

2. REVENUES

Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The following table presents the Company’s revenues disaggregated by geography:


	Thirteen Weeks Ended			Twenty-six Weeks Ended
		July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022
		(in thousands)
Net sales:
South		$	127,708	$	146,368	$	247,626	$	282,740
Northeast		59,935		72,113		124,468		147,509
West		46,750		52,411		89,352		102,543
Midwest		34,093		39,218		72,902		82,831
International and other (1)		77,113		70,775		132,891		127,612
Total net sales		$	345,599	$	380,885	$	667,239	$	743,235

____________________________________________

(1) Includes retail and e-commerce sales in Canada and Puerto Rico, wholesale and franchisee sales, and certain amounts earned under the Company’s private label credit card program.

The Company recognizes revenue, including shipping and handling fees billed to customers, upon purchase at the Company’s retail stores or when received by the customer if the product was purchased via e-commerce, net of coupon redemptions and anticipated sales returns. The Company deferred sales of $11.7 million, $2.9 million, and $12.6 million within Accrued expenses and other current liabilities as of July 29, 2023, January 28, 2023, and July 30, 2022, respectively, based upon estimated time of delivery, at which point control passes to the customer. Sales tax collected from customers is excluded from revenue.

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

For its wholesale business, the Company recognizes revenue, including shipping and handling fees billed to customers, when title of the goods passes to the customer, net of commissions, discounts, operational chargebacks, and cooperative advertising. The allowance for wholesale revenue included within Accounts receivable was $7.4 million, $5.0 million, and $4.3 million as of July 29, 2023, January 28, 2023, and July 30, 2022, respectively.

For the sale of goods to retail customers with a right of return, the Company recognizes revenue for the consideration it expects to be entitled to and calculates an allowance for estimated sales returns based upon the Company’s sales return experience. Adjustments to the allowance for estimated sales returns in subsequent periods have not been material based on historical data, thereby reducing the uncertainty inherent in such estimates. The allowance for estimated sales returns, which is recorded in Accrued expenses and other current liabilities, was $2.5 million, $1.0 million, and $2.3 million as of July 29, 2023, January 28, 2023, and July 30, 2022, respectively.

The Company’s private label credit card is issued to customers for use exclusively at The Children’s Place stores and online at www.childrensplace.com, www.gymboree.com, www.sugarandjade.com, and www.pjplace.com, and credit is extended to such customers by a third-party financial institution on a non-recourse basis to the Company. The private label credit card includes multiple performance obligations for the Company, including marketing and promoting the program on behalf of the bank and the operation of the loyalty rewards program. Included in the agreement with the third-party financial institution was an upfront bonus paid to the Company and an additional bonus to extend the term of the agreement. These bonuses are recognized as revenue and allocated between brand and reward obligations. As the license of the Company’s brand is the predominant item in the performance obligation, the amount allocated to the brand obligation is recognized on a straight-line basis over the term of the agreement. The amount allocated to the reward obligation is recognized on a point-in-time basis as redemptions under the loyalty program occur.

In measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer, the Company takes into account the related elements of variable consideration, such as additional bonuses, including profit-sharing, over the life of the private label credit card program. Similar to the upfront bonus, the usage-based royalties and bonuses are recognized as revenue and allocated between the brand and reward obligations. The amount allocated to the brand obligation is recognized on a straight-line basis over the initial term. The amount allocated to the reward obligation is recognized on a point-in-time basis as redemptions under the loyalty program occur. In addition, the annual profit-sharing amount is recognized quarterly within an annual period when it can be estimated reliably. The additional bonuses are amortized over the contract term based on anticipated progress against future targets and level of risk associated with achieving the targets.

The Company has a points-based customer loyalty program in which customers earn points based on purchases and other promotional activities. These points can be redeemed for coupons to discount future purchases. A contract liability is estimated based on the standalone selling price of benefits earned by customers through the program and the related redemption experience under the program. The value of each point earned is recorded as deferred revenue and is included within Accrued expenses and other current liabilities. The total contract liabilities related to this program were $5.6 million, $2.6 million, and $3.9 million as of July 29, 2023, January 28, 2023, and July 30, 2022, respectively.

The Company’s policy with respect to gift cards is to record revenue as and when the gift cards are redeemed for merchandise. The Company recognizes gift card breakage income in proportion to the pattern of rights exercised by the customer when the Company expects to be entitled to breakage and the Company determines that it does not have a legal obligation to remit the value of the unredeemed gift card to the relevant jurisdiction as unclaimed or abandoned property. Gift card breakage is recorded within Net sales. Prior to their redemption, gift cards are recorded as a liability within Accrued expenses and other current liabilities. The liability is estimated based on expected breakage that considers historical patterns of redemption. The gift card liability balance as of July 29, 2023, January 28, 2023, and July 30, 2022 was $10.2 million, $11.1 million, and $11.7 million, respectively. During Year-To-Date 2023, the Company recognized Net sales of $3.1 million related to the gift card liability balance that existed at January 28, 2023.

The Company has an international program of territorial agreements with franchisees. The Company generates revenues from the franchisees from the sale of product and, in certain cases, sales royalties. The Company recognizes revenue on the sale of product to franchisees when the franchisee takes ownership of the product. The Company records net sales for royalties when the applicable franchisee sells the product to their customers. Under certain agreements, the Company receives a fee from each franchisee for exclusive territorial rights and based on the opening of new stores. The Company records these territorial fees as deferred revenue and amortizes the fee into Net sales over the life of the territorial agreement.

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

3. RESTRUCTURING

In support of the Company’s ongoing structural transformation from a legacy store operating model to a digital-first retailer, during the Second Quarter 2023, the Company voluntarily entered into an early termination of its corporate office lease and implemented a workforce reduction. On May 26, 2023, the Company proactively accelerated the termination of its corporate office lease to capitalize on the prevailing tenant-favorable market conditions. That lease will now expire in May 2024. On June 28, 2023, the Company announced that it implemented a 17% reduction in the number of its salaried workforce, the substantial majority of whom were located at the Company’s corporate offices in Secaucus, New Jersey, with the balance at other domestic and international locations. The voluntary lease termination, combined with the workforce reduction, will enable the Company to reduce its current space configuration and capitalize on lower prevailing market rates than would have been applicable under its existing lease, which included escalations in occupancy costs, and did not expire until 2029. The actions associated with the workforce reduction are expected to be substantially completed by the end of the third quarter of 2023.

As a result of these strategic actions associated with the voluntary early termination of its corporate office lease and workforce reduction, the Company incurred non-operating charges of $10.6 million in restructuring costs during the Second Quarter 2023 and Year-To-Date 2023 on a pre-tax basis, summarized in the following table:


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022
	(in thousands)
Employee-related costs	$	5,433	$	—	$	5,433	$	—
Lease termination costs (1)	4,947		—		4,947		—
Professional fees	186		—		186		—
Total restructuring costs (2)	$	10,566	$	—	$	10,566	$	—

____________________________________________

(1)Includes $0.9 million of non-cash charges related to accelerated depreciation on certain assets in the corporate office over the reduced lease term. The Company expects to record additional accelerated depreciation charges of approximately $1.5 million until the expiration of its corporate office lease.

(2)Restructuring costs are recorded within Selling, general and administrative expenses, except accelerated depreciation charges noted above, which are recorded within Depreciation and amortization, and are primarily recorded within The Children’s Place U.S. segment.

The following table summarizes the restructuring costs that have been partially settled with cash payments and the remaining related liability as of July 29, 2023. The remaining related liability is expected to be settled with cash payments in the future and these costs are included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets:



	Employee-Related Costs		Lease Termination Costs		Professional Fees		Total
	(in thousands)
Balance at April 29, 2023	$	—	$	—	$	—	$	—
Provision	5,433		4,040		186		9,659
Cash payments	(2,602)		(4,040)		—		(6,642)
Balance at July 29, 2023	$	2,831	$	—	$	186	$	3,017

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4. INTANGIBLE ASSETS

The Company’s intangible assets were as follows:


		July 29, 2023
	Useful Life	Gross Amount		Accumulated Amortization		Net Amount
		(in thousands)
Gymboree tradename (1)	Indefinite	$	69,953	$	—	$	69,953
Crazy 8 tradename (1)	5 years	4,000		(3,462)		538

Total intangible assets		$	73,953	$	(3,462)	$	70,491


		January 28, 2023
	Useful Life	Gross Amount		Accumulated Amortization		Net Amount
		(in thousands)
Gymboree tradename (1)	Indefinite	$	69,953	$	—	$	69,953
Crazy 8 tradename (1)	5 years	4,000		(3,062)		938
Customer databases (2)	3 years	3,000		(3,000)		—
Total intangible assets		$	76,953	$	(6,062)	$	70,891


		July 30, 2022
	Useful Life	Gross Amount		Accumulated Amortization		Net Amount
		(in thousands)
Gymboree tradename (1)	Indefinite	$	69,953	$	—	$	69,953
Crazy 8 tradename (1)	5 years	4,000		(2,661)		1,339
Customer databases (2)	3 years	3,000		(3,000)		—
Total intangible assets		$	76,953	$	(5,661)	$	71,292

____________________________________________

(1)Included within Tradenames, net on the Consolidated Balance Sheets.

(2)Included within Other assets on the Consolidated Balance Sheets.

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

5. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:


	July 29, 2023		January 28, 2023		July 30, 2022
	(in thousands)
Property and equipment:
Land and land improvements	$	3,403	$	3,403	$	3,403
Building and improvements	36,187		36,187		36,187
Material handling equipment	89,389		71,404		68,450
Leasehold improvements	178,536		196,302		195,342
Store fixtures and equipment	200,201		210,413		205,961
Capitalized software	347,343		336,336		333,967
Construction in progress	7,134		23,959		16,913
	862,193		878,004		860,223
Less accumulated depreciation and amortization	(720,949)		(728,130)		(705,485)
Property and equipment, net	$	141,244	$	149,874	$	154,738

At July 29, 2023 and July 30, 2022, the Company reviewed its store related long-lived assets for indicators of impairment, and performed a recoverability test if indicators were identified. Based on the results of the analyses performed, the Company recorded asset impairment charges in the Second Quarter 2023 and Year-To-Date 2023 of $0.8 million and $2.5 million, respectively, inclusive of right-of-use (“ROU”) assets. The Company recorded asset impairment charges in the Second Quarter 2022 and Year-To-Date 2022 of $1.4 million, inclusive of ROU assets.

6. LEASES

The Company has operating leases for retail stores, corporate offices, distribution facilities, and certain equipment. The Company’s leases have remaining lease terms ranging from less than one year up to nine years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the lease early. The Company records all occupancy costs in Cost of sales, except costs for administrative office buildings, which are recorded in Selling, general, and administrative expenses. As of the periods presented, the Company’s finance leases were not material to the Consolidated Balance Sheets, Consolidated Statements of Operations, or Consolidated Statements of Cash Flows.

The following components of operating lease expense were recognized in the Company’s Consolidated Statements of Operations:


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022
	(in thousands)
Fixed operating lease cost	$	21,481	$	24,070	$	42,387	$	47,040
Variable operating lease cost (1)	14,388		12,573		29,085		27,691
Total operating lease cost	$	35,869	$	36,643	$	71,472	$	74,731

____________________________________________

(1)Includes short term leases with lease periods of less than 12 months.

As of July 29, 2023, the weighted-average remaining operating lease term was 3.2 years, and the weighted-average discount rate for operating leases was 5.2%. Cash paid for amounts included in the measurement of operating lease liabilities during Year-To-Date 2023 was $41.9 million. ROU assets obtained in exchange for new operating lease liabilities were $15.5 million during Year-To-Date 2023.

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

As of July 29, 2023, the maturities of operating lease liabilities were as follows:


	July 29, 2023
	(in thousands)
Remainder of 2023	$	46,940
2024	41,983
2025	16,132
2026	12,039
2027	9,394
Thereafter	12,866
Total operating lease payments	139,353
Less: imputed interest	(10,373)
Present value of operating lease liabilities	$	128,980

7. DEBT

On November 16, 2021, the Company completed the refinancing of its previous $360.0 million asset-based revolving credit facility and previous $80.0 million term loan with a new lending group led by an affiliate of Wells Fargo Bank, National Association (“Wells Fargo”) by entering into a fourth amendment to its credit agreement, dated as of May 9, 2019, with the lenders party thereto (as amended from time to time, the “Credit Agreement”). The refinanced debt consisted of a $350.0 million asset-based revolving credit facility (the “ABL Credit Facility”) and a $50.0 million term loan (the “Term Loan”).

On June 5, 2023, the Company entered into a fifth amendment to its Credit Agreement, pursuant to which, among other things, (i) PNC Bank, National Association (“PNC Bank”) was added as a new lender, (ii) the ABL Credit Facility was increased to $445.0 million, (iii) the London InterBank Offered Rate (“LIBOR”) was replaced by the Secured Overnight Financing Rate (“SOFR”) as the interest rate benchmark, and (iv) the pricing grid for applicable margins on borrowings was updated. All other material terms and conditions of the Credit Agreement remained unchanged.

ABL Credit Facility and Term Loan

The Company and certain of its subsidiaries maintain the $445.0 million ABL Credit Facility and the $50.0 million Term Loan with Wells Fargo, Truist Bank, Bank of America, N.A., HSBC Business Credit (USA) Inc., JPMorgan Chase Bank, N.A., and PNC Bank as lenders (collectively, the “Lenders”) and Wells Fargo, as Administrative Agent, Collateral Agent, Swing Line Lender and Term Agent. Both the ABL Credit Facility and the Term Loan mature in November 2026.

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

Under the ABL Credit Facility, based on the amount of the Company’s average daily excess availability under the facility, borrowings outstanding bear interest, at the Company’s option, at:

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

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

The Company is charged a fee of 0.200% on the unused portion of the commitments. Letter of credit fees range from 1.000% to 1.125% for commercial letters of credit and range from 1.500% to 1.750% for standby letters of credit. Letter of credit fees are determined based on the amount of the Company’s average daily excess availability under the facility. The amount available for loans and letters of credit under the ABL Credit Facility is determined by a borrowing base consisting of certain credit card receivables, certain trade receivables, certain inventory, and the fair market value of certain real estate, subject to certain reserves.

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

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

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

Letter of credit fees would range from 0.688% to 0.813% for commercial letters of credit and would range from 0.875% to 1.125% for standby letters of credit. Letter of credit fees are determined based on the amount of the Company’s average daily excess availability under the facility.

For the Second Quarter 2023 and Year-To-Date 2023, the Company recognized $6.1 million and $10.8 million, respectively, in interest expense related to the ABL Credit Facility. For the Second Quarter 2022 and Year-To-Date 2022, the Company recognized $2.4 million and $3.9 million, respectively, in interest expense related to the ABL Credit Facility.

The outstanding obligations under the ABL Credit Facility may be accelerated upon the occurrence of certain events, including, among others, non-payment, breach of covenants, the institution of insolvency proceedings, defaults under other material indebtedness, and a change of control, subject, in the case of certain defaults, to the expiration of applicable grace periods. The Company is not subject to any early termination fees.

The ABL Credit Facility contains covenants, which include conditions on stock buybacks and the payment of cash dividends or similar payments, and a fixed-charge coverage ratio covenant, which only becomes effective in the event that borrowings and other uses of credit exceed $400.5 million (the “excess availability requirement”). These covenants also limit the ability of the Company and its subsidiaries to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, or dispositions or to change the nature of its business.

Credit extended under the ABL Credit Facility is secured by a first priority security interest in substantially all of the Company’s U.S. and Canadian assets other than intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the Company’s intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock.

The table below presents the components of the Company’s ABL Credit Facility:


	July 29, 2023		January 28, 2023		July 30, 2022
	(in millions)
Total borrowing base availability	$	466.8	$	404.2	$	478.0
Credit facility maximum, net of the excess availability requirement, as applicable	400.5		315.0		350.0
Maximum borrowing availability (1)	400.5		315.0		350.0

Outstanding borrowings	347.5		287.0		283.9

Letters of credit outstanding—standby	7.4		7.4		7.4
Utilization of credit facility at end of period	354.9		294.4		291.3

Availability (2)	$	45.6	$	20.6	$	58.7

Interest rate at end of period	8.1%		5.9%		3.4%


	Year-To-Date 2023		Fiscal 2022		Year-To-Date 2022
	(in millions)
Average end of day loan balance during the period	$	315.2	$	274.9	$	268.2
Highest end of day loan balance during the period	$	379.4	$	297.7	$	297.6

Average interest rate	6.3%		3.7%		2.4%

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

____________________________________________

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

(2)The sub-limit availability for letters of credit was $42.6 million at July 29, 2023, January 28, 2023, and July 30, 2022.

The Term Loan bears interest, payable monthly, at (a) the SOFR per annum plus 2.750% for any portion that is a SOFR loan, or (b) the base rate per annum plus 2.000% for any portion that is a base rate loan. The Term Loan is pre-payable at any time without penalty, and does not require amortization. For the Second Quarter 2023 and Year-To-Date 2023, the Company recognized $1.0 million, and $1.9 million, respectively, in interest expense related to the Term Loan. For the Second Quarter 2022 and Year-To-Date 2022, the Company recognized $0.5 million, and $0.8 million, respectively, in interest expense related to the Term Loan.

The Term Loan is secured by a first priority security interest in the Company’s intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the collateral securing the ABL Credit Facility on a first-priority basis. The Term Loan is guaranteed by each of the Company’s subsidiaries that guarantees the ABL Credit Facility and contains substantially the same covenants as provided in the ABL Credit Facility.

Both the ABL Credit Facility and the Term Loan contain customary events of default, which include (subject in certain cases to customary grace and cure periods) nonpayment of principal or interest, breach of covenants, failure to pay certain other indebtedness, and certain events of bankruptcy, insolvency or reorganization. As of July 29, 2023, unamortized deferred financing costs amounted to $2.6 million, of which $2.3 million related to our ABL Credit Facility.

8. COMMITMENTS AND CONTINGENCIES

The Company is a defendant in Rael v. The Children’s Place, Inc., a purported class action, pending in the U.S. District Court, Southern District of California. In the initial complaint filed in February 2016, the plaintiff alleged that the Company falsely advertised discount prices in violation of California’s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act. The plaintiff filed an amended complaint in April 2016, adding allegations of violations of other state consumer protection laws. In August 2016, the plaintiff filed a second amended complaint, adding an additional plaintiff and removing the other state law claims. The plaintiffs’ second amended complaint sought to represent a class of California purchasers and sought, among other items, injunctive relief, damages, and attorneys’ fees and costs.

The Company engaged in mediation proceedings with the plaintiffs in December 2016 and April 2017. The parties reached an agreement in principle in April 2017, and signed a definitive settlement agreement in November 2017, to settle the matter on a class basis with all individuals in the U.S. who made a qualifying purchase at The Children’s Place from February 11, 2012 through January 28, 2020, the date of preliminary approval by the court of the settlement. The Company submitted its memorandum in support of final approval of the class settlement on March 2, 2021. On March 29, 2021, the court granted final approval of the class settlement and denied plaintiff’s motion for attorney’s fees, with the amount of attorney’s fees to be decided after the class recovery amount has been determined. The settlement provides merchandise vouchers for qualified class members who submit valid claims, as well as payment of legal fees and expenses and claims administration expenses. Vouchers were distributed to class members on November 15, 2021 and they will be eligible for redemption in multiple rounds through November 2023. In connection with the settlement, the Company recorded a reserve for $5.0 million in its consolidated financial statements in the first quarter of 2017.

The Company is also involved in various legal proceedings arising in the normal course of business. In the opinion of management, any ultimate liability arising out of these proceedings will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

9. STOCKHOLDERS’ EQUITY

Share Repurchase Program

In November 2021, the Board of Directors authorized a $250.0 million share repurchase program (the “Share Repurchase Program”). Under this program, the Company may repurchase shares on the open market at current market prices at the time of purchase or in privately negotiated transactions. The timing and actual number of shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, and other market and business conditions. The Company may suspend or discontinue the program at any time and may thereafter reinstitute purchases, all

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

without prior announcement. As of July 29, 2023, there was $157.4 million remaining availability under the Share Repurchase Program.

Pursuant to the Company’s practice, including due to restrictions imposed by the Company’s insider trading policy during black-out periods, the Company withholds and repurchases shares of vesting stock awards and makes payments to taxing authorities as required by law to satisfy the withholding tax requirements of all equity award recipients. The Company’s payment of the withholding taxes in exchange for the surrendered shares constitutes a repurchase of its common stock. The Company also acquires shares of its common stock in conjunction with liabilities owed under the Company’s deferred compensation plan, which are held in treasury.

The following table summarizes the Company’s share repurchases:


	Twenty-six Weeks Ended
	July 29, 2023			July 30, 2022
	Shares	Amount		Shares	Amount
	(in thousands)
Share repurchases related to:
Share repurchase program	203	$	6,964	1,147	$	61,230
Shares acquired and held in treasury	4	$	148	3	$	144

In accordance with the FASB ASC 505—Equity, the par value of the shares retired is charged against Common stock and the remaining purchase price is allocated between Additional paid-in capital and Retained earnings (deficit). The portion charged against Additional paid-in capital is determined using a pro-rata allocation based on total shares outstanding. For all shares retired in Year-To-Date 2023 and Year-To-Date 2022, $2.8 million and $38.9 million was charged to Retained earnings (deficit), respectively.

Dividends

Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to approval by the Company’s Board of Directors based on a number of factors, including business and market conditions, the Company’s financial performance, and other investment priorities.

10. STOCK-BASED COMPENSATION

The Company generally grants time-vesting stock awards (“Deferred Awards”) and performance-based stock awards (“Performance Awards”) to employees at management levels. The Company also grants Deferred Awards to its non-employee directors.

The following table summarizes the Company’s stock-based compensation expense (benefit):


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022
	(in thousands)
Deferred Awards	$	1,690	$	2,171	$	4,190	$	5,596
Performance Awards (1)	(6,452)		4,101		(5,869)		8,238
Total stock-based compensation expense (benefit) (2)	$	(4,762)	$	6,272	$	(1,679)	$	13,834

____________________________________________

(1)Included within the Performance Awards benefit for the Second Quarter 2023 and Year-To-Date 2023 was a combination of ongoing expense associated with existing grants, and $6.7 million of credits resulting from (a) a change in estimate based on revised expectations of the attainment levels for performance metrics of certain awards, and (b) the reversal of unvested expense related to forfeited awards for employees no longer with the Company.

(2)Stock-based compensation expense (benefit) recorded within Cost of sales (exclusive of depreciation and amortization) amounted to $(0.5) million and $0.3 million in the Second Quarter 2023 and Second Quarter 2022, respectively, and $(0.1) million and $0.9 million in Year-To-Date 2023 and Year-To-Date 2022, respectively. All other stock-based compensation expense (benefit) is included in Selling, general, and administrative expenses.

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

11. EARNINGS (LOSS) PER COMMON SHARE

The following table reconciles net income (loss) and share amounts utilized to calculate basic and diluted earnings (loss) per common share:


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022


	(in thousands)
Net income (loss)	$	(35,355)	$	(13,298)	$	(64,188)	$	6,533

Basic weighted average common shares outstanding	12,522		13,147		12,448		13,384
Dilutive effect of stock awards	—		—		—		148
Diluted weighted average common shares outstanding	12,522		13,147		12,448		13,532

Anti-dilutive shares excluded from diluted earnings (loss) per common share calculation	74		77		151		—

12. INCOME TAXES

The Company computes income taxes using the liability method. This method requires recognition of deferred tax assets and liabilities, measured by enacted rates, attributable to temporary differences between the financial statement and income tax basis of assets and liabilities. The Company’s deferred tax assets and liabilities are comprised largely of differences relating to depreciation and amortization, rent expense, inventory, stock-based compensation, net operating loss carryforwards, tax credits, and various accruals and reserves.

The Company’s effective income tax rate for the Second Quarter 2023 was a benefit of 20.7%, or $9.2 million, compared to 19.0%, or $3.1 million, during the Second Quarter 2022. The increase in the effective income tax rate and income tax benefit for the Second Quarter 2023 compared to the Second Quarter 2022 was primarily driven by the increase in the Second Quarter 2023 pretax loss compared to the pretax loss in the Second Quarter 2022 and the impact of nonrecurring items recognized in the Second Quarter 2023.

The Company’s effective income tax rate for Year-To-Date 2023 was a benefit of 20.3%, or $16.4 million, compared to (477.6)%, or $5.4 million, for Year-To-Date 2022. The increase in the effective income tax rate for Year-To-Date 2023 compared to Year-To-Date 2022 was primarily driven by the Year-To-Date 2023 pretax loss as compared to near break-even pretax income for Year-To-Date 2022 and the release of a reserve in the first quarter of Fiscal 2022 of $6.4 million for unrecognized tax benefits as a result of a settlement with a taxing authority which was nonrecurring, partially offset by the impact of nonrecurring items recognized in the Second Quarter 2023.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act allows net operating losses (“NOLs”) incurred in taxable years 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to offset 100% of taxable income and to generate a refund of previously paid income taxes. Pursuant to the CARES Act, the Company carried back the taxable year 2020 tax loss of $150.0 million to prior years. During the first quarter of Fiscal 2022, the Company received $22.0 million of this income tax refund and the remaining balance of $19.1 million as of July 29, 2023 is included within Prepaid expenses and other current assets on the Consolidated Balance Sheets.

The Company accrues interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. The total amount of unrecognized tax benefits was $4.3 million, $3.6 million, and $2.3 million as of July 29, 2023, January 28, 2023, and July 30, 2022, respectively, and is included within long-term liabilities. Interest expense recognized in Year-To-Date 2023 and Year-To-Date 2022 related to unrecognized tax benefits was not significant.

The Company is subject to tax in the United States and foreign jurisdictions, including Canada and Hong Kong. The Company files a consolidated U.S. income tax return for federal income tax purposes. The Company is no longer subject to income tax examinations by U.S. federal, state and local or foreign tax authorities for tax years 2016 and prior.

THE CHILDREN’S PLACE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues arise as a result of a tax audit, and are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

13. SEGMENT INFORMATION

In accordance with FASB ASC 280—Segment Reporting, the Company reports segment data based on geography: The Children’s Place U.S. and The Children’s Place International. Each segment includes an e-commerce business located at www.childrensplace.com, www.gymboree.com, www.sugarandjade.com, and www.pjplace.com. Included in The Children’s Place U.S. segment are the Company’s U.S. and Puerto Rico-based stores and revenue from the Company’s U.S.-based wholesale business. Included in The Children’s Place International segment are the Company’s Canadian-based stores, revenue from the Company’s Canadian-based wholesale business, and revenue from international franchisees. The Company measures its segment profitability based on operating income, defined as income before interest and taxes. Net sales and direct costs are recorded by each segment. Certain inventory procurement functions, such as production and design, as well as corporate overhead, including executive management, finance, real estate, human resources, legal, and information technology services, are managed by The Children’s Place U.S. segment. Expenses related to these functions, including depreciation and amortization, are allocated to The Children’s Place International segment based primarily on net sales. The assets related to these functions are not allocated. The Company periodically reviews these allocations and adjusts them based upon changes in business circumstances. Net sales to external customers are derived from merchandise sales, and the Company has one wholesale customer that individually accounted for more than 10% of its net sales for the Second Quarter 2023. As of July 29, 2023, The Children’s Place U.S. had 525 stores and The Children’s Place International had 71 stores. As of July 30, 2022, The Children’s Place U.S. had 577 stores and The