Claire's Stores, Inc. Wednesday reported fourth quarter net sales fell 5% (or $20.1 million) to $382.5 million, due to store closures, a decrease in same-store sales, an unfavorable foreign currency translation on non-U.S. net sales and decreased shipments to franchisees. Adjusted for currency fluctuations, net sales in the quarter would have decreased 2.7%, according to a press release.
Q4 consolidated same-store sales fell 1.0%, with North America same-store sales decreasing 2.3% and Europe same-store sales increasing 1.3%. The company computes same-store sales on a local currency basis, which eliminates any impact from changes in foreign currency exchange rates. For the fiscal 2017 quarter-to-date period, consolidated same store sales have increased in the low single digit range, with Europe outperforming North America.
For the full fiscal 2016 year, net sales fell 6.5% (or $91.5 million) to $1.3 billion. Consolidated same-store sales fell 3.3%: In North America, same-store sales fell 2.1% in fiscal 2016, while Europe same-store sales fell 5.2%.
Claire's is being blown away by the same headwinds facing teen apparel retailers American Eagle, Abercrombie & Fitch and Aeropostale, and its troubles are only exacerbated by its substantial debt load.
Like many retailers in trouble — in bankruptcy, closing stores or both — Claire’s private equity ownership appears to have added to its woes. Apollo Global Management took Claire's private in 2007 in a leveraged buyout valued at some $3.1 billion, and it already refinanced some debt last year to delay interest payments. The company is working to improve results in its Icing stores and has scaled back its promotional activity, executives told analysts Thursday morning. That has resulted in lower sales but higher margins compared to 2015.
Earlier this year, credit rating firm Fitch Ratings listed Claire’s among retailers on its “Bonds of Concern” list — forecasting that the company is likely to default on their debt. Many of the other companies on the list, such as Gymboree (which this week began preparing for bankruptcy) have private equity ownership.
The problem for retailers is that the money they get from such investors is relatively expensive, like a payday loan with onerous terms, according to Jasmin Yang, an associate attorney at law firm Snell & Wilmer who has helped several clients in various aspects of bankruptcy and restructuring.
“For [private equity], it’s about monetizing, and they don’t really care about the continued operation of the business — they don’t have much attachment to it," Yang told Retail Dive earlier this year. "Wet Seal, The Limited — these are all stores that I shopped at as a teenager at the mall, but they were definitely overstored. They don’t have other options. If they could have gotten a loan under less onerous terms, they would have.”