The Children's Place Inc.
06/12/2026 | Press release | Distributed by Public on 06/12/2026 14:36
Quarterly Report for Quarter Ending May 2, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-Q contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company's strategic initiatives and results of operations, including adjusted net loss per diluted share. Forward-looking statements typically are identified by use of terms such as "may," "will," "should," "plan," "project," "expect," "anticipate," "estimate," "believe," and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company's current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially. Some of these risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission, including in the "Risk Factors" section of its annual report on Form 10-K for the fiscal year ended January 31, 2026. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unable to achieve operating results at levels sufficient to fund and/or finance the Company's current level of operations and repayment of indebtedness, the risk that changes in trade policy and tariff regimes, including newly imposed U.S. tariffs and any responsive non-U.S. tariffs, may impact the Company's international manufacturing and operations or customers' discretionary spending habits, the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company's business and its dependence on consumer spending patterns, which may be affected by changes in economic conditions (including inflation), the risk that changes in the Company's plans and strategies with respect to pricing, capital allocation, capital structure, investor communications and/or operations may have a negative effect on the Company's business, the risk that the Company's strategic initiatives to increase sales and margin, improve operational efficiencies, enhance operating controls, decentralize operational authority and reshape the Company's culture are delayed or do not result in anticipated improvements, the risk of delays, interruptions, disruptions and higher costs in the Company's global supply chain, including resulting from disease outbreaks, foreign sources of supply in less developed countries, more politically unstable countries, or countries where vendors fail to comply with industry standards or ethical business practices, including the use of forced, indentured or child labor, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, various types of litigation, including class action litigation brought under securities, consumer protection, employment, and privacy and information security laws and regulations, risks related to the existence of a controlling stockholder, and the uncertainty of weather patterns, as well as other risks discussed in the Company's filings with the SEC from time to time. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
As used in this Quarterly Report on Form 10-Q, references to the "Company", "The Children's Place", "we", "us", "our", and similar terms refer to The Children's Place, Inc. and its subsidiaries.
The following discussion should be read in conjunction with the Company's unaudited financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the annual audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 31, 2026.
Terms that are commonly used in our Management's Discussion and Analysis of Financial Condition and Results of Operations are defined as follows:
•First Quarter 2026 - The thirteen weeks ended May 2, 2026
•First Quarter 2025 - The thirteen weeks ended May 3, 2025
•Fiscal 2026 - The fifty-two weeks ending January 30, 2027
•Fiscal 2025 - The fifty-two weeks ended January 31, 2026
•SEC - U.S. Securities and Exchange Commission
•U.S. GAAP - Generally Accepted Accounting Principles in the United States
•FASB - Financial Accounting Standards Board
•FASB ASC - FASB Accounting Standards Codification, which serves as the source for authoritative U.S. GAAP, except that rules and interpretive releases by the SEC are also sources of authoritative U.S. GAAP for SEC registrants
•Comparable Retail Sales - Net sales from stores that have been open for at least 14 consecutive months and from our e-commerce store, excluding postage and handling fees. Store closures in the current fiscal year will be excluded from Comparable Retail Sales beginning in the fiscal quarter in which the store closes. A store that is closed for a substantial remodel, relocation, or material change in size will be excluded from Comparable Retail Sales for at least 14 months beginning in the fiscal quarter in which the closure occurred. However, stores that temporarily close will be excluded from Comparable Retail Sales until the store is reopened for a full fiscal month.
•Cost of Sales - Cost of inventory sold, including certain buying, design, and distribution expenses, and shipping and handling costs on merchandise sold, and all occupancy costs, except for administrative office buildings
•Gross Margin - Gross profit expressed as a percentage of Net sales
•SG&A - Selling, general, and administrative expenses
OVERVIEW
Our Business
We are one of the only pure-play children's specialty retailers in North America with an omni-channel presence. We design, contract to manufacture, and sell fashionable, high quality apparel, accessories and footwear predominantly at value prices, primarily under our proprietary brands: "The Children's Place" and "Gymboree". Our global retail and wholesale network includes two digital storefronts, 497 stores in North America, wholesale marketplaces, 329 international points of distribution in 13 countries through our nine international franchise and wholesale partners, and social media channels on Instagram, Facebook, and X, formerly known as Twitter. Our digital storefronts are at www.childrensplace.com and www.gymboree.com, where our customers are able to shop online for the same merchandise available in our physical stores, as well as certain exclusive merchandise offered only on our e-commerce sites.
Segment Reporting
In accordance with FASB ASC 280 - Segment Reporting, we report segment data based on geography: The Children's Place U.S. and The Children's Place International. Each segment includes an e-commerce business located at www.childrensplace.com and www.gymboree.com. Included in The Children's Place U.S. segment are our U.S. and Puerto Rico-based stores and net sales from our U.S.-based wholesale business. Included in The Children's Place International segment are our Canadian-based stores and net sales from international franchisees. We measure our segment profitability based on operating income (loss), defined as income (loss) before interest and taxes. Net sales and direct costs are recorded by each segment. Certain inventory procurement functions such as production and design, as well as corporate overhead, including executive management, finance, real estate, human resources, legal, and information technology services, are managed by The Children's Place U.S. segment. Expenses related to these functions, including depreciation and amortization, are allocated to The Children's Place International segment based primarily on net sales. The assets related to these functions are not allocated. We periodically review these allocations and adjust them based upon changes in business circumstances. Net sales to external customers are derived from merchandise sales, and we have no customer that individually accounted for more than 10% of our Net sales for the First Quarter 2026.
Recent Developments
As part of the Company's transformation, we are introducing the following strategic priorities this quarter to drive long-term growth and profitability:
1) Improve Customer Experience Across All Channels by focusing on the target consumer; providing a strong price/value proposition; delivering compelling and convenient omni-channel experiences; and enhancing store and brand site environments.
2) Strengthen and Elevate the Brand by delivering appealing product that resonates with our customer; building a compelling, consistent brand narrative that drives awareness, consideration and desire; establishing a distinctive, ownable visual and creative identity across every customer touchpoint; and deepening relationships with existing customers by expanding and activating our current customer file.
3) Deliver on Financial Targets through strengthening financial performance by driving topline growth and profitability and improving liquidity; ensuring financial and operating plans are aligned with the business strategy and are executed with operational discipline, optimizing our product assortment and inventory management; and executing transformation initiatives effectively.
4) Organizational Leadership through building leadership capability and bench strength; strengthening decision-making and execution accountability; driving clear, consistent communication; and driving cultural engagement and performance alignment.
Macroeconomic conditions, including inflationary pressures, higher gas prices, higher interest rates, tariffs, and other domestic and geopolitical factors, continued to adversely affect our core customer. During the First Quarter 2026, these pressures contributed to a decrease in consumer discretionary apparel purchases. We expect these macroeconomic conditions, including but not limited to increased product input costs, gas prices, transportation costs, distribution costs, and geopolitical conditions like changes in foreign policies of the United States, and other inflationary pressures, to continue to have an adverse impact during the remainder of Fiscal 2026.
During the First Quarter 2026, we continued to focus on cost reduction and driving operational efficiencies and have actioned on $45 million of gross annualized benefits toward our goal of $60 million by fiscal year 2027, partially offset by approximately $10 million to $15 million in recurring operating costs. As part of our transformation strategy, we accomplished a significant milestone this quarter by exiting our third-party distribution facility. This logistical shift will simplify our distribution execution, reduce costs in our supply chain, and is expected to yield approximately $10 million in annualized savings towards our target.
During the First Quarter 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") were unlawful and thus deemed invalid. During Fiscal 2025 and Fiscal 2026, we paid approximately $40 million in IEEPA tariffs, for which we have submitted refund claims from the U.S. Customs and Border Protection ("CBP"). These refunds will reduce Cost of goods sold for amounts incurred for goods previously sold and will continue to improve gross margin as we sell through the remaining inventory on hand that was impacted by IEEPA tariffs. As a result, we expect the recovery of these refunds to partially offset some of our margin dilution in Fiscal 2026, which has been impacted by the current macroeconomic environment. We have received $5.5 million of these refunds from the CBP subsequent to the end of the First Quarter 2026 to date. As previously disclosed, we have monetized most of these tariff refund claims at a discounted rate by selling the future receipt of these funds to a purchaser. For more information about the monetization of these IEEPA tariff refund claims, see "Note 6. Debt" of the accompanying consolidated financial statements.
RESULTS OF OPERATIONS
We believe that our e-commerce and brick-and-mortar retail store operations are highly interdependent, with both sharing common customers purchasing from a common pool of product inventory. Accordingly, we believe that consolidated omni-channel reporting presents the most meaningful and appropriate measure of our performance. We primarily evaluate the results of our operations as a percentage of Net sales rather than in terms of absolute dollar increases or decreases by analyzing the year over year change in our business expressed as a percentage of Net sales (i.e., "basis points"). To the extent that our sales have increased at a faster rate than our costs (i.e., "leverage"), the more efficiently we have utilized the investments we have made in our business. Conversely, if our sales have decreased or if our costs have grown at a faster pace than our sales (i.e., "deleverage"), we have utilized the investments we have made in our business less efficiently.
First Quarter 2026 Compared to First Quarter 2025
| Thirteen Weeks Ended | Thirteen Weeks Ended | Variance | |||||||||||||||||||||
|
May 2, 2026 |
% of Net Sales |
May 3, 2025 |
% of Net Sales | $ | % | % of Net Sales | |||||||||||||||||
| (amounts in thousands) | |||||||||||||||||||||||
| Net sales | $ | 215,225 | 100.0 | % | $ | 242,125 | 100.0 | % | $ | (26,900) | (11.1) | % | - | % | |||||||||
| Cost of sales (exclusive of depreciation and amortization) | 161,874 | 75.2 | % | 171,342 | 70.8 | % | 9,468 | 5.5 | % | (4.4) | % | ||||||||||||
| Gross profit | 53,351 | 24.8 | % | 70,783 | 29.2 | % | (17,432) | (24.6) | % | (4.4) | % | ||||||||||||
| Selling, general, and administrative expenses | 88,864 | 41.3 | % | 86,670 | 35.8 | % | (2,194) | (2.5) | % | (5.5) | % | ||||||||||||
| Depreciation and amortization | 6,666 | 3.1 | % | 8,230 | 3.4 | % | 1,564 | 19.0 | % | 0.3 | % | ||||||||||||
| Operating loss | (42,179) | (19.6) | % | (24,117) | (10.0) | % | (18,062) | (74.9) | % | (9.6) | % | ||||||||||||
| Related party interest expense | (1,942) | (0.9) | % | (1,871) | (0.8) | % | (71) | (3.8) | % | (0.1) | % | ||||||||||||
| Other interest expense, net | (7,748) | (3.6) | % | (6,691) | (2.8) | % | (1,057) | (15.8) | % | (0.8) | % | ||||||||||||
| Loss before provision for income taxes | (51,869) | (24.1) | % | (32,679) | (13.5) | % | (19,190) | (58.7) | % | (10.6) | % | ||||||||||||
| Provision for income taxes | 1,322 | 0.6 | % | 1,344 | 0.6 | % | 22 | 1.6 | % | - | % | ||||||||||||
| Net loss | $ | (53,191) | (24.7) | % | $ | (34,023) | (14.1) | % | $ | (19,168) | (56.3) | % | (10.6) | % | |||||||||
Net sales decreased $26.9 million, or 11.1%, to $215.2 million during the First Quarter 2026 from $242.1 million during the First Quarter 2025, driven by a decrease in direct-to-consumer ("DTC") sales of 10.2% due to lower traffic compared to the First Quarter 2025, as we work to stabilize our customer file. Despite this, our DTC business experienced a sequential improvement in sales trends versus the fourth quarter of Fiscal 2025 of 40 basis points ("bps") and an improvement in trend versus the prior year of 460 bps. Comparable retail sales in our owned and operated DTC business decreased 8.3% for the First Quarter 2026. Our consolidated results were also impacted by the planned reduction in shipments in our wholesale channel as we continue to work with our customers to ensure inventories are aligned with demand. While our shipments to this channel were down in the First Quarter 2026, retail sales to the end consumer were flat to the First Quarter 2025.
Gross profit decreased $17.4 million to $53.4 million during the First Quarter 2026, compared to $70.8 million during the First Quarter 2025. Gross margin decreased 440 bps to 24.8% of Net sales in the First Quarter 2026, compared to 29.2% of Net sales in the First Quarter 2025. The decrease in gross margin was caused primarily by the impact of higher tariff costs on our product (360 bps), higher distribution costs due to a one-time charge to exit our third party distribution facility (170 bps) and a higher penetration of markdown sales and dilutions (140 bps), partially offset by favorable product mix (150 bps) and a reduction in inventory reserves (80 bps). Adjusted gross profit decreased $13.1 million to $57.6 million during the First Quarter 2026, compared to $70.8 million during the First Quarter 2025. Adjusted gross margin decreased 240 bps to 26.8% of Net sales during the First Quarter 2026, compared to 29.2% during the First Quarter 2025.
Gross profit is calculated as consolidated Net sales less Cost of goods sold (exclusive of depreciation and amortization). Gross margin is calculated as gross profit divided by consolidated net sales. Gross profit as a percentage of net sales is dependent upon a variety of factors, including changes in the relative sales mix among distribution channels, changes in the mix of products sold, the timing and level of promotional activities, changes in foreign currency exchange rates, and fluctuations in input costs. These factors, among others, may cause gross profit as a percentage of net sales to fluctuate from period to period.
Selling, general, and administrative expenses were $88.9 million during the First Quarter 2026, compared to $86.7 million during the First Quarter 2025, and deleveraged 550 bps to 41.3% of Net sales. The increase was primarily due to an increase in store expenses as we grow our fleet. Adjusted SG&A expenses were $87.4 million during the First Quarter 2026, compared to $86.5 million during the First Quarter 2025, and deleveraged 490 bps to 40.6% of Net sales.
Depreciation and amortization was $6.7 million during the First Quarter 2026, compared to $8.2 million during the First Quarter 2025. The decrease was primarily driven by reduced depreciation of capitalized software.
Operating loss was $(42.2) million during the First Quarter 2026, compared to $(24.1) million during the First Quarter 2025 due to the factors described above, and deleveraged 960 bps to (19.6)% of Net sales. Adjusted operating loss was $(36.1) million in the First Quarter 2026, compared to $(24.0) million in the First Quarter 2025, and deleveraged 690 bps to (16.8)% of Net sales.
Related party interest expense was $1.9 million during the First Quarter 2026 and the First Quarter 2025.
Other interest expense, net was $7.7 million during the First Quarter 2026, compared to $6.7 million during the First Quarter 2025. The increase was due to the amortization of financing costs associated with the monetization of our tariff refund claims and income tax receivable claim, partially offset by lower average borrowings and interest rates on our debt facilities.
Provision for income taxes was $1.3 million during the First Quarter 2026 and the First Quarter 2025. Our effective tax rate was (2.5)% and (4.1)% in the First Quarter 2026 and First Quarter 2025, respectively.
Net loss was $(53.2) million, or $(2.40) per diluted share, during the First Quarter 2026, compared to $(34.0) million, or $(1.57) per diluted share, during the First Quarter 2025, due to the factors described above. Adjusted net loss was $(44.3) million, or $(2.00) per diluted share, during the First Quarter 2026, compared to $(32.8) million, or $(1.52) per diluted share, during the First Quarter 2025.
The following table sets forth Net sales and Operating loss, respectively, by segment, for the periods indicated:
___________________________________________
| Thirteen Weeks Ended | |||||||||||
|
May 2, 2026 |
May 3, 2025 |
||||||||||
| (in thousands) | |||||||||||
| The Children's Place U.S. | $ | 195,291 | $ | 221,767 | |||||||
|
The Children's Place International (1)
|
19,934 | 20,358 | |||||||||
| Total net sales | $ | 215,225 | $ | 242,125 | |||||||
| The Children's Place U.S. | $ | (34,042) | $ | (19,715) | |||||||
|
The Children's Place International (1)
|
(8,137) | (4,402) | |||||||||
| Total segment operating loss | $ | (42,179) | $ | (24,117) | |||||||
| The Children's Place U.S. | (17.4) | % | (8.9) | % | |||||||
|
The Children's Place International (1)
|
(40.8) | % | (21.6) | % | |||||||
| Total segment operating loss as a percentage of net sales | (19.6) | % | (10.0) | % | |||||||
(1)The Company's foreign subsidiaries, primarily in Canada, have operating results based in foreign currencies and are thus subject to the fluctuations of the corresponding translation rates into U.S dollars.
The Children's Place U.S. Net sales decreased $26.5 million, or 11.9%, to $195.3 million during the First Quarter 2026, compared to $221.8 million during the First Quarter 2025, driven by a decrease in DTC sales due to lower traffic compared to the First Quarter 2025, as we work to stabilize our customer file. Our results were also impacted by the planned reduction in shipments in our wholesale channel as we continue to work with our customers to ensure inventories are aligned with demand. While our shipments to this channel were down in the First Quarter 2026, retail sales to the end consumer were flat to the First Quarter 2025.
The Children's Place International Net sales decreased $0.5 million, or 2.5%, to $19.9 million during the First Quarter 2026, compared to $20.4 million during the First Quarter 2025.
The Children's Place U.S. Operating loss was $(34.0) million during the First Quarter 2026, compared to $(19.7) million during the First Quarter 2025, primarily due to lower net sales, as described above.
The Children's Place International Operating loss was $(8.1) million during the First Quarter 2026, compared to $(4.4) million during the First Quarter 2025, primarily due to higher merchandise costs which negatively impacted our margins.
Non-GAAP Reconciliation
We have presented certain measures on a non-GAAP basis. Adjusted net income (loss), adjusted net income (loss) per diluted share, adjusted gross profit, adjusted selling, general, and administrative expenses, and adjusted operating income (loss) are non-GAAP measures. These measures are not intended to replace GAAP financial information, and may be different from non-GAAP measures reported by other companies. The most comparable GAAP measures are net income (loss), net income (loss) per diluted share, gross profit, selling, general, and administrative expenses, and operating income (loss), respectively. We believe the income and expense items excluded as non-GAAP adjustments are not reflective of the performance of our core business, and that providing this supplemental disclosure to investors will facilitate comparisons of the past and present performance of our core business.
| Thirteen Weeks Ended | |||||||||||||||||
| May 2, 2026 | |||||||||||||||||
| (amounts in thousands, except per share amounts) | |||||||||||||||||
| Gross profit |
Selling, general and administrative expenses |
Operating loss | Net loss | Diluted loss per common share | |||||||||||||
| As reported (GAAP) | $ | 53,351 | $ | 88,864 | $ | (42,179) | $ | (53,191) | $ | (2.40) | |||||||
|
Exit from third-party distribution facility (1)
|
4,291 | - | 4,620 | 4,620 | |||||||||||||
|
Financing charges on monetization of tariff refund claims (2)
|
- | - | - | 2,064 | |||||||||||||
|
Restructuring (3)
|
- | (1,438) | 1,438 | 1,438 | |||||||||||||
|
Financing charges on monetization of income tax receivable claim (4)
|
- | - | - | 728 | |||||||||||||
| Aggregate impact of non-GAAP adjustments | 4,291 | (1,438) | 6,058 | 8,850 | |||||||||||||
| Income tax effect | - | - | - | - | |||||||||||||
| As adjusted | $ | 57,642 | $ | 87,426 | $ | (36,121) | $ | (44,341) | $ | (2.00) | |||||||
| % of Net Sales (GAAP) | 24.8 | % | 41.3 | % | (19.6) | % | (24.7) | % | |||||||||
| % of Net Sales (As adjusted) | 26.8 | % | 40.6 | % | (16.8) | % | (20.6) | % | |||||||||
____________________________________________
(1)Related to the termination fee and other costs incurred due to the early exit from our third-party distribution facility.
(2)Related to amortization of financing costs associated with the monetization of our tariff refund claims.
(3)Related to one-time severance costs incurred for the senior leadership team and other positions eliminated.
(4)Related to amortization of financing costs associated with the monetization of our income tax receivable claim.
| Thirteen Weeks Ended | |||||||||||||||||
| May 3, 2025 | |||||||||||||||||
| (amounts in thousands, except per share amounts) | |||||||||||||||||
| Gross profit |
Selling, general and administrative expenses |
Operating loss | Net loss | Diluted loss per common share | |||||||||||||
| As reported (GAAP) | $ | 70,783 | $ | 86,670 | $ | (24,117) | $ | (34,023) | $ | (1.57) | |||||||
|
Restructuring costs (1)
|
- | (934) | 934 | 934 | |||||||||||||
|
Reversal of legal settlement accrual (2)
|
- | 796 | (796) | (796) | |||||||||||||
|
Loss on extinguishment of debt (3)
|
- | - | - | 1,039 | |||||||||||||
| Aggregate impact of non-GAAP adjustments | - | (138) | 138 | 1,177 | |||||||||||||
| Income tax effect | - | - | - | - | |||||||||||||
| As adjusted | $ | 70,783 | $ | 86,532 | $ | (23,979) | $ | (32,846) | $ | (1.52) | |||||||
| % of Net Sales (GAAP) | 29.2 | % | 35.8 | % | (10.0) | % | (14.1) | % | |||||||||
| % of Net Sales (As adjusted) | 29.2 | % | 35.7 | % | (9.9) | % | (13.6) | % | |||||||||
____________________________________________
(1)Related to one-time severance costs incurred for positions eliminated.
(2)Related to the over accrual of costs that were expected for legal settlements.
(3)Related to write-off of debt issuance costs associated with the partial prepayment of the Initial Mithaq Term Loan pursuant to the completion of our rights offering in the First Quarter 2025.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our working capital needs typically follow a seasonal pattern, peaking during the third fiscal quarter based on seasonal inventory purchases. Our primary uses of cash are for working capital requirements, which consist primarily of inventory purchases, rent and marketing expenses, the payment of interest expense on our ABL Credit Facility and term loans, and the financing of capital projects.
During Fiscal 2024, we entered into an interest-free, unsecured and subordinated promissory note with Mithaq for a $78.6 million term loan (the "Initial Mithaq Term Loan"), and a separate unsecured and subordinated promissory note for a $90.0 million term loan (the "New Mithaq Term Loan"; and together with the Initial Mithaq Term Loan, collectively, the "Mithaq Term Loans"). As of February 6, 2025, $60.2 million under the Initial Mithaq Term Loan was repaid pursuant to the completion of our rights offering on February 6, 2025 ("Rights Offering"), leaving $18.4 million outstanding under the Initial Mithaq Term Loan. Pursuant to our refinancing transactions on December 16, 2025, the New Mithaq Term Loan was amended to allow us to defer our monthly payments upon written notice to Mithaq, and as an amendment consent fee, its principal amount was increased by $2.7 million to $92.7 million, leaving an aggregate of $111.1 million outstanding under the Mithaq Term Loans as of May 2, 2026.
On December 16, 2025, we entered into a term loan agreement with SLR Credit Solutions ("SLR") for a $100.0 million term loan (the "SLR Term Loan"). We used the net proceeds to partially pay down our borrowings under the ABL Credit Facility. The principal amount outstanding as of May 2, 2026 was $100.0 million.
As of May 2, 2026, we had $150.0 million of outstanding borrowings under our $350.0 million ABL Credit Facility and no borrowings under our $40.0 million senior unsecured credit facility with Mithaq (the "Mithaq Credit Facility").
Our working capital deficit increased $6.2 million to $49.2 million as of May 2, 2026, compared to $43.0 million as of May 3, 2025, primarily due to a decrease in inventory due to improved inventory management and an increase in short-term debt, partially offset by a decrease in outstanding borrowings under our ABL Credit Facility due to proceeds received from the SLR Term Loan, and a decrease in our accounts payable balances due to lower inventory purchases.
As of May 2, 2026, we had total liquidity of $82.8 million, including $38.0 million of availability under our ABL Credit Facility, $40.0 million of availability under our Mithaq Credit Facility, and $4.8 million of cash on hand. As of May 2, 2026, we had $23.7 million of outstanding letters of credit with an additional $6.3 million available for issuing letters of credit under our ABL Credit Facility.
We expect to be able to meet our working capital and capital expenditure requirements for at least the next twelve months from the date that our consolidated financial statements for the First Quarter 2026 were issued, by using our cash on hand, cash flows from operations, and availability under our ABL Credit Facility and Mithaq Credit Facility.
Share Repurchase Program
In November 2021, our board of directors authorized a $250.0 million share repurchase program (the "Share Repurchase Program"). Currently, given the terms of our credit agreement with Wells Fargo as its administrative agent and our term loan agreement with SLR, the repurchase of any shares would require fulfilling stringent payment conditions under those agreements, except that repurchases of shares as described in "Note 8. Stockholders' Equity (Deficit)" of the consolidated financial statements, pursuant to our practice as a result of our insider trading policy, are expressly permitted. As of May 2, 2026, there was $156.1 million remaining availability under the Share Repurchase Program.
Cash Flows and Capital Expenditures
Cash used in operating activities was $53.8 million during the First Quarter 2026, compared to $43.0 million during the First Quarter 2025. Cash used in operating activities during the First Quarter 2026 and First Quarter 2025 was primarily due to the net loss incurred.
Cash used in investing activities was $8.0 million during the First Quarter 2026, compared to $3.4 million during the First Quarter 2025, driven by higher capital expenditures.
Cash provided by financing activities was $60.4 million during the First Quarter 2026, compared to $42.3 million during the First Quarter 2025. The increase primarily resulted from proceeds received from the monetization of our tariff refund claims and income tax receivable claim, partially offset by net cash proceeds received from the Rights Offering in the prior year.
Our ability to continue to meet our capital requirements in Fiscal 2026 depends on our cash on hand, our ability to generate cash flows from operations, and available borrowings under our ABL Credit Facility and Mithaq Credit Facility. Cash flows generated from operations depend on our ability to achieve our financial plans. We believe that our cash on hand, cash generated from operations, and funds available to us through our ABL Credit Facility and Mithaq Credit Facility will be sufficient to fund our capital and other cash requirements for the foreseeable future.
Selected Consolidated Balance Sheets Data
Certain components of our Consolidated Balance Sheets were as follows:
|
May 2, 2026 |
January 31, 2026 |
May 3, 2025 |
|||||||||||||||
| (in thousands) | |||||||||||||||||
| Accounts receivable | $ | 30,403 | $ | 25,967 | $ | 41,337 | |||||||||||
| Inventories | 326,378 | 325,100 | 422,204 | ||||||||||||||
| Accounts payable | 102,035 | 108,481 | 131,392 | ||||||||||||||
Accounts receivable were $30.4 million as of May 2, 2026, compared to $41.3 million as of May 3, 2025 and $26.0 million as of January 31, 2026. The decrease of $10.9 million, or 26.5%, compared to May 3, 2025 was primarily driven by a decrease in wholesale receivables due to lower net sales. There was no significant change in balance compared to January 31, 2026.
Inventories were $326.4 million as of May 2, 2026, compared to $422.2 million as of May 3, 2025 and $325.1 million as of January 31, 2026. The decrease of $95.8 million, or 22.7% compared to May 3, 2025 was primarily driven by improved inventory management as we continue to align our inventory levels with our growth and product strategy and better balance the mix of fashion and basic product. There was no significant change in balance compared to January 31, 2026.
Accounts payable were $102.0 million as of May 2, 2026, compared to $131.4 million as of May 3, 2025 and $108.5 million as of January 31, 2026. The decrease of $29.3 million, or 22.3%, compared to May 3, 2025, and the decrease of $6.4 million, or 5.9%, compared to January 31, 2026, was primarily the result of lower inventory purchases.
ABL Credit Facility
We maintain the $350.0 million asset-based revolving credit facility (the "ABL Credit Facility") under our Amended and Restated Credit Agreement dated May 9, 2019 (as amended from time to time, the "Credit Agreement"), with Wells Fargo Bank, National Association ("Wells Fargo"), as the sole lender party thereto, and as Administrative Agent, Collateral Agent, and Swing Line Lender. The ABL Credit Facility will mature on the earlier of December 16, 2030, or the maturity date under our term loan agreement with SLR as further described below.
As of December 16, 2025, which is the effective date of the eighth amendment to the Credit Agreement (the "Eighth Amendment"), the ABL Credit Facility includes a $25.0 million Canadian sublimit and a $30.0 million sublimit for standby and documentary letters of credit.
As of February 1, 2026, and on the first day of each fiscal quarter thereafter, based on the amount of our average daily excess availability under the facility, borrowings outstanding under the ABL Credit Facility bear interest, at our option at:
(i)the prime rate per annum, plus a margin of 1.000%, 1.250% or 1.500%; or
(ii)the Secured Overnight Financing Rate ("SOFR") per annum, plus a margin of 2.000%, 2.250% or 2.500%.
As of April 18, 2024, based on the size of the unused portion of the commitments, we are charged a fee ranging from 0.250% to 0.375%.
As of February 1, 2026, letter of credit fees range from 0.500% to 0.750% for commercial letters of credit and range from 1.000% to 1.500% for standby letters of credit. These fees are determined based on the amount of our average daily excess availability under the facility.
As of December 16, 2025, 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, and certain inventory, subject to certain reserves.
For the First Quarter 2026 and First Quarter 2025, we recognized $2.2 million and $4.8 million, respectively, in interest expense related to the ABL Credit Facility.
As of December 16, 2025, credit extended under the ABL Credit Facility is secured by a first priority security interest in substantially all of our U.S. and Canadian assets, other than intellectual property, real estate, certain furniture, fixtures and equipment, and pledges of subsidiary capital stock, and a second priority security interest in our intellectual property, real estate, certain furniture, fixtures and equipment, and pledges of subsidiary capital stock.
The outstanding obligations under the ABL Credit Facility may be accelerated upon the occurrence of certain customary events of default, as described below. We are not subject to any early termination fees.
The ABL Credit Facility contains covenants, which include conditions on stock buybacks and the payment of cash dividends or similar payments. These covenants also limit our ability to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, or dispositions or to change the nature of our business. Pursuant to a prior amendment, the requisite payment condition thresholds for some of these covenants were heightened, resulting in certain actions such as the repurchase of shares and payment of cash dividends becoming more difficult to perform. Additionally, if we are unable to maintain a certain amount of excess availability for borrowings, we may be subject to cash dominion, and pursuant to the Eighth Amendment, we are required to maintain excess availability of at least $35.0 million, subject to increase based on our borrowing base (the "excess availability requirement"). We were in compliance with this excess availability requirement as of May 2, 2026.
The ABL Credit Facility contains 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, such as a change of control.
As of May 2, 2026, January 31, 2026, and May 3, 2025, unamortized deferred financing costs amounted to $5.3 million, $5.6 million, and $3.3 million, related to our ABL Credit Facility.
The tables below present the components of our ABL Credit Facility:
|
May 2, 2026 |
January 31, 2026 |
May 3, 2025 |
|||||||||||||||
| (in millions) | |||||||||||||||||
|
Borrowing base
|
$ | 246.7 | $ | 234.2 | $ | 315.5 | |||||||||||
|
Credit facility size
|
350.0 | 350.0 | 433.0 | ||||||||||||||
|
Maximum borrowing availability (1)
|
211.7 | 199.2 | 315.5 | ||||||||||||||
| Outstanding borrowings | 150.0 | 131.1 | 258.6 | ||||||||||||||
| Letters of credit outstanding-standby | 23.7 | 23.7 | 18.2 | ||||||||||||||
| Utilization of credit facility at end of period | 173.7 | 154.8 | 276.8 | ||||||||||||||
|
Availability (2)
|
$ | 38.0 | $ | 44.4 | $ | 38.7 | |||||||||||
| Interest rate at end of period | 6.5% | 6.5% | 7.7% | ||||||||||||||
| Average interest rate | 6.6% | 7.6% | 7.7% | ||||||||||||||
| Average end-of-day loan balance during the period | $ | 124.1 | $ | 248.7 | $ | 247.2 | |||||||||||
| Highest end-of-day loan balance during the period | $ | 150.0 | $ | 302.7 | $ | 262.3 | |||||||||||
(1)Prior to the Eighth Amendment, the lower of the credit facility size and the borrowing base, without factoring in any excess availability requirement. Pursuant to the Eighth Amendment, as of December 16, 2025, our maximum borrowing availability is the lower of the credit facility size and the borrowing base, net of the new excess availability requirement.
(2)The sublimit availability for letters of credit was $6.3 million as of May 2, 2026, $6.3 million as of January 31, 2026, and $6.8 million as of May 3, 2025.
SLR Term Loan
On December 16, 2025, we entered into a term loan agreement (the "SLR Loan Agreement") with SLR and other affiliated SLR entities as the lenders party thereto, and SLR as Administrative Agent, and Collateral Agent, providing for a $100.0 million term loan (the "SLR Term Loan"). We used the net proceeds from the SLR Term Loan to partially pay down our borrowings under the ABL Credit Facility.
The SLR Term Loan (i) matures on the earlier of December 16, 2030, or the maturity date under the ABL Credit Facility, (ii) bears interest, payable monthly, (a) until June 16, 2026, at the SOFR per annum plus 5.250% for any portion that is a SOFR loan, or at the base rate per annum plus 4.250% for any portion that is a base rate loan; or (b) from and after June 17, 2026, at the SOFR per annum plus 5.250% or 6.250% for any portion that is a SOFR loan, or at the base rate per annum plus 4.250% or 5.250% for any portion that is a base rate loan, based on our consolidated fixed charge coverage ratio for the trailing twelve-month period as of the most recent fiscal quarter just ended.
The SLR Term Loan is secured by a first priority security interest in our intellectual property, real estate, certain furniture, fixtures and equipment, and pledges of subsidiary capital stock, and a second priority security interest in the collateral secured by a first priority security interest under the ABL Credit Facility. The SLR Term Loan is guaranteed by each of our subsidiaries that guarantees our ABL Credit Facility.
The SLR Term Loan is, in whole or in part, pre-payable any time and from time to time, subject to certain prepayment premiums specified in the SLR Loan Agreement, plus accrued and unpaid interest.
The SLR Term Loan contains customary affirmative and negative covenants substantially similar to a subset of the covenants set forth in the Credit Agreement, including limits on our ability to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, dispositions or restricted payments, or to change the nature of our business.
The SLR Term Loan contains certain customary events of default, which include (subject in certain cases to customary grace periods), nonpayment of principal, breach of other covenants of the SLR Term Loan, inaccuracy in representations or warranties, acceleration of certain other indebtedness (including under the Credit Agreement), certain events of bankruptcy, insolvency or reorganization, such as a change of control, and invalidity of any part of the SLR Term Loan. Additionally, the SLR Term Loan contains the same excess availability requirement as the ABL Credit Facility. We were in compliance with this excess availability requirement as of May 2, 2026.
For the First Quarter 2026, we recognized $2.3 million in interest expense related to the SLR Term Loan. As of May 2, 2026, the interest rate was 8.9%.
As of May 2, 2026, unamortized deferred financing costs amounted to $2.3 million related to the SLR Term Loan.
Mithaq Term Loans
Mithaq Capital SPC, a Cayman segregated portfolio company ("Mithaq"), is a controlling stockholder of the Company. We maintain an interest-free, unsecured and subordinated promissory note with Mithaq (the "Initial Mithaq Term Loan"), dated February 29, 2024, by and among the Company, certain of its subsidiaries, and Mithaq. During Fiscal 2025, $60.2 million under the Initial Mithaq Term Loan was repaid pursuant to the completion of our rights offering on February 6, 2025 ("Rights Offering"), leaving $18.4 million outstanding under the Initial Mithaq Term Loan as of May 2, 2026.
The Initial Mithaq Term Loan matures on April 16, 2031 and is guaranteed by each of our subsidiaries that guarantees our ABL Credit Facility.
We also maintain an unsecured and subordinated promissory note with Mithaq for a $90.0 million term loan (the "New Mithaq Term Loan"; and together with the Initial Mithaq Term Loan, collectively, the "Mithaq Term Loans"), dated April 16, 2024, by and among the Company, certain of its subsidiaries, and Mithaq.
The New Mithaq Term Loan also matures on April 16, 2031, and requires monthly payments equivalent to interest charged at the SOFR per annum plus 4.000%, with the first year's monthly payments to Mithaq deferred until April 30, 2025. On April 28, 2025, the Company and Mithaq entered into Amendment No. 1 to the New Mithaq Term Loan promissory note, which subjected these deferred monthly payments due as of April 30, 2025 to a payment plan, payable in installments prior to the end of Fiscal 2025. The New Mithaq Term Loan is guaranteed by each of our subsidiaries that guarantees our ABL Credit Facility.
Pursuant to our refinancing transactions on December 16, 2025, the New Mithaq Term Loan was further amended to allow us to defer its monthly payments upon written notice to Mithaq, and as an amendment consent fee, its principal amount was increased by $2.7 million to $92.7 million, leaving an aggregate of $111.1 million outstanding under the Mithaq Term Loans. These amendments were evaluated under FASB ASC 470 - Debt, and accounted for as debt modifications.
For the First Quarter 2026 and First Quarter 2025, we recognized $1.9 million in interest-equivalent expense related to the New Mithaq Term Loan. As of May 2, 2026, the interest-equivalent rate was 7.8%.
During the First Quarter 2026, we deferred all interest-equivalent payments to Mithaq, which is expected to be settled upon maturity of the New Mithaq Term Loan. There were no interest-equivalent payments to Mithaq during the First Quarter 2025. As of May 2, 2026, January 31, 2026, and May 3, 2025, interest-equivalent expense payable to Mithaq was $7.4 million, $5.6 million and $8.4 million, respectively, which is recorded within Accrued expenses and other current liabilities.
The Mithaq Term Loans are subject to an amended and restated subordination agreement (as amended from time to time, the "Mithaq Subordination Agreement"), dated as of April 16, 2024, by and among the Company and certain subsidiaries, Wells Fargo and Mithaq, pursuant to which the Mithaq Term Loans are subordinated in payment priority to our payment obligations under the Credit Agreement.
Pursuant to our refinancing transactions in December 2025, the Mithaq Term Loans are also subordinated in payment priority to our payment obligations under the SLR Term Loan. Subject to such subordination terms, the Mithaq Term Loans are prepayable at any time and from time to time without penalty and do not require any mandatory prepayments.
The Mithaq Term Loans contain customary affirmative and negative covenants substantially similar to a subset of the covenants set forth in the Credit Agreement, including limits on our ability to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, dispositions or restricted payments, or to change the nature of our business. The Mithaq Term Loans, however, do not provide for any closing, prepayment or exit fees, or other fees typical for transactions of this nature, do not impose additional reserves on borrowings under the Credit Agreement, and do not contain certain other restrictive covenants.
The Mithaq Term Loans contain certain customary events of default, which include (subject in certain cases to customary grace periods), nonpayment of principal, breach of other covenants of the Mithaq Term Loans, inaccuracy in representations or warranties, acceleration of certain other indebtedness (including under the Credit Agreement), certain events of bankruptcy, insolvency or reorganization, such as a change of control, and invalidity of any part of the Mithaq Term Loans.
As of May 2, 2026, January 31, 2026, and May 3, 2025, unamortized deferred financing costs amounted to $3.4 million, $3.6 million, and $1.4 million, respectively, related to the Mithaq Term Loans.
Maturities of our principal debt payments on the SLR Term Loan and Mithaq Term Loans are as follows:
| May 2, 2026 | |||||
| (in thousands) | |||||
|
Remainder of 2026
|
$ | - | |||
| 2027 | - | ||||
| 2028 | - | ||||
| 2029 | - | ||||
| 2030 | 100,000 | ||||
| 2031 | 111,113 | ||||
|
Total principal debt payments
|
$ | 211,113 | |||
Mithaq Commitment Letter
On May 2, 2024, we entered into a commitment letter (the "Commitment Letter") with Mithaq for a $40.0 million credit facility (the "Mithaq Credit Facility"). Initially, under the Mithaq Credit Facility, we had the ability to request for advances at any time prior to July 1, 2025. On December 16, 2025, the Company and Mithaq entered into an Amendment No. 3 to the Commitment Letter, that extended the deadline for requesting advances until December 16, 2030.
If any debt is incurred under the Mithaq Credit Facility, it shall require monthly payments equivalent to interest charged at the SOFR per annum plus 9.000%. Such debt shall be unsecured and shall be guaranteed by each of our subsidiaries that guarantees our ABL Credit Facility. Similar to the Mithaq Term Loans, such debt shall also be subject to the Mithaq Subordination Agreement, contain customary affirmative and negative covenants substantially similar to a subset of the covenants set forth in the Credit Agreement, and contain certain customary events of default. Additionally, such debt shall require no mandatory prepayments and shall mature no earlier than December 16, 2030. As of May 2, 2026, no debt had been incurred under the Mithaq Credit Facility.
Monetization of Income Tax Receivable Claim
On February 5, 2026, we entered into a Receivables Purchase Agreement (the "RPA") with TRMEF Basis II LLC ("TRMEF") to monetize our CARES Act income tax receivable claim of $19.1 million plus accrued interest of $3.7 million at a purchase rate of 88.5%, for a total purchase price of $20.1 million. We received net cash proceeds of $15.9 million, after insurance and legal fees amounting to $0.7 million. The remaining proceeds of $3.5 million are expected to be received in two tranches as follows: (i) upon confirmation by the IRS of submission by the IRS of the Revenue Agent Report to the Joint Committee on Taxation, TRMEF shall pay $2.5 million to us, less the amount of any downward adjustments in respect of the tax refund claim set forth in such Revenue Agent Report, and (ii) on the date on which TRMEF receives payment in full in cash of the refund claim, TRMEF shall pay us $1.0 million, less 10% of accrued interest as of the effective date of the RPA. We used the net proceeds to partially pay down our borrowings under the ABL Credit Facility.
The monetization of our income tax receivable claim was accounted for in accordance with FASB ASC 470 - Debt, and presented as Short-term debt. As of May 2, 2026, the unamortized financing costs amounted to $3.0 million. These costs are being amortized through the expected settlement date of the claim and recorded in Interest expense based on an effective interest rate of 18.0%.
Monetization of IEEPA Tariff Refund Claims
On March 31, 2026, we entered into a Claim Sale and Purchase Agreement with Alnus Investors, LLC ("Alnus") to monetize our claims for refunds of tariffs previously paid to the U.S. Customs and Border Protection ("CBP") , related to those tariffs originally invoked under the International Emergency Economics Powers Act, for which such tariffs were ruled unlawful by the United States Supreme Court on February 20, 2026. Alnus purchased an aggregate amount of $38.2 million of the approximately $40 million refund claims submitted to the CBP at a purchase rate of 67.2%, for a total purchase price of $25.7 million. We used the net proceeds to partially pay down our borrowings under the ABL Credit Facility. We have received $5.5 million of these refunds from the CBP subsequent to the end of the First Quarter 2026 to date.
The monetization of our tariff refund claims was accounted for in accordance with FASB ASC 470 - Debt, and presented as Short-term debt. As of May 2, 2026, the unamortized financing costs amounted to $10.5 million. These costs are being amortized through the expected settlement date of the claim and recorded in Interest expense based on an effective interest rate of 153.1%. Refer to "Note 1. Basis of Preparation" of the accompanying consolidated financial statements for the related accounting policy update on tariff refund claims.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
We describe our significant accounting policies in "Note 1. Basis of Preparation and Summary of Significant Accounting Policies" of the consolidated financial statements included in our most recent Annual Report on Form 10-K for the fiscal year ended January 31, 2026. Except as described in "Note 1. Basis of Presentation" of the accompanying consolidated financial statements, there have been no significant changes in our accounting policies from those described in our most recent Annual Report on Form 10-K.
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the amounts of revenues and expenses reported during the period. We continuously review the appropriateness of the estimates used in preparing our financial statements; however, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information. Consequently, actual results could differ materially from our estimates.
Our critical accounting estimates are described under the heading "Critical Accounting Estimates" in Item 7 of our most recent Annual Report on Form 10-K for the fiscal year ended January 31, 2026. Our critical accounting estimates include impairment of long-lived assets, impairment of indefinite-lived intangible assets, income taxes, stock-based compensation, and inventory valuation. There have been no material changes in these critical accounting estimates from those described in our most recent Annual Report on Form 10-K.
Recent Accounting Standards Updates
Refer to "Note 1. Basis of Presentation" of the accompanying consolidated financial statements for discussion regarding the impact of recently issued accounting standards on our consolidated financial statements.
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