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As filed with the Securities and Exchange Commission on May 18, 2022

Registration No. 333-259887

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 3 TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

CLAIRE’S HOLDINGS LLC

to be converted as described herein into a corporation named

CLAIRE’S INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   5600   36-4609619
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
   

2400 West Central Road
Hoffman Estates, IL 60192

(847) 765-1100

   
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

 

Brendan McKeough
Executive Vice President, General Counsel & Secretary

Claire’s Holdings LLC
2400 West Central Road
Hoffman Estates, IL 60192

(847) 765-4319

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

 

 

Copies to:

John B. Meade, Esq.

Pedro J. Bermeo, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450-4000

 

Craig E. Marcus, Esq.
Ropes & Gray LLP
Prudential Tower
Boston, Massachusetts 02199

(617) 951-7000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.                 

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.                 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.                 

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 7(a)(2)(B) of the Securities Act.

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 


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EXPLANATORY NOTE

Claire’s Holdings LLC, the registrant whose name appears on the cover of this registration statement, is a Delaware limited liability company. Prior to the effectiveness of this registration statement, Claire’s Holdings LLC will convert into a Delaware corporation pursuant to a statutory conversion and change its name to Claire’s Inc. as described in the section captioned “Corporate Conversion” of the accompanying prospectus. Except as disclosed in the prospectus, the historical consolidated financial statements and selected historical consolidated financial data and other financial information included in this registration statement are those of Claire’s Holdings LLC, and do not give effect to the Corporate Conversion. Shares of the common stock of Claire’s Inc. are being offered by the prospectus included in this registration statement.

 

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED MAY 18, 2022

PRELIMINARY PROSPECTUS

                 Shares

 

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Claire’s Inc.

Common Stock

 

 

This is the initial public offering of shares of common stock of Claire’s Inc.

We are offering                  shares of common stock in this offering, and if the underwriters exercise their option to purchase additional shares of common stock, we will sell up to                  additional shares of common stock and the selling stockholders identified in this prospectus will sell up to                  additional shares of common stock. We will not receive any proceeds from any sale of shares of common stock by the selling stockholders pursuant to the underwriters’ option to purchase additional shares. Prior to this offering, there has been no public market for our common stock. We anticipate that the initial public offering price will be between $             and $             per share. We have applied to list our common stock on the New York Stock Exchange under the symbol “CLRS”.

After giving effect to the Corporate Conversion (as defined in this prospectus), and the completion of this offering, affiliates of each of Elliott Investment Management L.P. (together with its affiliates, “Elliott”) and Monarch Alternative Capital LP (“Monarch”) will control approximately     % and     %, respectively, of the outstanding voting power of our company (assuming no exercise of the underwriters’ option to purchase additional shares of common stock from us or the selling stockholders). As such, each of Elliott and Monarch may individually have the ability to exercise significant influence over all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, and may have interests that may not align with the interests of each other or of our other stockholders. See “Risk Factors—Risks related to our common stock and this offering—Affiliates of each of Elliott Investment Management L.P. and Monarch Alternative Capital LP may each continue to have significant influence over us after this offering, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.”

The underwriters have a 30-day option to purchase up to                  additional shares of common stock from us and up to                  additional shares of common stock from the selling stockholders at the initial public offering price, less the underwriting discounts and commissions.

 

     Price to
Public
     Underwriting
Discounts and
Commissions(1)
     Proceeds
before
Expenses,
to Us(2)
     Proceeds before
Expenses, to the
Selling

Stockholders(3)
 

Per Share

   $                    $                    $                    $                

Total

   $        $        $        $    

 

(1)

See “Underwriting (Conflicts of Interest)” for a description of all compensation payable to the underwriters.

(2)

Assumes no exercise of the underwriters’ option to purchase additional shares of common stock from us.

(3)Assumes

the exercise in full of the underwriters’ option to purchase                  additional shares of common stock from the selling stockholders.

 

 

Investing in our common stock involves risks.

See “Risk Factors” beginning on page 26.

We will be treated as an “emerging growth company,” as defined under the federal securities laws, for certain purposes until we complete this offering, and, as such, may elect, and have elected in this prospectus, to comply with certain reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

The underwriters expect to deliver the shares on or about                , 2022.

Joint Book-Running Managers

 

Goldman Sachs & Co. LLC    Citigroup

 

Cowen   Guggenheim Securities   Piper Sandler   Telsey Advisory Group

Co-Manager

Siebert Williams Shank

 

 

Prospectus dated                    , 2022


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TABLE OF CONTENTS

 

 

 

     Page  

Prospectus Summary

     1  

The Offering

     18  

Summary Historical Consolidated Financial and Other Data

     21  

Risk Factors

     26  

Special Note Regarding Forward-Looking Statements

     57  

Use of Proceeds

     59  

Dividend Policy

     60  

Corporate Conversion

     61  

Capitalization

     65  

Dilution

     67  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     70  

Business

     93  

Management

     112  

Executive Compensation

     119  

Certain Relationships and Related Party Transactions

     137  

Principal and Selling Stockholders

     139  

Description of Capital Stock

     143  

Material U.S. Federal Tax Considerations for Non-U.S. Holders of Common Stock

     150  

Shares Eligible For Future Sale

     153  

Underwriting (Conflicts of Interest)

     155  

Legal Matters

     163  

Experts

     163  

Where You Can Find More Information

     163  

Index To Consolidated Financial Statements

     F-1  

Unless otherwise indicated, references in this prospectus to “Claire’s,” “our company,” “we,” “our” and “us,” or like terms, refer, prior to the Corporate Conversion discussed elsewhere in this prospectus, to Claire’s Holdings LLC, a Delaware limited liability company and its consolidated subsidiaries, and, after the Corporate Conversion, to Claire’s Inc., a Delaware corporation and its subsidiaries. Neither we, the selling stockholders nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. Neither we, the selling stockholders nor the underwriters take any responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the shares of common stock.

No action is being taken in any jurisdiction outside the United States to permit a public offering of common stock. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restriction as to this offering and the distribution of this prospectus applicable to those jurisdictions.

 

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Market Share and Other Information

This prospectus includes certain market, statistical and industry data and forecasts. Although we are responsible for all of the disclosure contained in this prospectus, in some cases we rely on and refer to market, statistical and industry data, estimates and forecasts that were obtained from third-party surveys, market research, consultant surveys, publicly available information and industry publications and surveys that we believe to be reliable. Unless otherwise indicated, all market, statistical and industry data and forecasts contained in this prospectus are based on independent industry publications, government publications, reports by market research firms or other independent sources and other externally obtained data, such as Green Street Advisors, Euromonitor International Limited and The Morning Consult LLC, that we believe to be reliable. Some market and industry data, and statistical information and forecasts, are also based on management’s estimates, which are derived from our review of internal surveys as well as the independent sources referred to above. Any such market data, information or forecast may prove to be inaccurate because of the method by which we obtain it or because it cannot always be verified with complete certainty given the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process, and other limitations and uncertainties, including those discussed under the caption “Risk Factors.” As a result, although we believe that these sources are reliable, we have not independently verified the information.

Trademarks and Trade Names

We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus are listed without the ® or symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.

Presentation of Financial Information

We report on the basis of a 52- or 53-week fiscal year, which ends on the Saturday closest to January 31. References to “fiscal year” mean the year in which that fiscal year began. For example, references to “fiscal year 2021,” “fiscal year 2020” and “fiscal year 2019” relate to our fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020, respectively.

We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them. As used in this prospectus, unless the context otherwise requires, references to “U.S. dollars,” “dollars,” “U.S. $” and “$” are to the lawful currency of the United States of America.    

This prospectus contains “non-GAAP financial measures,” which are financial measures that are not calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”). See “Summary Historical Consolidated Financial and Other Data—Non-GAAP Financial Measures.”

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully, including the “Risk Factors” and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our consolidated financial statements and the notes thereto included elsewhere in this prospectus.

Who We Are

We are a fully integrated global fashion brand powerhouse committed to inspiring self-expression through the creation and delivery of exclusive, well-curated products and experiences. We offer an immersive, experience-driven shopping environment for our consumers, with product offerings including jewelry, fashion accessories, tech accessories, cosmetics and more. Our trend-forward products are distributed in Claire’s®-operated stores, via e-commerce and through our broad base of concession partners. For over 50 years, Claire’s® has been a destination for the curious, creative and influential. Our entire ecosystem is anchored by our legacy in dynamic merchandising and our core piercing expertise and is informed by our unique understanding of and loyal relationship with our consumers worldwide.

We have two brands, Claire’s®, our flagship brand, and Icing®. Claire’s® has a powerful following with the highly influential Generation Z audience, which consists of over 2.5 billion individuals globally. Based on customer feedback, we have a reputation for delivering a differentiated, trendsetting and diverse assortment of products, many of which are proprietary designs, that help young minds style and define themselves. We believe that we are the market share leader in retail piercing services in North America and the world’s largest ear piercing service provider, having pierced the ears of millions of customers over our 40-plus year history of piercing. Piercing services and related product sales represent a meaningful part of our revenue and serve as an important customer acquisition vehicle that draws new consumers to our stores every year. The dynamic combination of strong brand equity, unique and diverse product offerings and revenue from services offered in our stores creates a highly differentiated financial profile with attractive margins.

Claire’s® offers an omni-present, multi-dimensional shopping experience, creating unique touchpoints with our consumers where they live and shop. Our offering is anchored in a strong physical retail presence which includes a global network of company-operated stores—consisting of conventional retail formats (which we refer to as standalone stores) and Claire’s® stores we operate inside a retail partner’s stores (which we refer to as store-in-stores)—and franchised stores. In addition, we operate in over 11,500 concessions located within approximately 30 retail partners in North America and Europe, including Walmart, CVS, Asda, Tesco and Matalan. In our concession formats, Claire’s® owns, merchandises and manages the inventory located in our partners’ stores and pays a sales-based variable fee for the right to operate in the concession.

Our retail stores offer a fun “treasure hunt” shopping experience that encourages our customers to explore and find the latest trends to create their own unique looks. We merchandize our stores with the intention of delighting and surprising our customers at every visit, which we believe encourages them to return to our stores frequently. We operate stores averaging 1,200 square feet in North America and 835 square feet in Europe in a broad variety of retail formats including mall, outlet, lifestyle, high street, strip centers and store-in-stores. As of January 29, 2022, there were 1,489 company-operated Claire’s® stores in North America, 878 company-operated Claire’s® stores in Europe across 15 countries and 289 franchised Claire’s® stores primarily located in the Middle East and South Africa. We believe our

 

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service-led retail model and attractive target consumer makes us a desirable tenant for commercial real estate operators, allowing us to be selective in choosing retail locations.

We use our Claire’s® and Icing® websites and the Claire’s® app for commerce and community, promoting and selling the latest products available at Claire’s® and Icing® and connecting with our customers, including educating them on recent trends, current offerings and our ear piercing service process and options. We continue to invest in our digital offerings to enable seamless and consistent brand interactions across every channel. We are enhancing our Buy Online, Pick-Up in Store (“BOPIS”) capability. We rolled out this capability in the United States in early 2021, the United Kingdom in November 2021 and France and Ireland in February 2022. We anticipate further pilot programs in other countries in the future. We launched our Claire’s® Rewards loyalty program in the United States in November 2020 and in the United Kingdom and Ireland in September 2021, and are in the process of expanding the program to additional countries. As of January 29, 2022, we had over 10.2 million loyalty members, and sales to Claire’s® Rewards members represented over 55% of our total U.S. Retail sales (including e-commerce) for fiscal year 2021. In September 2021, we launched our subscription program in the United States, offering curated boxes of jewelry and accessories to our subscription members.

We also operate our sister brand, Icing®, which had 189 stores in North America as of January 29, 2022. Icing® offers an inspiring merchandise assortment of fashionable products, as well as piercing services, targeting young women looking to express themselves. Our product offering includes jewelry, beauty, hair, fashion and bridal accessories. We believe Icing® allows us to reach age groups beyond our Claire’s® core customer demographic, including the over 76 million Millennial consumers in North America, and retain Claire’s® customers as they age. Many of our customers later introduce their children or other family members to the Claire’s® brand as they become mothers, aunts and grandmothers. Our Icing® product offering leverages our brand merchandising capabilities, consumer trend insights and other core expertise, including our product development and sourcing expertise.

Our Recent Transformation

Our management team has identified and enacted initiatives to leverage our strong brand equity and recognition in service and product excellence to accelerate growth, amplify brand value, expand our offerings and optimize our operating structure. Through the end of fiscal year 2021, we have invested over $150 million in the business to better align our offering with consumer trends, augment our physical and digital presence and enhance growth. These investments include the following:

Growth investments across all aspects of our business:

 

   

Assembling a growth-oriented management team with deep experience across all aspects of our company

 

   

Expanding and upgrading our retail footprint to meet our customers where they prefer to shop

 

   

Investing in new formats and channels to increase consumer interaction and access new customers

 

   

Building e-commerce capabilities to drive a seamless omni-channel experience and personalization at scale

 

   

Improving our ear piercing experience through digital enhancements and service expansion

 

   

Launching a consumer loyalty program to create more rewarding customer relationships with deeper insights

 

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Designing subscription services to offer curated products with more frequent consumer interaction

 

   

Enhancing our buying and merchandise systems, including localizing assortment

Operational investments:

 

   

Redesigning our supply chain and developing improved planning and allocation capabilities

 

   

Upgrading our store network and IT to support our growth

 

   

Developing data analysis excellence to drive decision making across all areas of the organization, including consumer trends, promotion management, real estate strategy and cost optimization

Our Recent Financial Performance

Since reopening our stores as COVID-19-related operating restrictions eased, we have experienced strong performance in North America and improving performance in Europe as the COVID-19 vaccine roll-out gains traction across the continent. We believe our operating results for fiscal year 2021 highlight the strength of our brand and unique nature of our business model, which combines growth potential with robust operating metrics.

For fiscal year 2021, we achieved the following results:

 

   

Increase in total same store sales of 17.8% compared to the same period in 2020 and 10.8% compared to the same period in 2019. North America same store sales grew 27.0% compared to 2020 and 18.8% compared to 2019. European same store sales decreased 1.7% compared to 2020 and 6.8% compared to 2019.

 

   

Total net sales growth of 53.2% compared to the same period in 2020 and 8.6% compared to the same period in 2019. North America sales grew 63.5% compared to 2020 and 22.3% compared to 2019. European sales grew 30.9% compared to 2020 and decreased 16.6% compared to 2019.

 

   

Net income of $8.2 million, representing a $75.2 million increase compared to the same period in 2020.

 

   

Adjusted EBITDA growth of 227.6% compared to the same period in 2020.

 

   

Net income (loss) margin of 0.6%, compared to (7.4)% for the same period in 2020.

 

   

Adjusted EBITDA margin of 19.8%, compared to 9.2% for the same period in 2020.

 

   

Partnered with 22 retail partners to open 3,495 net new concessions.

Our Competitive Strengths

Global brand powerhouse for self-expression

We are a category leader in the girl’s fashion jewelry and accessories market with strong brand recognition among our core demographic. According to surveys commissioned by Claire’s and conducted by The Morning Consult LLC, we enjoy between 82% and 99% brand awareness among 13 to 17 year-old girls, women 18 and over, and mothers with children aged 3 to 12 in the United States, the United Kingdom and France. Our Claire’s® brand is viewed by many as synonymous with self-expression

 

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and while Generation Z is our primary target, our brand appeals to consumers of all ages around the world. Our products are regularly featured in editorial coverage, social media and fashion periodicals relevant for our target audience. We believe there is an opportunity to further leverage our brand by extending into additional categories to capture a larger share of spending from or influenced by Generation Z consumers. In 2020, according to Euromonitor, the total addressable market of the jewelry, apparel accessories, color cosmetics, toys and writing instruments product categories was approximately $450 billion, with jewelry representing approximately $288 billion.

We believe we are the leading retail piercing destination, providing customers with a safe and affordable experience from a brand they trust. Ear piercing is a memorable life experience that we believe establishes a lifelong connection between customers and our brand. We offer piercing in all of our stores in North America and in over 98% of our stores in Europe. We have experienced 27 consecutive quarters of positive year-over-year same-store sales growth of our ear-piercing business (excluding the first three months of fiscal year 2020 due to shut-downs resulting from the COVID-19 pandemic), although there are no assurances this growth will continue at the same rate or at all. See “Risk Factors.” We believe our highly trained associates and over 40 years of piercing experience have made us a desirable destination worldwide for a variety of piercing services.

Experiential, service-led business model

We are a preferred destination for consumers looking for a safe, fun and affordable ear piercing service. Our specially-trained staff pierce millions of customers’ ears annually. During fiscal year 2021, we averaged over 85,000 piercings per week. Revenue generated from our ear piercing experience has consistently accounted for a meaningful part of our Retail sales. For fiscal year 2019 through fiscal year 2021, more than 20% of our Retail sales came from ear-piercing-related transactions, with a substantially higher percentage of Retail sales from these transactions in North America than in Europe, and spend per piercing transaction grew at a compound annual growth rate of approximately 13% during this period. Our ear piercing service also functions as an attractive customer acquisition vehicle and drives significant traffic to our stores. For fiscal year 2021, approximately 50% of all ear piercing customers purchased fashion jewelry or accessories during their visit to our stores. Since the launch of our Claire’s® Rewards loyalty program in the United States, over 55% of piercing customers have joined the program. In addition to piercing, we offer other in-store activities, including birthday parties and life event celebrations. Special events represent a small but growing part of our business.

We strategically design the layout of our stores to encourage impulse buying and a “treasure hunt” experience for our customers. We constantly refresh our store merchandise, changing our floor plans eight to ten times per year, ensuring there is a feeling of newness each time a customer visits. We amplify this experience with promotions designed to fuel exploration and discovery of merchandise, such as our “buy three, get three” promotion.

We believe our experiential and service-led model differentiates us from other brick-and-mortar and online competition, given that our ear piercing service and in-store experience cannot be replicated online.

Multichannel flexible distribution strategy

We strive to connect with our customers where they prefer to shop. Reflective of the continuously evolving retail environment, we have strategically created a multichannel shopping experience, which includes a global company-operated and franchised retail store network, store-in-store formats and retail partner concessions, as well as a growing digital presence.

 

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We have a highly flexible and differentiated real estate strategy, which allows us to grow and operate a variety of formats that generate positive store-level four-wall EBITDA. Our company-operated stores average 1,200 square feet in North America and 835 square feet in Europe. Each of our stores is a retail destination that draws in consumers looking for a fun shopping environment and drives foot traffic. Our customers rely on us to highlight new trends and provide them with a deep assortment of products to inspire their self-expression. As of January 29, 2022, we had 1,678 company-operated stores, which included 265 store-in-stores, in North America and 878 company-operated stores, which included 9 store-in-stores, in Europe. For fiscal year 2019, prior to the onset of the COVID-19 pandemic, 96% of our company-operated stores generated positive four-wall EBITDA, and we experienced strong same-store sales growth in fiscal year 2021, further enhancing store performance. We define four-wall EBITDA as store-level operating income before depreciation, including store wages, rent, distribution costs and other store operating expenses, adjusted to exclude corporate overhead expense.

 

   

Over one-third of our stores in North America were located in non-mall locations as of January 29, 2022. Our mall stores are located in many of the top malls in the country (with approximately 75% of the malls in which our stores are located graded by Green Street Advisors as mall grades A or grades B (excluding malls not rated by Green Street Advisors)), and are expected to continue to generate strong traffic trends and generate positive four-wall EBITDA. For fiscal year 2019, prior to the onset of the COVID-19 pandemic, 99% of our company-operated stores in North America generated positive four-wall EBITDA. For our stores located in lower-graded malls, the average remaining lease term was approximately 12 months as of January 29, 2022, which provides the opportunity for us to continue to evolve our retail footprint.

 

   

Our European locations are comprised primarily of mall and high street locations, with malls containing some of our top-performing stores. For fiscal year 2019, prior to the onset of the COVID-19 pandemic, 93% of our company-operated stores in Europe generated positive four-wall EBITDA, and we closed a number of unprofitable stores in Europe during 2020 and fiscal year 2021. A primary focus of our strategy is to improve the performance of European stores on a four-wall EBITDA basis by optimizing our existing store fleet through strategic relocations or closures of under-performing stores and opening new stores in under-penetrated markets within countries where we currently operate high-performing stores.

 

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The following graphics summarize our number of company-operated stores by state, territory or country in our North America and Europe segments as of January 29, 2022.

North America:

 

 

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Europe:

 

 

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We also operate in over 11,500 concessions globally across approximately 30 retail partners. Further, expansion in the concessions business represents an attractive growth opportunity with low upfront investment.

We also have numerous avenues outside of our physical retail presence that extend our offering to meet our customers where they are, including our Claire’s® and Icing® websites, our Claire’s® app, our presence on third-party marketplaces including Amazon.com and our subscription program, which we launched in September 2021. We believe there is opportunity to grow our digital sales and subscription program by offering convenience, engaging content and a curated selection of merchandise.

Vertical integration resulting in differentiated merchandizing strategy and unique product assortment

Both our design team and sourcing team are vertically integrated. Our design team conceptualizes the vast majority of our merchandise, and over 90% of our merchandise is designed or sourced exclusively for, or otherwise sold exclusively by, Claire’s® or Icing®, including Claire’s® exclusive products from various licensed partners. Our sourcing team is responsible for generating and

 

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maintaining vendor relationships. We have solid, long-standing relationships with our over 200 vendors, some continuing for over 30 years, resulting in strong collaboration and competitive bidding across our vendor base. We believe that our vertically-integrated design and sourcing model allows us to respond quickly and nimbly to new trends and yields low cost sourcing that results in strong margins for our Claire’s® and Icing® products.

Differentiated financial profile with strong operating margins and many visible growth opportunities

Our differentiated business model combines significant top line growth opportunity with operating margin expansion and operating cash flow generation. Our brand, service-led offering and flexible real estate strategy allow us to continuously expand the market we serve and attract new consumers. We believe our scale, vertical integration and operational excellence allow us to offer consumers a unique and affordable product assortment and popular services while maintaining high operating income margins. Due to our strong operating margins, the relatively low capital investments required to open our stores and concessions and our low run-rate maintenance capital expenditure costs, we are able to generate strong operating cash flow and strong conversion of Adjusted EBITDA to operating cash flow. We believe the combination of our financial profile and strong balance sheet creates significant flexibility for us to capitalize on numerous visible growth opportunities.

Experienced and talented management team

Our senior management team has extensive retail experience and complementary expertise across a broad range of disciplines including merchandising, supply chain, real estate, e-commerce and finance. In total, our senior management team consists of nine members with over 225 years of collective experience in the retail sector. Ryan Vero, who joined as Chief Executive Officer in July of 2019, brings with him a strong track record of propelling retail growth through innovation.

Our Market Opportunity

While we serve customers across multiple generations, we consider the Generation Z audience, which encompasses individuals from 5 to 24 years of age in 2021, to be our core and most important demographic focus. The Generation Z consumer segment is over 2.5 billion strong globally. Relative to older generations, a high proportion of Generation Z spending is discretionary in nature given that much of Generation Z’s essential spending needs are paid by parents or other family members.

We believe there is a significant opportunity to not only grow product sales to our target consumers, but also to continue to enhance long-term brand equity and engagement, creating another generation of loyal and enthusiastic Claire’s® consumers. Our vision is to remain an influencer and creator of youth and fashion culture and a leader in the fashion jewelry and accessories market.

Our Growth Strategies

We believe we have significant opportunities to drive long-term growth in revenue and earnings by further leveraging our brand and dynamic operating platform to expand our physical footprint, attract new consumers and increase our share of wallet with our core demographic while enhancing our digital presence and consumers’ experience. We plan to execute on the following strategies:

Expand our multichannel presence to meet our customers where they are

 

   

Continue to grow and evolve our store footprint.    Our service-led global retail network serves as an attractive consumer acquisition vehicle and the foundation for our multichannel

 

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presence and experiential model. Our flexible business model allows us to operate various formats that generate positive store-level four-wall EBITDA, including standalone stores and store-in-store locations. With the exception of the period during the COVID-19 pandemic, we have consistently generated positive store-level four-wall EBITDA across our existing store footprint. For fiscal year 2019, prior to the onset of the COVID-19 pandemic, 96% of our company-operated stores generated positive four-wall EBITDA, and we closed some of our least productive locations during 2020 and 2021. We set certain targets when we evaluate new store locations. Our mall-based stores are expected to generate $600,000 to $900,000 in sales per year, require approximately $0.2 million of capital and inventory investment and typically have a 15-month payback period. Our off-mall stores are expected to generate $375,000 to $900,000 in sales per year, require approximately $0.2 million of capital and inventory investment and typically have a 14-month payback period. Our store-in-store locations are expected to generate $250,000 to $400,000 in sales per year, require approximately $0.1 million of capital and inventory investment and typically have a 14-month payback period. Although we set these targets for new store openings, such targets may not be reached or obtained.

 

   

Over one-third of our stores in North America were located outside of shopping malls as of January 29, 2022. We have identified over 500 potential new standalone Claire’s® store locations in strip, power, outlet and lifestyle centers and select top-tier mall locations where we are currently not present. In fiscal year 2022, we expect to open 220 to 240 new store locations, of which the majority will be located in non-mall locations. We also expect to close approximately 55 standalone store locations, the majority of which will be located in malls. At the end of fiscal year 2021, approximately 36% of our stores in North America were located in non-mall locations, up from approximately 20% from fiscal year 2019. As of January 29, 2022, our average remaining lease commitment on our existing real estate portfolio was less than 24 months in North America.

 

   

In Europe, we expect to improve the performance on a four-wall EBITDA basis of our existing stores as well as open new locations in select markets. We plan to continue to optimize our existing store fleet through strategic relocations or closures of under-performing stores and opening new stores in under-penetrated markets within countries where we currently operate high-performing stores. We expect to open 55 to 60 new standalone store locations and close approximately 20 underperforming stores in fiscal year 2022. As of January 29, 2022, our average remaining lease commitment on our existing real estate portfolio was approximately 26 months in Europe.

 

   

Over the next several years, we anticipate annually opening approximately 90 to 110 net-new standalone stores (new stores less closing stores) globally, most of which will be located in non-mall locations. We further expect to continue optimizing our real estate portfolio, through strategic relocations, to reduce exposure to lower quality and lower grade mall locations.

 

   

Grow concessions.    We currently operate in over 11,500 concessions across approximately 30 retail partners in North America and Europe. During fiscal year 2021, our average weekly sales were between $50 and $250 at our small-format concessions locations, between $250 and $650 at our medium-format concessions locations, and between $650 and $3,000 at our large-format concessions locations. We believe we have a significant opportunity to grow and deepen these existing partnerships as well as launch concession offerings with new retail partners. We maintain inventory ownership and only incur minimal fixed operating costs with limited upfront investment for our concessions, which results in a lucrative revenue stream and earnings profile. We currently operate successful concession partnerships in a variety of retail

 

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segments across North America and Europe. We focus on partnering with large chains where we can scale quickly. We have an existing presence in approximately 30 retailers globally, including Walmart, CVS and Matalan. We believe there are meaningful identified opportunities for our concessions, which we are only in the early stages of addressing, including through continued expansion into new retail partner stores and through the rollout of additional stores with existing partners. We focus on top retailers across a variety of retail segments, including mass, grocery, apparel, department and specialty stores in the United States and Europe. Given the impulse nature of purchases for many of our categories and unique shopping experience, we have not experienced any meaningful cannibalization in our Claire’s® and Icing® banner stores as we have grown our concessions partnerships. We also believe we have numerous incremental opportunities with our retail partners, including expansion of our product offerings and offering ear piercing services in some partners’ stores.

 

   

Expand geographically.    We believe there is an opportunity to expand our business in new geographies in the future, including expanding our presence in Central and South America and entering Mexico and the Asia-Pacific region, each of which we believe is an untapped market for the Claire’s® brand.

Acquire new consumers and increase our share of the customer’s wallet

 

   

Enhance and grow our piercing services.    We believe we are the world’s largest ear piercing services provider as well as the market share leader in retail piercing services in North America. We have an opportunity to further leverage our piercing experience and reputation for piercing safety to grow our market share and our revenue per piercing by enhancing the consumer piercing experience, including by increasing the product mix of premium offerings. We are investing in capabilities that will allow us to elevate consumers’ pre-appointment, in-store and aftercare piercing experience, including online scheduling and registration, virtual earring try-on and digital aftercare notifications. We are also planning to expand our nose piercing services, which we currently only offer in certain stores in the United Kingdom, Ireland, France, Germany and Canada. In addition, we see an opportunity to continue to expand our products to include a higher percentage of premium items in a majority of our stores, including gold and diamond options.

 

   

Localize our merchandise.     We are continuously elevating our merchandise to deliver a differentiated selection of proprietary and exclusive products that are highly relevant to our customers. This includes varying our product inventory and assortment across our store base to reflect the unique characteristics of our local markets. We believe this is especially important across our footprint in Europe, which spans several distinct markets. We have invested in a new merchandizing system we are implementing to enable us to further leverage our global consumer insights to customize our offering to local preferences at scale, further enhancing store performance and reducing markdowns.

 

   

Increase consumer lifetime value by expanding our loyalty program.    We believe there is an opportunity to capture a larger share of the spend by and for our core demographic by offering a focused and compelling loyalty program. We launched our loyalty program in the United States in November 2020 and, as of January 29, 2022, we had over 10.2 million members. Our loyalty program rewards our customers with cash back and exclusive discounts while allowing us to leverage consumer data analytics from the program to employ more personalized consumer messaging and marketing to drive a higher share of our customer’s wallet. For fiscal year 2021, over 55% of our U.S. Retail revenue (including e-commerce) was attributable to loyalty members. We expanded the loyalty program into the United Kingdom and Ireland in September 2021.

 

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Enhance our digital presence.    Our goal is to become the most engaging customer-centric digital destination for discovery, inspiration and purchase of fashion jewelry and accessories. We use our online presence to highlight current trends, provide purchase recommendations as well as interact and transact with our consumers. Since 2018, we have invested over $15 million in enhancing our digital capabilities, resulting in meaningful increases in traffic to Claires.com and Icing.com and improved conversion rates. We believe we have an opportunity to grow our digital business by making the online shopping experience easier, with improvements in website navigation, product pages and checkout experience, as well as by leveraging our expanded Buy Online, Pick-Up in Store (“BOPIS”) capabilities. We also have the opportunity to expand our digital footprint to additional countries where we currently have a retail store presence but where our e-commerce presence is not customized to the local market as well as to capture additional sales through Amazon’s marketplace and similar opportunities globally. We also launched a subscription service in the United States in September 2021 to offer customers access to the latest trends and products from Claire’s®. We believe growth in subscription represents a sizable opportunity.

Summary Risk Factors

An investment in shares of our common stock involves substantial risks and uncertainties that may adversely affect our business, financial condition and results of operations and cash flows. Some of the more significant challenges and risks relating to an investment in our common stock include those associated with the following:

Risks related to our business and industry

 

   

the COVID-19 pandemic;

 

   

our ability to maintain, enhance and protect the value and goodwill of our brands;

 

   

our ability to anticipate, identify and respond to merchandise, marketing and promotional trends or consumer shopping patterns and successfully maintain proper merchandise assortment, and our ability to adequately forecast the demand for our products;

 

   

our ability to recruit, train, motivate and retain suitably qualified store associates, distribution center workers and other employees;

 

   

the failure to grow our store (including store-in-store) and concessions businesses or grow our digital business;

 

   

a decline in the number of people who go to shopping malls, especially those where we experience high sales volumes;

 

   

our sourcing of a substantial majority of our products through production arrangements in Asia;

 

   

our ability to source our merchandise efficiently and cost effectively if new trade restrictions are imposed, existing trade restrictions become more burdensome or relationships with manufacturers are impaired or terminated;

 

   

negative publicity that is accelerated by social media or emergent forms of communication and our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media;

 

   

our industry is highly competitive and our ability to effectively compete;

 

   

our ability to deliver our products to market if we encounter problems with distribution;

 

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our concessions and store-in-store locations are operated under agreements that are subject to revocation or modification;

 

   

we have changed our executive team significantly since 2019, and our business and future growth prospects may be harmed if we lose key members of our executive team or are unable to integrate, attract and retain the executives and key personnel we need to support our operations and growth;

 

   

our ability to renew or replace our distribution center and store leases, or enter into leases for new distribution centers or stores on favorable terms, or if our current leases are terminated prior to the expiration of their stated term and we cannot find suitable alternate locations;

 

   

fluctuations in foreign currency exchange rates;

 

   

macroeconomic conditions may adversely impact levels of consumer spending;

 

   

litigation matters and regulatory enforcement actions relating to our business could be adversely determined against us or otherwise distract management from our business activities and result in significant liability or damage to our brands;

 

   

natural disasters or unusually adverse weather conditions, public health crises, political crises and other catastrophic events or other events outside of our control;

 

   

the willingness of vendors and service providers to supply us with goods and services pursuant to customary credit arrangements that may not be available to us in the future;

 

   

some of our European workforce is covered by collective bargaining agreements, national collective agreements and/or works councils, and our business could be harmed in the event of a prolonged work stoppage;

 

   

goodwill impairments;

 

   

our ability to use our net operating losses to offset future taxable income;

 

   

additional tax liabilities in connection with our operations or due to future legislation;

 

   

failure to maintain our franchising relationships; and

 

   

our debt agreements contain restrictions that limit our flexibility in operating our business.

Risks related to information technology, data security and intellectual property

 

   

if our or our third-party providers’ information technology systems are interrupted for a significant period of time or fail to perform as designed;

 

   

if we or our third-party providers experience any compromise or breach of our or our third-party service providers’ data security or information technology systems, including the security of customer, associate, third-party or company information, as we have in the past, we may be subject to penalties and liability and experience negative publicity;

 

   

we may be unable to obtain, maintain, protect or enforce our trademarks and other intellectual property rights;

 

   

legal claims alleging that we, our vendors, our franchisees or licensees or the manufacturers of our merchandise infringe, misappropriate or otherwise violate the intellectual property rights of third parties; and

 

   

if our franchisees, vendors and other licensees do not observe our required quality and trademark usage standards.

 

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Risks related to laws, regulations and industry standards

 

   

our business, including our marketing programs, e-commerce initiatives and use of consumer information, is governed by an evolving set of laws and enforcement trends relating to data privacy or security, and any actual or perceived failure by us to comply with any such existing or future laws or with other obligations relating to data privacy and security;

 

   

our cost of doing business could increase as a result of changes in regulations regarding the content and sale of our merchandise and our piercing services;

 

   

failure to comply with standards, rules and laws governing electronic payments; and

 

   

failure to comply with anti-bribery, anti-corruption, economic sanctions, export control, anti-terrorism and anti-money laundering laws.

Risks related to our common stock and this offering

 

   

affiliates of each of Elliott Investment Management L.P. (together with its affiliates, “Elliott”) and Monarch Alternative Capital LP (“Monarch”) may each continue to have significant influence over us after this offering;

 

   

we have no current plans to pay regular cash dividends on our shares of common stock following this offering; and

 

   

we are a holding company with nominal net worth and will depend on dividends and distributions from our subsidiaries to pay any dividends.

Before you invest in our stock, you should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors” beginning on page 26.

COVID-19

As a result of the public health risk and government-imposed quarantines and other restrictions on commercial activity to contain the spread of COVID-19, the Company’s Retail and Concessions sales were significantly impacted during fiscal years 2020 and 2021. From March 2020 to May 2020, we temporarily closed all of our stores in North America and Europe; during this period, many of our concessions locations were also closed and in some geographies, non-essential products (including our own) could not be sold at concessions locations that otherwise remained open.

Though we cannot estimate the precise impact of the COVID-19 pandemic on our results of operations, we note that net sales, gross profit and operating income (loss) were $1,394.7 million, $809.1 million, and $170.7 million, respectively, in fiscal year 2021, compared to $910.3 million, $444.2 million and $(9.4) million, respectively, in fiscal year 2020, compared to $1,284.5 million, $690.2 million and $148.4 million, respectively, in fiscal year 2019. In addition, segment net sales for North America and Europe were $1,107.1 million and $377.6 million, respectively, in fiscal year 2021, compared to $621.9 million and $288.4 million, respectively, in fiscal year 2020, compared to $831.5 million and $453.0 million, respectively, in fiscal year 2019. Segment operating income (loss) for North America and Europe were $160.0 million and $10.7 million, respectively, in fiscal year 2021, compared to $20.8 million and $(30.2) million, respectively, in fiscal year 2020, compared to $110.9 million and $37.4 million, respectively, in fiscal year 2019. We believe that these reductions in net sales, gross profit, operating income (loss) and segment operating income (loss) during fiscal year 2020 were largely attributable to the impact of COVID-19, in particular due to the temporary closure of all of our stores during March 2020

 

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to May 2020, which resulted in no revenues generated at our stores during such period. We also believe our net sales, gross profit, operating income (loss) and segment operating income (loss) continued to be adversely affected by COVID-19, particularly in Europe, in fiscal year 2021. For example, as of January 30, 2021, 53 and 568 of our stores were still temporarily closed in North America and Europe, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—COVID-19” for a description of the impact of COVID-19 on our results.

Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion (as adjusted for inflation pursuant to the Securities and Exchange Commission (the “SEC”) rules from time to time) in revenue during our fiscal year 2020 (our most recently ended fiscal year at the time of the initial confidential submission of our registration statement), we qualified as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). While we ceased to be an emerging growth company on January 29, 2022 because our annual revenues exceeded $1.07 billion for fiscal year 2021, we will continue to be treated as an emerging growth company for disclosure purposes in this prospectus until the completion of this offering. An emerging growth company may take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As a result:

 

   

we may present as few as two years of audited financial statements and two years of related management discussion and analysis of financial condition and results of operations;

 

   

we are exempt from the requirement to obtain an attestation report from our auditors on our internal control over financial reporting under the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), for up to five years or until we no longer qualify as an emerging growth company;

 

   

we are permitted to provide reduced disclosure regarding our executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, which means we do not have to include a compensation discussion and analysis and certain other disclosures regarding our executive compensation; and

 

   

we are not required to hold non-binding advisory votes on executive compensation or golden parachute arrangements.

In addition to the relief described above, the JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to opt out of this extended transition period, and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies. The decision to opt out of the extended transition period under the JOBS Act is irrevocable.

In this prospectus we have elected to take advantage of the reduced disclosure requirements relating to executive compensation.

Corporate Conversion

We currently operate as a Delaware limited liability company under the name Claire’s Holdings LLC. Prior to the effectiveness of the registration statement of which this prospectus forms a part, Claire’s Holdings LLC will convert into a Delaware corporation pursuant to a statutory conversion and change its name to Claire’s Inc. Prior to the closing of this offering, Claire’s Inc. will effect the other corporate actions described in “Corporate Conversion.” In this prospectus, we refer to all of the transactions related to our conversion to a corporation as the Corporate Conversion.

 

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The purpose of the Corporate Conversion is to convert the top-tier entity in our corporate structure—the entity that is offering common stock to the public in this offering—from a limited liability company to a corporation so that our existing and future investors will own shares of our common stock rather than membership interests in a limited liability company. Immediately prior to the Corporate Conversion, the outstanding limited liability company membership interests of Claire’s Holdings LLC consist of Common Units and Series A Preferred Units. In connection with the closing of the offering, all holders of outstanding membership interests of Claire’s Holdings LLC at the time of its conversion to Claire’s Inc. will receive shares of common stock of Claire’s Inc. See “Corporate Conversion.”

Following the Corporate Conversion, Claire’s Inc. will continue to hold all the property and assets of Claire’s Holdings LLC and continue to be responsible for all of the debts and obligations of Claire’s Holdings LLC. As of the closing of this offering, Claire’s Inc. will be governed by a certificate of incorporation filed with the Delaware Secretary of State and bylaws, the material provisions of which are described in “Description of Capital Stock.”

Except as otherwise noted herein, the consolidated financial statements included elsewhere in this prospectus are those of Claire’s Holdings LLC and its consolidated operations. We do not expect that the Corporate Conversion will have a material effect on the results of our core operations.

Transactions Involving Holders of Series A Preferred Units

At January 29, 2022, the Company had 515,143 Series A Preferred Units issued and outstanding. The Series A Preferred Units accrue a preferred return at an annual rate equal to 14% of the stated value (the “Preferred Return”). The Preferred Return is paid quarterly within 30 days of each fiscal quarter end. The Preferred Return is payable in additional Series A Preferred Units unless investors that hold a majority of the Series A Preferred Units elect to receive cash. The requisite number of investors have never elected to receive cash. As a result, for fiscal year 2021, fiscal year 2020 and fiscal year 2019, the Company issued 89,450, 71,155 and 63,227 Series A Preferred Units, respectively, as payment of the Preferred Return.

The Corporate Conversion and this offering

In connection with the closing of the offering, all holders of outstanding membership interests of Claire’s Holdings LLC at the time of its conversion to Claire’s Inc. will be issued shares of common stock of Claire’s Inc. In addition, former holders of Series A Preferred Units will be issued common shares as part of their make whole premium, as described under “Corporate Conversion—Series A Preferred Unit Make Whole Premium.”

We intend to use the net proceeds from this offering (before any exercise by the underwriters of their option to purchase additional shares of common stock) to pay, in part, the Series A Preferred Unit make whole premium to the former holders of Series A Preferred Units. See “Use of Proceeds.” The make whole premium is required to be paid in cash only to the extent of the net proceeds of the offering (excluding the net proceeds from any exercise by the underwriters of their option to purchase additional shares of common stock), with the remainder of the make whole premium to be paid in common shares.

For details of the number of common shares to be issued in this regard, see “Corporate Conversion—Pricing Sensitivity Analysis.”

 

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Redemptions

On December 14, 2021 the Company redeemed 46,981 Series A Preferred Units at a redemption price of $2,661 per unit for a total redemption amount of $125.0 million, on April 9, 2021 the Company redeemed 28,691 Series A Preferred Units at a redemption price of $2,614 per unit for a total redemption amount of $75.0 million, and on November 2, 2020, the Company redeemed 52,959 Series A Preferred Units at a redemption price of $2,837 per unit for a total redemption amount of $150.3 million. The December 2021, April 2021 and November 2020 redemption prices were equal to the stated value of each unit plus a redemption premium based upon the present value of the Preferred Return due through October 12, 2038.

Debt Exchange

On December 18, 2019, the Company entered into the term loan credit agreement (the “Term Loan Credit Agreement”) among Claire’s Stores, Inc. (“Claire’s Stores”), as borrower, the lenders party thereto and JP Morgan Chase Bank, N.A., as administrative agent and collateral agent, providing for $502.4 million aggregate principal amount of term loan maturing on December 18, 2026 (the “Term Loan”). The Term Loan refinanced the $250.0 million aggregate principal amount of the then-outstanding term loan (the “Refinanced Term Loan”) and consummated an offer to exchange 10,049 of its preferred units, including accrued preferred return for $1,500 of Term Loan for each preferred unit tendered (the “Debt Exchange”).

Our Corporate Information

Claire’s Holdings LLC is a Delaware limited liability company. Prior to the effectiveness of the registration of which this prospectus forms a part, we will convert into a Delaware corporation pursuant to a statutory conversion and be renamed Claire’s Inc. See “Corporate Conversion.”

Our principal executive offices are located at 2400 West Central Road, Hoffman Estates, Illinois, 60192 and our telephone number is (847) 765-1100. Our website is www.claires.com. Our website and the information contained therein or connected thereto are not incorporated into this prospectus or the registration statement of which it forms a part.

 

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THE OFFERING

This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in our common stock. You should carefully read this entire prospectus before investing in our common stock, including the “Risk Factors” section and our consolidated financial statements and notes thereto included elsewhere in this prospectus.

 

Common stock offered by Claire’s Inc.

                    shares (                 shares if the underwriters exercise their option to purchase additional shares of common stock from us in full)

Common stock offered by the selling stockholders

  


                 shares (assuming the underwriters exercise their option to purchase additional shares of common stock from the selling stockholders in full)

Common stock to be outstanding after this offering

  


                 shares (                 shares if the underwriters exercise their option to purchase additional shares of common stock from us in full)

Use of proceeds

   We estimate that the net proceeds to us from this offering will be approximately $            , or approximately $             if the underwriters exercise their option to purchase additional shares of common stock from us in full, assuming an initial public offering price of $             per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions. We estimate that the offering expenses (other than the underwriting discounts and commissions) will be approximately $            . We intend to use the net proceeds from this offering to pay, in part, the Series A Preferred Unit make whole premium to the former holders of Series A Preferred Units. See “Corporate Conversion—Series A Preferred Unit make whole premium.” If the underwriters’ option to purchase additional common shares from us is exercised, the net proceeds therefrom are expected to be used for general corporate purposes, including the payment of offering expenses. See “Use of Proceeds.”

 

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We will not receive any proceeds from the sale of shares of common stock offered by the selling stockholders pursuant to the underwriters’ option to purchase additional shares from the selling stockholders.

Dividend policy

   We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, amount and payment of any dividends will be at the sole discretion of our board of directors and subject to certain considerations. In addition, our credit facilities place certain restrictions on our ability to pay cash dividends. See “Dividend Policy.”

Listing

   We have applied to list our common stock on the New York Stock Exchange under the trading symbol “CLRS.”

Conflicts of interest

   Goldman Sachs & Co. LLC, an underwriter of this offering, beneficially owns approximately 5.2% of our outstanding equity securities prior to the consummation of this offering (approximately 4.4% of the Series A Preferred Units and approximately 5.7% of the Common Units of the Company, which will be converted into preferred and common stock, respectively, of the Company pursuant to the Corporate Conversion as described in “Corporate Conversion”). Goldman Sachs & Co. LLC is expected to receive in excess of 5% of the total net proceeds in this offering as a result of the Company’s payment of the make whole premium to holders of Series A Preferred Units as described in “Use of Proceeds.” Therefore, Goldman Sachs & Co. LLC is deemed to have a “conflict of interest” within the meaning of Rule 5121 of the Financial Industry Regulatory Authority (“FINRA”). Accordingly, this offering is being conducted in accordance with FINRA Rule 5121. FINRA Rule 5121 prohibits Goldman Sachs & Co. LLC from making sales to discretionary accounts without the prior written approval of the account holder and requires that a “qualified independent underwriter,” as defined in FINRA Rule 5121, participate in the preparation of the registration statement and exercise its usual standards of due diligence with respect thereto. Citigroup Global Markets Inc. is acting as the “qualified independent underwriter” for this offering.

 

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The number of shares of our common stock to be outstanding after this offering:

 

   

is based on                  shares of common stock to be issued to former holders of Series A Preferred Units upon completion of this offering as described in “Corporate Conversion”;

 

   

excludes                  shares of common stock reserved for future issuance under the Claire’s Holdings LLC 2018 Management Equity Incentive Plan (the “2018 Plan”); and

 

   

excludes                  shares of common stock reserved for future issuance under the Claire’s Inc. 2022 Long-Term Incentive Plan (the “2022 Plan”).

Unless we specifically state otherwise, all information in this prospectus, (1) except for our historical consolidated financial statements and notes thereto included elsewhere in this prospectus, assumes the consummation of the Corporate Conversion immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, (2) assumes no exercise of the underwriters’ option to purchase additional shares of common stock from us or the selling stockholders solely to cover overallotments, (3) gives effect to our amended and restated certificate of incorporation and bylaws, which will be in effect prior to the closing of this offering, (4) assumes an initial public offering price of $             per share of our common stock (the midpoint of the estimated price range set forth on the cover page of this prospectus) and (5) assumes a     -for-     split of our common stock, to occur after the effectiveness of the registration statement of which this prospectus forms a part and prior to the closing of this offering. The share and per share information in the financial statements and the related notes thereto included elsewhere in this prospectus are presented on a historical basis only and therefore do not reflect the Corporate Conversion, the     -for-     stock split of our common stock or the completion of the offering.

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The following table presents our summary historical consolidated financial and other data as of the dates and for the periods indicated. The summary historical consolidated financial data as of and for the fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020, are derived from the audited historical consolidated financial statements included elsewhere in this prospectus.

Historical results are not necessarily indicative of the results to be expected for future periods. We refer you to the notes to our historical consolidated financial statements for a discussion of the basis on which our historical consolidated financial statements are prepared.

Our fiscal year ends on the Saturday closest to January 31, resulting in fiscal years of either 52 or 53 weeks. All references to a fiscal year refer to the fiscal year ending on the Saturday closest to January 31 of the following year. For example, references to “fiscal year 2021,” “fiscal year 2020” and “fiscal year 2019” relate to our fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020, respectively.

This table should be read in conjunction with the sections entitled “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and notes thereto included elsewhere in this prospectus.

 

     Year Ended  
     January 29,
2022
    January 30,
2021
    February 1,
2020
 
    

(in thousands)

Income Statement Data:

    

Net sales

   $ 1,394,676     $ 910,341     $ 1,284,541  

Cost of sales, occupancy and buying expense (exclusive of depreciation and amortization shown separately below)

     585,615       466,125       594,334  
  

 

 

   

 

 

   

 

 

 

Gross profit

     809,061       438,381       689,169  
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Selling, general and administrative expense

     572,256       387,683       489,839  

Depreciation and amortization

     70,569       72,145       60,645  

Other income, net

     (4,486     (6,214     (8,650
  

 

 

   

 

 

   

 

 

 

Total operating expenses

   $ 638,339     $ 453,614     $ 541,834  
  

 

 

   

 

 

   

 

 

 

Operating income (loss)

     170,722       (9,398     148,373  

Reorganization items, net

     200       (372     4,871  

Loss on early debt extinguishment

                 250,588  

Loss (gain) on derivative liability

     134,846       41,349       55,095  

Interest expense, net

     36,887       41,333       28,389  
  

 

 

   

 

 

   

 

 

 

Income (loss) before income tax (benefit) expense

     (1,211     (91,708     (190,570

Income tax (benefit) expense

     (9,395     (24,728     7,647  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 8,184     $ (66,980   $ (198,217
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

      

Foreign currency translation adjustments

     516       1,264       (1,220

Net gain (loss) on intra-entity foreign currency transactions, net of income tax (benefit) expense of $149, $(217) and $167

     (7,816     8,836       (1,993
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (7,300     10,100       (3,213
  

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 884     $ (56,880   $ (201,430
  

 

 

   

 

 

   

 

 

 

 

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     As of  
     January 29,
2022
     January 30,
2021
     February 1,
2020
 
    

(in thousands)

 

Balance Sheet Data:

        

Cash and cash equivalents

   $ 70,039      $ 177,482      $ 263,245  

Inventories

   $ 208,887      $ 136,153      $ 149,699  

Total assets

   $ 1,956,969      $ 1,723,243      $ 1,856,289  

Total liabilities

   $ 1,504,460      $ 1,083,293      $ 1,005,001  

Total mezzanine equity

   $ 352,773      $ 349,739      $ 338,219  

Total members’ equity

   $ 99,736      $ 290,211      $ 513,069  

 

     Year Ended  
     January 29,
2022
     January 30,
2021
     February 1,
2020
 
            (in thousands)  

Cash Flow Data:

        

Net cash provided by (used in):

        

Operating activities

   $ 170,593      $ 93,933      $ 159,714  

Investing activities

   $ (63,681    $ (34,602    $ (33,595

Financing activities

   $ (206,389    $ (154,623    $ (6,164

 

     Year Ended  
     January 29,
2022
    January 30,
2021
    February 1,
2020
 

Financial and Other Data:

      

Company-operated Claire’s® stores, North America (end of period) (1)

    
1,489
 
    1,390       1,312  

Company-operated Claire’s® stores, Europe (end of period)(1)

    
878
 
    905       937  

Company-operated Icing® stores (end of period)(1)

    
189
 
    195       198  

Adjusted EBITDA (in thousands)(2)

   $ 275,539     $ 84,186     $ 225,812  

Net income (loss) margin

     0.6     (7.4 )%      (15.4 )% 

Adjusted EBITDA margin(2)

     19.8     9.2     17.6

 

(1)

As of January 30, 2021, 49 of our company-operated Claire’s® stores in North America were temporarily closed due to the COVID-19 pandemic. As of January 30, 2021, 568 of our company-operated Claire’s® stores in Europe were temporarily closed due to the COVID-19 pandemic. As of January 30, 2021, four of our company-operated Icing® stores were temporarily closed due to the COVID-19 pandemic. No company-operated stores were temporarily closed due to the COVID-19 pandemic as of January 29, 2022 or February 1, 2020. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” for a description of store count and same store sales.

 

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(2)

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For a reconciliation of each of Adjusted EBITDA and Adjusted EBITDA margin to the most directly comparable GAAP financial measure, information about why we consider such measure useful and a discussion of the material risks and limitations of such measure, please see “—Non-GAAP Financial Measures” below.

 

     Year Ended January 29, 2022  
     2019 Basis(2)     2020 Basis(3)  

Same store sales growth(1)

    

North America

     18.8     27.0

Europe

     (6.8 )%      (1.7 )% 

Consolidated

     10.8     17.8

 

(1)

As of January 30, 2021, 49 of our company-operated Claire’s® stores in North America were temporarily closed due to the COVID-19 pandemic. As of January 30, 2021, 568 of our company-operated Claire’s® stores in Europe were temporarily closed due to the COVID-19 pandemic. As of January 30, 2021, four of our company-operated Icing® stores were temporarily closed due to the COVID-19 pandemic. No company-operated stores were temporarily closed due to the COVID-19 pandemic as of January 29, 2022 or February 1, 2020. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” for a description of store count and same store sales.

(2)

Measured against same store sales during the fiscal year ended February 1, 2020.

(3)

Measured against same store sales during the fiscal year ended January 30, 2021.

Non-GAAP Financial Measures

This prospectus contains “non-GAAP financial measures,” which are financial measures that are not calculated and presented in accordance with GAAP.

Specifically, we make use of the non-GAAP financial measures Adjusted EBITDA and Adjusted EBITDA margin in evaluating our past results and future prospects. We present Adjusted EBITDA and Adjusted EBITDA margin because they are key measures used by our management team to evaluate our operating performance, generate future operating plans and make strategic decisions. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors.

We define Adjusted EBITDA as net income (loss), adjusted to exclude income taxes, interest expense and income, depreciation and amortization, gain (loss) on early debt extinguishments, asset impairments, severance and transaction-related costs and certain non-cash and other items.

Adjusted EBITDA is not a measure of financial performance under GAAP, and should not be used as an alternative to net income (loss). Adjusted EBITDA has limitations as an analytical tool, and you should not consider such a measure either in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations include the following:

 

   

Adjusted EBITDA does not reflect every expenditure or contractual commitment;

 

   

Adjusted EBITDA does not reflect changes in our working capital needs;

 

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Adjusted EBITDA does not reflect any interest expense, or the amounts necessary to service interest or principal payments on any debt obligations;

 

   

Adjusted EBITDA does not reflect income tax expense;

 

   

Adjusted EBITDA does not reflect cash flow from operating, investing or financing activities as a measure of liquidity;

 

   

although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any costs of such replacements;

 

   

Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative, on a recurring basis, of our ongoing operations; and

 

   

other companies in our industry may calculate Adjusted EBITDA or similarly titled measures differently than we do, limiting their usefulness as comparative measures.

We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA and Adjusted EBITDA margin as supplemental information to provide a more complete understanding of the factors and trends affecting our business.

Adjusted EBITDA margin represents Adjusted EBITDA divided by net sales for the applicable period, expressed as a percentage.

The following table presents for each of the periods indicated a reconciliation of net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:

 

     Year ended  
     January 29,
2022
     January 30,
2021
     February 1,
2020
 

Net income (loss) (GAAP)

   $ 8,184      $ (66,980    $ (198,217

Interest expense, net

     36,887        41,333        28,389  

Income tax (benefit) expense

     (9,395      (24,728      7,647  

Depreciation and amortization

     70,569        72,145        60,645  

Loss (gain) on derivative liability(1)

     134,846        41,349        55,095  

Loss on early debt extinguishment(2)

                   250,588  

Strategic transformation expenses(3)

     21,024        13,171        14,692  

Other adjustments(4)

     13,424        7,896        6,973  

Adjusted EBITDA (Non-GAAP)

   $ 275,539      $ 84,186      $ 225,812  
  

 

 

    

 

 

    

 

 

 

 

(1)

Reflects non-cash expense recognized in association with valuation changes to derivative liability.

(2)

Reflects debt extinguishment associated with the Company’s entry into the term loan credit agreement dated as of December 18, 2019 (the “Term Loan Credit Agreement”) among Claire’s Stores, Inc. (“Claire’s Stores”), as borrower, the lenders party thereto and JP Morgan Chase Bank, N.A., as administrative agent and collateral agent, providing for $502.4 million aggregate principal amount of term loan maturing on December 18, 2026 (the “Term Loan”). The Term Loan refinanced the $250.0 million aggregate principal amount of the then-outstanding term loan and consummated an offer to exchange 10,049 of its preferred units, including accrued preferred return for $1,500 of Term Loan for each preferred unit tendered (the “Debt Exchange”).

(3)

Reflects one-time costs associated with our strategic transformation, including executive leadership team changes, reorganization costs, store relocation, strategic business assessments and transformational projects.

 

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(4)

Reflects primarily the non-cash impacts of stock compensation and key money valuation adjustments as well as certain other cash and non-cash adjustments, including inventory write-off, store pre-opening and store closing expenses.

While we have incurred incremental expenses associated with the COVID-19 pandemic, we have not included any of these expenses in calculating Adjusted EBITDA.

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. These risks include, but are not limited to, those described below, each of which may be relevant to an investment decision. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto included elsewhere in this prospectus, before deciding whether to invest in shares of our common stock. If any of the following risks or other risks actually occur, our business, financial condition, results of operations and future prospects could be materially harmed. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.

Risks related to our business and industry

The COVID-19 pandemic has had a significant adverse impact on our business and could continue to adversely impact our business, financial condition, results of operations and cash flows.

As a result of reduced consumer traffic at our retail locations in fiscal years 2020 and 2021, due to store or concession closures, government-imposed restrictions to contain the spread of COVID-19 and public health concern generally, the Company’s sales in those periods were significantly adversely impacted. Though we cannot estimate the precise impact of the COVID-19 pandemic on our results of operations in fiscal years 2020 and 2021, we note that net sales, gross profit and operating income (loss) were $1,394.7 million, $809.1 million, and $170.7 million, respectively, in fiscal year 2021, compared to $910.3 million, $444.2 million and $(9.4) million, respectively, in fiscal year 2020, compared to $1,284.5 million, $690.2 million and $148.4 million, respectively, in fiscal year 2019. In addition, segment net sales for North America and Europe were $1,107.1 million and $377.6 million, respectively, in fiscal year 2021, compared to $621.9 million and $288.4 million, respectively, in fiscal year 2020, compared to $831.5 million and $453.0 million, respectively, in fiscal year 2019. Segment operating income (loss) for North America and Europe were $160.0 million and $10.7 million, respectively, in fiscal year 2021, compared to $20.8 million and $(30.2) million, respectively, in fiscal year 2020, compared to $110.9 million and $37.4 million, respectively, in fiscal year 2019. We believe that these reductions in net sales, gross profit, operating income (loss) and segment operating income (loss) during fiscal year 2020 were largely attributable to the impact of COVID-19, in particular due to the temporary closure of all of our stores during March 2020 to May 2020, which resulted in no revenues generated at our stores during such period. We also believe our net sales, gross profit, operating income (loss) and segment operating income (loss) continued to be adversely affected by COVID-19, particularly in Europe, in fiscal year 2021. For example, as of January 30, 2021, 53 and 568 of our stores were still temporarily closed in North America and Europe, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—COVID-19.”

Although we have re-opened all of our stores (including store-in-store locations), consistent with government guidelines, and have resumed sales at all of our concessions locations, there remains uncertainty around expected consumer traffic generally, as a result of new information that may emerge concerning the severity of COVID-19, the impact of new variants and sub-variants of COVID-19, the adoption of vaccines, the effectiveness of vaccines against new variants and sub-variants of COVID-19, the potential for renewed government restrictions (for example, relating to social distancing, which could affect consumer traffic and our ability to provide piercing services) and general consumer behavior. Further, while we have implemented strict safety protocols in stores, there is no assurance that such protocols will be effective or be perceived as effective, and any virus-related illnesses linked or alleged to be linked to our stores, whether accurate or not, may negatively affect the willingness of consumers to visit our stores. If consumer traffic fails to return to pre-pandemic levels or there are fluctuations in consumer traffic, our sales may be negatively affected. Such negative impacts may be exacerbated during traditionally peak consumer traffic periods such as the holiday shopping season.

 

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In addition, if there are further outbreaks of COVID-19 variants or spikes in the number of COVID-19 cases in areas where we operate stores, our employees could become sick or need to be quarantined, or may otherwise be limited in their ability or willingness to work at our locations or travel. Should our stores not have an adequate number of employees, we may be forced to close temporarily, operate on a limited opening schedule, or provide increased wages or incentives in order to attract and retain employees.

The COVID-19 pandemic has also impacted the Company’s global supply chain, primarily through increases in the cost of shipping and distribution (especially for products shipped from Asia to North America and Europe) as a result of impacts on global shipping. These higher costs could continue or increase further. In addition, we have experienced increases in transportation and distribution lead times as a result of shipping fleet congestion at ports of entry, resulting in our having to increase our use of more expensive air freight options from time to time. We may need to continue utilizing higher levels of air freight. Also, in the event of future restrictions on the operation of any of the facilities that produce our merchandise, most of which are located in China, we may not be able to source additional facilities to meet our demand. Moreover, should our distribution centers not have adequate numbers of employees due to ill health or have their operations restricted, our stores may face shortages of merchandise.

As the COVID-19 pandemic subsides, the pace of the economic recovery and shifts in consumer discretionary spending to other categories such as travel and restaurants may negatively impact the Company’s results of operations or cash flows. We are also subject to the risk of being unable to negotiate rent suspensions with landlords in the event of future store closures. As such, the full extent of the impact of COVID-19 on the Company’s business and financial performance remains uncertain.

To the extent that COVID-19 has affected and continues to adversely affect the global economy, our business, financial condition, results of operations or cash flows, it has heightened, and may continue to heighten, other risks described within this “Risk Factors” section.

Our success depends on our ability to maintain, enhance and protect the value and goodwill of our brands.

The Claire’s® and Icing® brands and associated goodwill are integral to our business, as well as to the implementation of our strategies for expanding our business. Maintaining, promoting and positioning our brands depends largely on our ability to provide a consistent, enjoyable and quality customer experience and the success of our design, merchandising and marketing efforts. Our brands could be adversely affected if we fail to achieve any of these objectives for our brands, which in turn could negatively impact sales and have a material adverse effect on our business, financial condition and results of operations. Our brand value can be severely damaged even by isolated incidents, particularly if the incidents receive considerable negative publicity or result in litigation. Some of these incidents may relate to actions taken (or not taken) with respect to societal and environmental matters, the personal conduct of individuals associated or perceived to be associated with our brands, the way we manage our relationship with our suppliers, customers, distributors, employees and business partners, our development efforts in existing and new markets or the actions of our franchisees, vendors, licensees or licensors.

Although we maintain policies with our employees, vendors and licensees that promote ethical business practices, and our employees, agents and third-party compliance auditors periodically visit and monitor the operations of the facilities that manufacture our products, we do not control our vendors, independent manufacturers or licensees or their practices. A violation of our vendor policies, license agreements, health and safety standards, product quality standards, labor laws, anti-bribery laws, or other policies or laws by employees, vendors, independent manufacturers, franchisees or

 

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licensees could damage the image and reputation of our brands. Our brands may also be damaged as a result of events that are, or may be, beyond our control, such as actions taken (or not taken) by one or more of our franchisees, licensees or business partners or their employees or subcontractors relating to any of the following: customer service, health, safety, welfare, social justice, political activism or otherwise; litigation and legal claims; security breaches or other fraudulent activities that could affect our and our franchisees’ information and electronic payment systems; illegal activity targeted at us or others; and conduct by individuals associated with us that could violate ethical standards or dilute, tarnish or otherwise adversely affect the reputation of our brands. Customer demand for our products and services and our brands’ value could diminish significantly if any such incidents or other matters erode customer confidence in or goodwill for us or our products and services, which would likely materially and adversely affect our business, financial condition and results of operations.

In addition, if any third party copies our brand designs, products or our stores in a manner than projects lesser quality or carries a negative connotation, uses trademarks that are identical or similar to our trademarks, or otherwise misappropriates, dilutes, infringes or violates our intellectual property rights, it could lead to market confusion, loss of competitive advantage and lost sales, and have a material adverse effect on our brand image and results of operations. Any negative publicity or market confusion regarding us or our brands, services or products could adversely affect our reputation and sales. There can be no assurance that our brand image will not be negatively affected through its association with products, services or actions of our licensees, vendors or other third parties.

We may suffer material adverse business consequences if we are unable to anticipate, identify and respond to merchandise, marketing and promotional trends or consumer shopping patterns and successfully maintain proper merchandise assortment. Profitability and our reputation could be materially negatively impacted if we do not adequately forecast the demand for our products and, as a result, create significant levels of excess inventory or insufficient levels of inventory.

The retail fashion jewelry and accessories business is subject to rapidly changing fashion trends and shifting consumer preferences. Our success depends, in large part, on our ability to anticipate and respond to such changes in a timely manner, keeping our customers engaged and interested in our merchandise. We also aim to maintain a diverse merchandise assortment with a relatively tight inventory of each product, especially with respect to on-trend products. Among other things, we believe that this strategy creates a constant sense of newness, which drives repeat store, e-commerce or concession visits and increased sales and also helps us to reduce markdowns. We make decisions for the purchase and manufacture of merchandise with our suppliers up to 12 months in advance, and sometimes before trends are identified or evidenced by consumer purchases. In addition, the periodic nature of the retail business requires us to carry a significant amount of inventory, especially prior to peak selling periods (such as the year-end holiday season, back-to-school periods, Easter, spring break, Halloween, St. Patrick’s Day and the Fourth of July), when we generally build up inventory levels of specialized merchandise. As a result, it can be difficult for us to respond to new or changing consumer needs and there can be no assurance that we will be able to continue to stock our stores (including store-in-store locations) and concession locations adequately and with sufficient merchandise assortment levels. It is also difficult for us to accurately forecast proper merchandise levels at our new concessions locations, where we may not have historical purchase information to leverage in forecasting demand for each location. Further, we are in the process of implementing new merchandising technology systems that will change the way we allocate products to our stores (including store-in-store locations) and concession locations. Any failure to successfully implement these systems could limit, disrupt or weaken our ability to forecast merchandise levels appropriately. In addition, some of our products involve intellectual property we license from third parties; any failure to license or renew our licenses for on-trend products could negatively affect our sales.

 

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If we are unable to anticipate, identify or react to changing styles or trends or consumer purchasing habits, or if we are unable to successfully offer proper merchandise assortment levels due to inaccurate forecasts or otherwise, consumers may choose to visit our stores (including store-in-store locations), concessions locations or e-commerce websites less frequently, our brands could be impaired, our relationships with our store-in-store and concessions partners could be harmed, our market share may decline and our results of operations could deteriorate. Further, any failure to maintain proper merchandise assortment levels could lead to excess inventories, which could lead to markdowns and increased marked out-of-stock charges and promotions, resulting in a decrease in our merchandise margins. On the other hand, if we forecast demand for our products that is lower than actual demand, we may experience insufficient levels of inventory and increased costs to fulfill demand, and our brand image may also suffer.

Our ability to recruit, train, motivate and retain suitably qualified store associates, distribution center workers and other employees could adversely impact sales and earnings.

The customer experience and timely distribution of our products are essential elements in the success of our business. From time to time, including recently, we have incurred higher labor costs due to a number of factors, any of which could require us to incur higher labor costs in the future, including: competition for suitable store associates, distribution center workers or other employees; wage pressures; high turnover; or changes in unemployment, immigration, labor or healthcare laws (in particular, in California, where approximately 8% of our North America associates are based; in Europe, where employment relationships are subject to more regulation compared to other jurisdictions in which we operate; and in the United Kingdom, which has a reduced labor pool as a result of Brexit). In particular, as a result of recent employment market trends, it has been more difficult for us to attract and retain employees globally, including because of factors such as increased market competition, enhanced government benefits and stimulus payments as well as concerns around the safety of returning to work, which in turn increases wage and incentives pressures. A shortage of qualified individuals or higher labor costs has resulted and could in the future result in disruptions to the performance of store or other associates or the timely delivery of our products, which in turn could adversely impact our business, financial condition and results of operations.

The failure to grow our store (including store-in-store) and concessions businesses or grow our digital business may adversely affect our business.

Our growth strategies include expanding our store (including store-in-store) and concessions businesses in both North America and Europe. In particular, our target is to open between 275 and 300 new stores globally in fiscal year 2022; and with respect to concessions, we plan to continue to grow our concessions partnerships. We also expect approximately 75 store closures globally in fiscal year 2022. Our ability to accomplish our growth targets in North America and Europe depends in part on our ability to identify appropriate store locations and negotiate acceptable terms in our store leases and store-in-store and concessions agreements that meet our operating budgets and accomplish appropriate returns on investment.

Further expanding our digital presence, including to additional countries where we currently have a retail store presence but where our e-commerce presence is not customized to the local market, is part of our growth strategy. However, we are vulnerable to certain risks and uncertainties specific to our digital and e-commerce strategy. These include changes in third party marketplace business models, rapid changes in technology, diversion of sales from our store and concessions businesses, customers’ acceptance of the shipping times from our two distribution centers, website downtime and other technical failures, changes in state tax regimes and government regulation of internet activities.

Our failure to successfully respond to these risks and uncertainties could reduce our e-commerce sales, increase our costs, diminish our growth prospects, and damage our brand, which in turn could negatively impact our business, financial condition and results of operations.

 

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A decline in the number of people who go to shopping malls, especially those where we experience high sales volumes, could reduce the number of our consumers and reduce our net sales.

A majority of our stores are currently located in traditional shopping malls. Our sales are derived, in part, from the volume of traffic at those malls. We benefit from the ability of the shopping malls’ “anchor” tenants (generally large department stores) and other area attractions, as well as tourism in certain locations, to generate consumer traffic around our stores. We also benefit from the popularity of shopping malls as shopping destinations. Sales volume and consumer traffic is likely to be adversely affected by economic downturns in a particular area, competition from non-shopping mall retailers (including e-commerce businesses) and other shopping malls where we do not have stores and the closing of anchor tenants in a particular shopping mall. In addition, a decline in the popularity of shopping malls (especially popular shopping malls that typically benefit from high traffic volume) among our core consumers may curtail consumer visits, which in turn could result in decreased sales in our stores and result in a material adverse effect on our business, financial condition and results of operations.

We source a substantial majority of our products through production arrangements in Asia.

We source a substantial majority of our products through a network of vendors that is principally coordinated by our Hong Kong sourcing office. These vendors in turn rely on a number of production facilities, primarily in China. Our global supply chain could be negatively affected due to a number of factors, including:

 

   

global or regional public health crises, such as the COVID-19 pandemic, including governmental measures taken in response, which continues to have an adverse effect on our sourcing operations, particularly in China and the rest of Asia and has slowed our ability to source new suppliers and import products into North America and Europe, and may continue to do so in the future;

 

   

political instability, war or other global events, including actions taken by governments or others in response to such events, resulting in the disruption of operations or trade in or with countries from which we source our products;

 

   

increased costs of raw materials, labor, fuel and transportation;

 

   

interruptions in the supply of raw materials, including precious and non-precious metals, plastics, cotton, nylon, polyester and trim items;

 

   

financial instability, including bankruptcy or insolvency, of one or more of our major vendors or their manufacturers;

 

   

increases in the cost of labor in our sourcing locations;

 

   

changes in the customs procedures concerning the importation of the products we sell;

 

   

changes in laws concerning supply sources, supply chain transparency, labor and human rights;

 

   

unforeseen delays in customs clearance of any goods and merchandise;

 

   

the inability to protect our intellectual property;

 

   

the ability of our vendors to secure sufficient credit to finance the manufacturing process, including the acquisition of raw materials;

 

   

our ability to successfully pursue indemnification claims in the event we seek indemnification from our vendors;

 

   

potential consumer concerns about our use of international vendors and independent manufacturers over whom we have limited to no control, including concerns about supply chain transparency and responsible sourcing;

 

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manufacturing delays or unexpected demand for products that may increase the need to use faster, but more expensive, transportation methods, such as air-freight services, including because of the COVID-19 pandemic or our failure to accurately forecast demand for certain products; and

 

   

other events beyond our control that could interrupt our supply chain and delay receipt of our products into North America and Europe.

The occurrence of one or more of these events could result in disruptions to our sourcing operations, which in turn could negatively impact our sales or result in higher cost of goods sold, thereby negatively impacting our results of operations.

Our ability to source our merchandise efficiently and cost effectively could be negatively impacted if new trade restrictions are imposed, existing trade restrictions become more burdensome or relationships with manufacturers are impaired or terminated.

We do not own or operate the manufacturing facilities that produce our products. We source a substantial majority of our products through vendors that in turn rely on a number of production facilities, primarily in China. Most of our merchandise (including the raw materials used in our merchandise) is subject to trade restrictions, including tariffs, safeguards or quotas, changes to which could increase the cost or reduce the supply of merchandise available to us. These and other trade restrictions have had in the past, and could have again, an impact on our and our vendors’ sourcing patterns. The extent of this impact, if any, and the possible effect on our purchasing patterns and costs, cannot be determined at this time. We cannot predict whether any of the countries in which our or our vendors’ merchandise is currently manufactured or may be manufactured in the future will be subject to additional trade restrictions imposed by governmental authorities, nor can we predict the likelihood, type or effect of any restrictions. Trade restrictions, including increased tariffs or quotas, embargoes, safeguards and customs restrictions against items we offer, as well as labor strikes, work stoppages or boycotts, could increase the cost or reduce the supply of merchandise to our vendors, and we would expect the costs to be passed along in increased prices to us, which could negatively impact our sales or profitability. Further, we do not own all of the intellectual property in the products produced by all of our manufacturers. If our relationship with a manufacturer is impaired or terminated for any reason, we may not have the ability to source identical products from another manufacturer, which may result in loss of sales or competitive advantage or increased costs to develop new products.

Negative publicity that is accelerated by social media or emergent forms of communication and our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could materially adversely impact our brand and business.

There has been a marked increase in the use of social media platforms, including social media platforms (such as TikTok, Facebook, Snapchat, Twitter and Instagram) and other forms of internet-based communications that allow individuals access to a broad audience of consumers and other interested persons. We use such third party social media platforms as, among other things, marketing tools, and we also maintain relationships with many social media influencers. The rising popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information dissemination and given users the ability to more effectively organize collective actions, such as boycotts and other brand-damaging events. Many, if not all, social media platforms immediately publish their participants’ posts, often without filters or checks on the accuracy of the content posted. Any negative or potentially damaging social media content (especially if it goes “viral”), regardless of the content’s accuracy or our efforts to respond, could damage our reputation, which in turn could harm our business, prospects, financial condition and results of operations. The harm may be immediate without affording us an opportunity for redress or correction.

 

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Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments about our business, exposure of personally identifiable information, out-of-date information, fraud, hoaxes, or malicious dissemination of false information and negative comments relating to actions taken (or not taken) with respect to societal or environmental issues. Furthermore, the use of social media by social media influencers, our customers, employees, vendors, franchisees or other individuals and entities associated with our brand in a negative or damaging way could increase our costs, lead to litigation or result in negative publicity that could damage our reputation and brand and adversely and negatively impact our financial condition and results of operations. This adverse impact may occur whether or not we are directly related to, or otherwise control, the subject matter of the social media attention. Even the mere perception of our involvement could dilute or tarnish or otherwise adversely affect our reputation and brand and could contribute to diminished financial performance.

In addition, we use social media to communicate with consumers and the public in general. Failure to use social media effectively could lead to a decline in our brand value and revenue. Laws, regulations and enforcement actions, including by the U.S. Federal Trade Commission (“FTC”), rapidly evolve to govern social media platforms and communications. For example, the FTC has sought enforcement action where an endorsement has failed to clearly and conspicuously disclose a financial relationship or material connection between influencer and an advertiser. Although we do not prescribe what our influencers post, we may be held responsible for the content of their posts or their actions. The failure by us, our employees, our franchisees, our brand ambassadors or third parties acting at our direction, to abide by applicable laws and regulations in the use of social media could adversely impact our brand, reputation, financial condition and results of operations or subject us to fines or other penalties.

Our industry is highly competitive and failure to effectively compete could have a negative impact on our business.

The jewelry and accessories retail business is highly competitive. We compete with international, national and local department stores, specialty and discount store chains, mass merchants, independent retail stores, e-commerce services, direct marketing to consumers and catalog businesses that market similar lines of merchandise. Many of our competitors are companies with substantially greater financial, marketing and other resources. As a result, these competitors may be able to adapt to changes in consumer trends more quickly, take advantage of acquisitions and other opportunities more readily, devote greater resources to their e-commerce activities and the marketing and sale of their products, and adopt more aggressive pricing strategies than we can.

Some competitors offer or may in the future decide to offer piercing services, which are an important differentiator in our stores and our customers’ shopping experience. If any of our piercing competitors take market share from us or disrupt our efforts to grow our piercing business, this could result in a reduction of any competitive advantage or special appeal that we possess as a leading retail piercing destination and negatively impact our sales.

Although we operate an e-commerce business, the majority of our sales are made in stores or concessions locations. As such, significant shifts in consumer buying patterns to purchasing fashionable jewelry and accessories at affordable prices through online or e-commerce channels could have a material adverse effect on our financial results. Many of our competitors have e-commerce businesses that are substantially larger and more developed than ours, which may place us at a competitive disadvantage. If we are unable to further expand our e-commerce business in response to competitive needs, our sales could decline, or we may need to increase our investments in our e-commerce business, which in turn could cause our profitability to decrease.

 

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If we encounter problems with distribution, our ability to deliver our products to market could be adversely affected.

We rely on distribution centers to warehouse and ship products to our company-operated stores, franchised stores and concessions locations and e-commerce consumers throughout the world. We handle merchandise distribution for all of our retail locations in North America from a distribution center in a suburb of Chicago, Illinois that we lease and operate. We handle merchandise distribution for all of our Europe operations from a distribution center in Birmingham, United Kingdom that we lease and a third party operates on our behalf. We handle merchandise distribution for all of our international franchised operations from a distribution center in Hong Kong that we also lease and operate.

Reliance on a single distribution center for each of our major markets means that our supply of stores in that market is dependent upon the continued and optimal operation of that distribution center. Any failure to operate the respective distribution centers at required levels or any failure to source our merchandise efficiently and cost effectively from such distribution centers (for example, due to new or more burdensome trade restrictions, the ongoing COVID-19 pandemic or our ability to negotiate leases on favorable terms or at all) could negatively impact our ability to supply their respective markets. For example, as our concessions business continues to expand, our distribution center in the United Kingdom may not have the capacity to operate at the levels required to handle increased product volumes. Although we expect to open an additional distribution center in Europe, a failure by us to secure any additional distribution center capacity that may be required could limit our ability to expand our business in Europe or elsewhere. Further, in connection with opening a new distribution center and migrating some operations to a new distribution center, we may suffer disruptions in our distribution center operations. In addition, distribution capacity is dependent on the timely performance of services by third parties, including the transportation of products to and from their distribution centers, which also may be adversely affected by work stoppages (including due to labor disputes) or disruption (including due to fires, floods or other calamities). If we encounter problems with our distribution centers, our ability to meet customer and consumer expectations, manage inventory, complete sales and achieve operating efficiencies could be adversely affected.

Moreover, the uncertainty with respect to the movement of goods between the United Kingdom and the European Union following the United Kingdom’s leaving the European Union on January 31, 2020 (“Brexit”) has negatively impacted, and may continue to negatively impact, our ability to distribute products from the United Kingdom to member states of the European Union. Our merchandise that is distributed from our distribution center in the United Kingdom to member states is subject to both UK and EU laws and regulations which may have differing and potentially conflicting requirements. For example, we have experienced temporary delays in distributing certain product categories from the United Kingdom to certain European Union countries due to new documentation requirements and have incurred additional tariff costs of approximately $0.5 million in the first six months following Brexit. While we have established specialized distribution arrangements to mitigate the impacts of Brexit, incurring costs of approximately $1 million, there can be no assurance that we will not experience further distribution delays or costs, which may have a material adverse effect on our business, financial condition and results of operations.

Our concessions and store-in-store locations are operated under agreements that are subject to revocation or modification, and the loss of concessions or store-in-store arrangements could negatively affect our business, financial condition and results of operations.

We conduct business through concessions and/or store-in-store arrangements with mass, grocery, drug, toy, apparel, department store and specialty retailers and we expect to pursue growth through an increased focus on these channels. The retailers with whom we enter into these arrangements are generally able to revoke these contracts at will (subject to reimbursing us, in certain cases with respect to certain store-in-store locations, for amortized capital expenditures) by terminating the applicable

 

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agreement upon notice. Certain of our concessions and store-in-store arrangements may also be terminated early by our retailers in certain default scenarios, including, among others, failure to pay rent when due and payable (if we are otherwise unable to negotiate work-outs with our landlords) and failure to open our locations according to the retailers’ hours of operations (in each case, to certain exceptions). The loss or modification of our concessions and store-in-store arrangements could have a material adverse impact on our business, financial condition and results of operations.

We have changed our executive team significantly since 2019, and if we lose key members of our executive team or are unable to integrate, attract and retain the executives and key personnel we need to support our operations and growth, our business and future growth prospects may be harmed.

Since 2019, we have made a number of key additions to our executive leadership team, including Ryan Vero, our Chief Executive Officer who joined us in July 2019 and Michael Schwindle, our Executive Vice President, Chief Financial Officer who joined us in March 2020. The continued integration of these executives and other new members of our executive team will be critical to our success.

In addition, any potential inability to attract and retain key personnel, or delays in hiring, including due to the COVID-19 pandemic or labor shortages, may seriously harm our business, financial condition and results of operations. We cannot be sure that we will be able to attract and retain a sufficient number of executives and key personnel in future periods. Competition is intense for qualified personnel in the retail industry and the loss of any executives or other key personnel or an inability to attract, hire, retain and motivate additional key personnel required for the operation and expansion of our business could hinder our ability to develop and sell our products.

The loss of any member of our executive team could significantly delay or prevent us from achieving our business and/or growth objectives, and could materially harm our business.

If we are unable to renew or replace our distribution center and store leases, or enter into leases for new distribution centers or stores on favorable terms, or if our current leases are terminated prior to the expiration of their stated term and we cannot find suitable alternate locations, our growth and profitability could be adversely affected.

Our three distribution centers and all of our stores are leased. Our ability to renew expired leases or, if such leases cannot be renewed, to lease suitable alternate locations, and to enter into leases for new distribution centers or stores on favorable terms or at all depends on many factors, many of which are not within our control, including conditions in the local real estate market, competition for desirable properties, our relationships with current and prospective landlords, and the ability to negotiate acceptable lease terms that meet our financial targets and other business needs. If we are unable to renew existing leases (for example, due to a shopping mall closure or due to a landlord choosing to lease its property to other tenants that want to enter into longer leases or rent larger spaces) or lease suitable alternate locations or enter into leases for new distribution centers or stores on favorable terms or at all, our growth and profitability could be materially adversely affected. In addition, from time to time, particularly in response to the ongoing COVID-19 pandemic, we may seek to renegotiate existing lease terms or relocate our stores, or close some of our stores, which in most cases requires a modification of an existing lease. Failure to secure favorable, modified lease terms in such situations could have a material adverse effect on our results of operations.

Additionally, the broader economic environment may at times make it difficult to ascertain the fair market value of retail real estate. For example, the COVID-19 pandemic has created uncertainty in the market value of some retail real estate. This type of uncertainty may result in us exercising lease

 

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options at previously negotiated rents, renewing expiring leases or entering into new leases, in each case at above-market rental rates, which could have an adverse effect on our results of operations.

Fluctuations in foreign currency exchange rates could negatively impact our results of operations.

Although substantially all of our foreign purchases of merchandise are negotiated and paid for in U.S. dollars, our sourcing operations may be adversely affected by significant fluctuation in the value of the U.S. dollar against foreign currencies. We are also exposed to the gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our consolidated financial statements due to the translation of results of operations and financial position of our foreign subsidiaries. We purchased approximately 60% of our merchandise from China in fiscal 2021. During fiscal 2021, the Chinese yuan strengthened against the United States dollar. An increase in the Chinese yuan against the dollar means that we will have to pay more in United States dollars for our purchases from China. If we are unable to negotiate commensurate price decreases from our Chinese suppliers, these higher prices would eventually translate into higher costs of sales, which could have a material adverse effect on our results of operations.

In addition, our European businesses operate utilizing several different European currencies, the most common of which is the euro. All sales and operating costs within our Europe segment are denominated in the local currency. During fiscal 2021, over a quarter of our consolidated revenues were derived from our Europe segment. As a result, changes in exchange rates between the U.S. dollar and other European currencies (and in particular, the euro) may negatively affect our revenues and other operating results as expressed in U.S. dollars in the future.

Macroeconomic conditions may adversely impact levels of consumer spending, which could adversely impact our business, financial condition, results of operations and cash flows.

Consumer purchases of discretionary items, including our merchandise and services, generally decline during recessionary periods and other periods where disposable income is negatively affected. Some of the factors impacting discretionary consumer spending include general economic conditions, wages and employment, inflation, consumer debt, the availability of consumer credit, currency exchange rates, taxation, fuel and energy prices, interest rates, consumer confidence and other macroeconomic factors. Any future economic downturn could adversely impact our results of operations and continued growth. Economic conditions have in the past created pressure on us and similar retailers to increase promotions and discounts, which can have a negative impact on our business, financial condition, results of operations and cash flows. Additionally, demographic trends such as birth rate fluctuations could have a material impact on results of operations.

Litigation matters and regulatory enforcement actions relating to our business could be adversely determined against us or otherwise distract management from our business activities and result in significant liability or damage to our brands.

We are involved from time to time in litigation and regulatory enforcement actions relating to our business, which may include class actions involving consumers or employees, claims relating to employees, commercial disputes, advertising practices, landlord-tenant disputes, intellectual property, claims arising from our piercing services, allegations arising from product safety, product liability and personal injury claims and regulatory enforcement actions (such as inspections of our stores for compliance with health, safety and consumer protection laws). Actions and claims can raise complex factual and legal issues that are subject to risks and uncertainties, could require significant management time or harm our reputation, and could cause the Company to incur significant legal fees.

 

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Depending on the actual outcome of pending litigation or regulatory enforcement actions, fees, settlements, damage awards and other charges could be recorded in the future, and/or we may be enjoined from carrying out our business in certain ways. Any of the foregoing could have a material adverse effect on our results of operations and our reputation.

Natural disasters or unusually adverse weather conditions, public health crises, political crises and other catastrophic events or other events outside of our control could adversely affect our net sales or supply of inventory.

Natural disasters, such as hurricanes, earthquakes, tsunamis, power shortages or outages, or floods; public health crises, such as pandemics and epidemics (including the ongoing COVID-19 pandemic); social unrest; political crises, such as terrorism, war, political instability or other conflict; industrial accidents, such as structural integrity failure or fire; or other events outside of our control, could damage or destroy our stores or our products at our concessions locations, make it difficult for our employees or customers to travel to these sites, result in delays or disruptions in the production and/or delivery of merchandise to our distribution centers or our sales locations or in the fulfillment of e-commerce orders to our consumers, or require us to incur substantial additional costs, including in air freight, to ensure timely delivery. Disasters occurring at our stores, concessions locations, distribution centers or our manufacturers’ facilities also could impact our reputation and our consumers’ perception of our brands. Moreover, these types of events could negatively impact consumer spending in the impacted regions or, depending upon the severity, globally, which could adversely impact our operating results. In addition, our operations depend on our ability to maintain and protect the computer systems we use to manage our business, including systems related to purchase orders, demand planning, web applications, accounting functions, and other critical aspects of our business. Our systems are vulnerable to damage from natural disasters, power loss, telecommunications failures, terrorist and cyber-attacks and similar events. Our disaster recovery planning may not be sufficient to respond adequately to any such events. Moreover, for locations where we believe the impact of a loss event in any given location would not be significant, we have chosen to self-insure. As a result, our stores in North America are generally self-insured, whereas corporate and distribution locations are insured, as are most of our stores in Europe. There can be no assurance that we have adequate insurance to cover losses at any of our stores or our distribution centers.

Our business depends on the willingness of vendors and service providers to supply us with goods and services pursuant to customary credit arrangements that may not be available to us in the future.

We purchase goods and services from vendors pursuant to credit arrangements customary for the industry. If we are unable to maintain or obtain trade credit from vendors and service providers on terms favorable to us, or at all, or if vendors and service providers are unable to obtain trade credit or factor their receivables, then we may not be able to rely upon our vendors for expedient services, which may negatively impact our ability to execute our business plan, develop or enhance our products or services, take advantage of business opportunities or respond to competitive pressures, any of which could result in a material adverse effect on our business, financial position and results of operations.

Some of our European workforce is covered by collective bargaining agreements, national collective agreements and/or works councils, and our business could be harmed in the event of a prolonged work stoppage.

Approximately 45% of our employees in Europe are covered by collective bargaining agreements, national collective agreements and/or works councils. If we encounter difficulties with renegotiations or renewals of collective bargaining arrangements and/or national collective agreements or are unsuccessful in those efforts, we could incur additional costs and experience work stoppages. We

 

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cannot predict how stable our union relationships will be or whether we will be able to successfully negotiate successor collective bargaining agreements without impacting our financial condition. In addition, the presence of unions may limit our flexibility in dealing with our workforce. Work stoppages could negatively impact our ability to distribute and sell our products on a timely basis, which could have a material adverse effect on our business, financial condition and results of operations.

We have a history of net losses, and we may continue to experience net losses in the future.

We experienced net losses of $67.0 million in fiscal year 2020, primarily due to the impact of COVID-19 and the loss on derivative liability related to the Series A Preferred Units, and $198.2 million in fiscal year 2019, primarily due to a loss on early debt extinguishment attributed to the payment of a make whole premium feature in connection with the repayment of our Refinanced Term Loan (as defined below), the write-off of unamortized debt financing costs and transaction expenses in connection with the Debt Exchange and the loss on derivative liability related to the Series A Preferred Units. At January 29, 2022, January 30, 2021 and February 1, 2020, our accumulated deficit was $700.5 million, $509.6 million and $273.4 million, respectively. While we generated net income of $8.2 million in fiscal year 2021, there is a risk that we will experience net losses in the future and not generate net income. In addition, our ability to achieve and maintain profitability is subject to a number of the risks and uncertainties discussed in “—Risks related to our business and industry,” many of which are beyond our control.

Goodwill impairments could have a material adverse impact on our results of operations.

Goodwill and indefinite-lived intangible assets are subject to impairment assessments at least annually (or more frequently when events or circumstances indicate that an impairment may have occurred) by applying a fair-value test. Our principal intangible assets, other than goodwill, are trademarks, franchise and concession agreements, and leases that existed at date of acquisition with terms that were favorable to market at that date. Significant negative industry or general economic trends, changes in customer demand for our product, disruptions to our business, and unexpected significant changes or planned changes in our operating results or use of long-lived assets may result in impairments to goodwill, intangible assets, and other long-lived assets. We may be required to recognize additional impairment charges in the future, which could result in material non-cash write downs of goodwill or indefinite-lived intangible assets. Additional impairment losses could have a material adverse impact on our results of operations and stockholder’s deficit.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-ownership change net operating losses (“NOLs”) and other tax attributes, including interest expense carryforwards, to offset future taxable income. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. Similar rules may apply under state tax laws. Our existing NOLs and other tax attributes may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change in connection with this offering, or there is a future change in our stock ownership (which may be outside of our control) that results in an ownership change, our ability to utilize NOLs and other tax attributes could be further limited by Section 382 of the Code. U.S. federal NOLs generated in taxable years beginning on or before December 31, 2017, or pre-2017 NOLs, are subject to expiration while U.S. federal and certain state NOLs generated in taxable years beginning after

 

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December 31, 2017, or post- 2017 NOLs, are not subject to expiration. Additionally, for taxable years beginning after December 31, 2020, the deductibility of federal post-2017 NOLs is limited to 80% of our taxable income in such year, where taxable income is determined without regard to the NOL for such post-2017 NOLs. For these and other reasons, we may not be able to realize a tax benefit from the use of our NOLs and other tax attributes.

We may be subject to additional tax liabilities in connection with our operations or due to future legislation, each of which could materially impact our financial position and results of operations.

We are subject to federal and state income, sales, use, value added and other taxes in the United States and other countries in which we conduct business, and such laws and rates vary by jurisdiction. We do not collect sales and use, value added and similar taxes in all jurisdictions in which we have sales, based on our belief that such taxes are not applicable. Certain jurisdictions in which we do not collect sales, use, value added or other taxes on our sales may assert that such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to collect such taxes in the future. There is also uncertainty over sales tax liability as a result of the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc., which held that states could impose sales tax collection obligations on out-of-state sellers even if those sellers lack any physical presence within the states imposing the sales taxes. Under Wayfair, a person requires only a “substantial nexus” with the taxing state before the state may subject the person to sales tax collection obligations therein. An increasing number of states (both before and after Wayfair was decided) have considered or adopted laws that attempt to impose sales tax collection obligations on out-of-state sellers. The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment and enforcement of these laws, and it is possible that states may seek to tax out-of-state sellers on sales that occurred in prior tax years. Similarly, non-U.S. jurisdictions have imposed or proposed digital services taxes, including in connection with the Organisation for Economic Co-Operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Project. These taxes, whether imposed unilaterally by non-U.S. jurisdictions or in response to multilateral measures (e.g., the BEPS Project), could result in taxation of companies that have customers in a particular jurisdiction but do not operate there through a permanent establishment. Changes to tax law or administration such as these, whether at the state level or the international level, could increase our tax administrative costs and tax risk, and negatively affect our overall business, results of operations, financial condition and cash flows.

Although we believe our tax practices and provisions are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical tax practices, provisions and accruals. If we receive an adverse ruling as a result of an audit, or we unilaterally determine that we have misinterpreted provisions of the tax regulations to which we are subject, there could be a material effect on our tax provision, net income or cash flows in the period or periods for which that determination is made, which could materially impact our financial results. In addition, liabilities associated with taxes are often subject to an extended or indefinite statute of limitations period. Therefore, we may be subject to additional tax liability (including penalties and interest) for a particular year for extended periods of time. Further, any changes in the taxation of our activities, may increase our effective tax rate and adversely affect our financial position and results of operations. For example, on April 7, 2021, the Biden administration proposed changes to the U.S. tax system. Since that date, both houses of Congress have released their own proposals for changes to the U.S. tax system, which differ in a number of respects from the President’s proposal. The proposals under discussion have included changes to the U.S. corporate tax system that would increase U.S. corporate tax rates and changes that would raise the tax rate on and make other tax changes to certain income earned by foreign subsidiaries. We are unable to predict which, if any, U.S. tax reform proposals will be enacted into law, and what effects any enacted legislation might have on our liability for U.S. corporate

 

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tax. However, it is possible that the enactment of changes in the U.S. corporate tax system could have a material adverse effect on our liability for U.S. corporate tax and our consolidated effective tax rate.

Failure to maintain our franchising relationships may adversely affect our business, financial condition and results of operations.

Outside of North America and Europe, we currently have franchising and licensing agreements with unaffiliated third parties who are familiar with the local retail environment and have sufficient retail experience to operate stores in accordance with our business model. Our largest franchisee, Alshaya Trading Co. W.L.L., operates our Claire’s® stores in Bahrain, Egypt, Jordan, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Our franchise arrangements involve certain risks, including the following: franchisees may have economic, business or legal interests or goals that are inconsistent with ours, or they may be unable to meet their economic or other obligations and we may be required to fulfill those obligations alone. We do not control the actions of our franchisees, including any noncompliance with regulations, nonperformance, default or bankruptcy. We may be subject to increased costs and use of resources to manage any issues that arise out of our franchise relationships or arrangements. In addition, the termination of an arrangement with a franchisee or a lack of expansion by certain franchisees could result in the delay or discontinuation of the development of franchised stores, or an interruption in the operation of our brand in a particular market or markets. We may not be able to find another operator to resume development activities in such market or markets. For example, our former franchisee in Japan chose not to extend its agreement with us upon its expiration in October 2020, and we have not yet replaced the franchisee there. Failure to maintain our franchising relationships may adversely affect our business, financial condition and results of operations.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

Our Term Loan Credit Agreement dated as of December 18, 2019 (the “Term Loan Credit Agreement”), which governs our $502.4 million aggregate principal amount of Term Loan maturing on December 18, 2026, and our $75.0 million asset-based revolving credit facility dated as of January 24, 2019 (the “ABL Credit Agreement,” together with the Term Loan Credit Agreement, the “Credit Facilities”) contain various covenants that limit our subsidiaries’ ability to engage in specified types of transactions. The covenants under the Credit Facilities limit our subsidiaries’ ability to, among other things:

 

   

incur additional indebtedness;

 

   

create or incur certain liens;

 

   

make certain investments;

 

   

subject to certain exceptions, declare or pay any dividend or make any payment or distribution on account of our subsidiaries’ equity interests, including any dividend or distribution to Claire’s Holdings LLC to permit it to pay dividends or make other payments;

 

   

create restrictions on the payment of dividends or other distributions to us from our subsidiaries; and

 

   

transfer or sell assets.

These covenants restrict and limit our ability to operate our business. A breach of any of these covenants could result in a default under our Credit Facilities. Upon the occurrence of an event of default, the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. Such actions could, in turn, cause cross

 

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defaults under our other indebtedness. In addition, our assets and cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments, or we may not be able to refinance or restructure the payments we are required to make under our debt arrangements. Even if we were able to secure additional financing, it may not be available on favorable terms. Any of the foregoing events would have a material adverse effect on our financial condition.

The phase-out, replacement or unavailability of LIBOR and/or other interest rate benchmarks could adversely affect our ability to service our indebtedness.

The interest rates applicable to the Credit Facilities are based on, and the interest rates applicable to certain debt obligations we may incur in the future may be based on, a fluctuating rate of interest determined by reference to the London Interbank Offered Rate (“LIBOR”). On November 30, 2020, the ICE Benchmark Administration (“IBA”), the administrator of LIBOR announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for only the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. In light of this announcement, the future of LIBOR at this time is uncertain and any changes in the methods by which LIBOR is determined or regulatory activity related to LIBOR’s phase-out could cause LIBOR to perform differently than in the past or cease to exist.

In response to concerns regarding the future of LIBOR, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (the “ARRC”) to identify alternatives to LIBOR. The ARRC has recommended a benchmark replacement waterfall to assist issuers in continued capital market entry while safeguarding against LIBOR’s discontinuation. The initial steps in the ARRC’s recommended provision reference variations of the Secured Overnight Financing Rate (“SOFR”), calculated using short-term repurchase agreements backed by Treasury securities. At this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR replacement. In anticipation of LIBOR’s phase-out, the Credit Facilities provide for alternative base rates, as well as a transition mechanism for selecting a benchmark replacement rate for LIBOR, with such benchmark replacement rate to be mutually agreed with the administrative agent.

Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs. This could adversely affect our results of operations, cash flow and liquidity. There can be no assurance that we will be able to reach any agreement on a replacement benchmark, and there can be no assurance that any agreement we reach will result in effective interest rates at least as favorable to us as our current effective interest rates. The failure to reach an agreement on a replacement benchmark, or the failure to reach an agreement that results in an effective interest rate at least as favorable to us as our current effective interest rates, could result in a significant increase in our debt service obligations, which could adversely affect our financial condition and results of operations. In addition, the overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR, which could have an adverse impact on our ability to refinance, reprice or amend the Credit Facilities, or incur additional indebtedness, on favorable terms, or at all.

Risks related to information technology, data security and intellectual property

If our or our third-party providers’ information technology systems are interrupted for a significant period of time or fail to perform as designed, our business could be adversely affected.

The efficiency of our operations is dependent on information technology systems. Information technology systems manage our financial and operational data, maintain our in-stock positions and transact the sale of our products in our stores and online. The failure of our or our third-party providers’

 

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information technology systems to perform as designed, loss of data, or any interruption or breach of our or our third-party providers’ systems could disrupt our business. Our third-party information technology systems may not remain available on terms acceptable to us and may require replacement, which could result in substantial operational expense, diversion of our resources and reduced efficiency, any of which could result in a material adverse effect on our business, financial condition or results of operations. Further, our or our third-party providers’ information technology systems are potentially vulnerable to breakdown or other interruption or damage from system malfunctions, natural disasters, terrorism, war and telecommunication and electrical failures. Such failures could have a material adverse effect on our business, financial condition and results of operations.

In particular, we may be vulnerable to targeted or random security breaches, ransomware, phishing attacks, denial of service attacks, acts of vandalism, computer viruses, other malware, misplaced or lost data, programming and/or human errors or similar events. Our systems and facilities are also subject to compromise from internal threats, such as theft, misuse, unauthorized access or other improper actions by employees, third-party service providers and other third parties with otherwise legitimate access to our systems, website or facilities that result in the unauthorized release of personal or confidential information. The methods of cyber-attack and deception change frequently, are increasingly complex and sophisticated, have increased in number, may be difficult to detect for long periods of time and can originate from a wide variety of sources, including criminals, nation-state actors, hacktivists, industrial espionage and insider threats. Actual or anticipated attacks may expose us to risks, including risks to our ability to provide our products and services and management distraction, and cause us to incur increasing costs, including costs to hire additional personnel, purchase additional insurance and protection technologies, train employees and engage third-party experts and consultants. Our efforts to ensure the integrity of our systems and website may not be sufficient to anticipate, detect, appropriately react and respond to, or implement effective preventative measures against, all cybersecurity incidents, particularly against unknown or unanticipated methods of intrusion. Additionally, as a result of our associates and third-party service providers trending towards working remotely, potentially on connections that may be less secure, there is an increased risk that we may experience cybersecurity-related incidents. As cybersecurity incidents continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. In addition, our remediation efforts may not be successful or may not be completed in a timely manner. Any of the foregoing events could have a material adverse effect on our business, financial condition and results of operations.

Also, we are in the process of implementing modifications and upgrades to our information technology systems, and we continue to evaluate additional modifications and upgrades that may be needed. For example, certain of our information technology systems, particularly in Europe, limit our ability to track store and concessions openings and SKUs and require key skills that only a limited number of our information technology professionals possess, and therefore our information technology systems may not be sufficient for our business needs and we may need to upgrade the capacity of such systems and/or hire additional information technology professionals. Modifications and upgrades involve replacing legacy systems with successor systems or making changes to the legacy systems. There are inherent risks associated with replacing and changing these core information technology systems, including failure to accurately capture data and loss resulting from disruptions of normal operating processes and procedures that may occur during the implementation of new information technology systems. In addition, from time to time, we may supplement (and have supplemented in the past) our existing information technology systems with certain manual processes, in particular in anticipation of future system capabilities. Over time, these manual processes may be less scalable and cost-effective and we generally anticipate to replace them with future system capabilities. There can be no assurances that we will successfully launch new systems as planned or on the desired timelines, that launches will occur without disruptions to our operations, that the costs of investments in our

 

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information technology systems will not exceed estimates, that we will successfully train personnel to manage our systems or perform necessary interim processes, that our information technology systems will be as beneficial as predicted, or that we will always be able to replace interim manual processes with future system capabilities. Information technology system disruptions, if not anticipated and appropriately mitigated, or our inability to perform necessary interim manual processes or replace them with future system capabilities, could have a material adverse effect on our business, financial condition and results of operations. Such negative impacts may be exacerbated if any information technology disruptions are to our legacy systems, which may take longer to recover compared to our new information technology systems.

If we or our third-party providers experience any compromise or breach of our or our third-party service providers’ data security or information technology systems, including the security of customer, associate, third-party or company information, as we have in the past, we may be subject to penalties and liability and experience negative publicity, which could affect our customer relationships and have a material adverse effect on our business.

We collect, use, transmit, analyze, manage and otherwise process a large volume of personal data and other confidential, personal, proprietary and sensitive information. We and our customers could suffer harm if customer information or any other personal data we process or that is processed on our behalf by our third-party providers were accessed by unauthorized parties due to a security breach or failure in our or our third-party providers’ systems. For example, in a cybersecurity incident we experienced in June 2020, hackers skimmed consumer payment card information that was entered during online purchases on our website, resulting in a fine issued by a payment card brand, regulatory investigations, and individual and class action lawsuits. Third parties may attempt to circumvent our and our third party providers’ security measures in order to misappropriate personal and other information. In addition, hardware, software, or applications we develop or procure from third parties may contain defects in design or manufacture or other problems, such as implanted malware, that could compromise information security. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other forms of deceiving our employees and vendors such as through phishing attacks. In addition to our own systems, networks and databases, we use third-party service providers to store, transmit and otherwise process personal data and other sensitive and confidential information on our behalf. Due to applicable laws and regulations or contractual obligations, we may be held responsible for data security breaches attributed to our service providers that relate to the information we share with such providers or to which they are granted access.

The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, and as a result we may be unable to anticipate these techniques or implement adequate preventive measures. Any significant compromise or breach of our or our third party service providers’ information technology systems and data security, media reports about such an incident, whether accurate or not, or our failure to make adequate or timely disclosures to the public or law enforcement agencies following any such event, whether due to delayed discovery or a failure to follow existing protocols, could cause any of the following: interruptions to our operations, fines or penalties, enforcement actions or investigations (for example, by agencies such as the UK Information Commissioner’s Office (the “ICO”), which enforces data privacy rights under the General Data Protection Regulation (“GDPR”) and continues to investigate the above-noted cybersecurity incident we experienced in June 2020), distraction to our management, disclosure of personal, confidential, proprietary or sensitive customer, associate, third-party or Company information in violation of applicable privacy and other laws, a loss of confidence in our security measures, loss of customers, significant damage to our reputation with our customers, associates, investors and other third parties, and result in significant legal, regulatory and financial liabilities and lost revenues. Current and future investigations, lawsuits or adverse publicity relating to our methods of processing personal data could result in fines, penalties or other

 

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payment obligations imposed on us by regulatory agencies, including the ICO, which could materially and adversely affect our business, financial condition and results of operations.

There have recently been a number of high profile security incidents, including ransomware attacks and related theft of personal information of individuals, among other incidents, that have caused significant impacts on the operations of other businesses. These breaches have in some cases also resulted in lawsuits and governmental enforcement actions that have sought or obtained significant fines, penalties, and damages, and have also resulted in companies entering into agreements with government regulators that impose ongoing obligations and requirements, including internal and external (third party) monitorships for many years. Also, although we currently maintain cybersecurity insurance, such insurance may not be sufficient in type or amount to cover us against claims related to breaches, failures or other data security-related incidents, and we cannot be certain that such insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition and operations.

We may be unable to obtain, maintain, protect or enforce our trademarks and other intellectual property rights.

Our trademarks and other intellectual property rights are important to our success and our competitive position due to their name recognition and goodwill with our customers. While we have registrations of our Claire’s® and Icing® trademarks in the United States, the European Union, the United Kingdom and other countries, we have not registered these trademarks in all categories, nor in all countries in which we currently, or may in the future, source or offer our products, and we may be unable to register or otherwise protect new intellectual property rights we develop in the future. There can be no assurance that the actions we have taken to establish and protect our trademarks and other intellectual property will be adequate to prevent the imitation of our products or brands by others or other third party infringement, misappropriation or other violation of our intellectual property rights, or to prevent others from seeking to block the sale of our products or the operation of our stores as a violation of the trademarks and other intellectual property rights of others. Also, if we expand into new international markets, there is a risk that our trademarks and other intellectual property rights may conflict with the registered trademarks or other intellectual property rights of other companies, which may require us to rebrand our product and service offerings, obtain costly licenses, defend against third-party claims, substantially change our product or service offerings or curtail our plans for international expansion. Some of our or our vendors’ product designs and marketing materials may be deemed unprotectable under applicable copyright and similar laws, allowing third parties to freely copy them and thus negatively impact our results of operations. Any of our intellectual property rights, including our trademark registrations, may lapse or be abandoned, challenged, circumvented, declared generic or otherwise invalidated or canceled through governmental or administrative process or litigation. We may also allow certain of our registered intellectual property rights, or our pending applications for intellectual property rights, to lapse or become abandoned, or we may not seek to enforce our intellectual property rights, including if we determine that obtaining, maintaining, protecting or enforcing the applicable registered intellectual property rights is not cost effective.

In addition, unilateral actions in countries in which we operate, including changes to or the repeal of laws recognizing trademarks or other intellectual property rights, could have an impact on our ability to obtain, maintain and enforce our trademarks and other intellectual property rights. Furthermore, the laws of some countries may not protect trademark and other intellectual property rights to the same extent as the laws of the United States, and it may be more difficult for us to successfully obtain, maintain, protect and enforce our trademarks and other intellectual property rights in these countries.

 

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Our ability to protect our trademarks and other intellectual property may be adversely affected by the COVID-19 pandemic. As a result of the pandemic, certain intellectual property offices have amended their filing requirements and other procedures, including, but not limited to, extending deadlines and waiving fees. These accommodations have not been applied uniformly across all intellectual property offices globally, and the effectiveness and duration of existing action is unclear. Further, the ongoing COVID-19 pandemic has created uncertainty with respect to the uninterrupted operation of intellectual property offices, which, among other things, may cause delayed processing of renewal and application filings. Our inability to establish, maintain and/or enforce current and future trademarks or other intellectual property rights may have an adverse effect on the growth and reputation of our business. Further, the constantly evolving nature of the COVID-19 pandemic may affect our brand and intellectual property rights over time in ways that cannot be reasonably anticipated or mitigated. This could have an adverse effect on our business, financial conditions and results of operations.

We may be required to spend significant resources to monitor and protect our trademarks and other intellectual property rights. In some cases, litigation may be necessary to protect or enforce our trademarks and other intellectual property rights. Such litigation could be costly, unpredictable, time-consuming and distracting to management, regardless of whether we are successful. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits challenging our intellectual property rights and if such defenses, counterclaims or countersuits are successful, we may lose valuable intellectual property rights. In some cases, we may choose not to protect or enforce our rights when we compare the uncertainty, risks and costs of litigation with the costs and risks associated with the infringement. In addition, third parties may bring opposition, cancellation or similar adversarial proceedings against our trademarks and if such third parties are successful, we may lose our trademark rights.

In addition, the value of our intellectual property could diminish if others assert rights in, or ownership of, our trademarks and other intellectual property rights, or trademarks that are similar to our trademarks. We may be unable to successfully resolve these types of conflicts to our satisfaction. In some cases, there may be third party trademark owners who have prior rights to our trademarks or third parties who have prior rights to similar trademarks, and we may not be able to prevent such third parties from using and marketing any such trademarks. Such third party use of similar trademarks or other intellectual property can dilute or harm our brand, and could thus negatively impact our business and results of operations.

We are, and may in the future be, subject to legal claims alleging that we, our vendors, our franchisees or licensees or the manufacturers of our merchandise infringe, misappropriate or otherwise violate the intellectual property rights of third parties.

Our commercial success depends on our ability to commercialize our merchandise and conduct our business without infringing, misappropriating or otherwise violating any intellectual property owned by third parties. We may be subject to liability if we, or our merchandise, our vendors, our franchisees or licensees, or the manufacturers of our merchandise infringe, misappropriate or otherwise violate the trademarks or other intellectual property rights of third parties. We generally rely on vendor or licensor representations of intellectual property ownership without independently verifying that the vendor, or the manufacturers with whom the vendor does business or licensors legally hold intellectual property rights to the merchandise we purchase or intellectual property we license. Third parties may bring legal claims, or threaten to bring legal claims, that their intellectual property rights are being infringed, misappropriated or violated by us or our vendors or licensors.

We have encountered, and may in the future encounter, claims from third parties that the sale of certain of our products or the conduct of our business infringes, misappropriates or violates certain

 

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intellectual property rights held by such third party. Such actual or threatened claims (whether or not valid) could adversely impact our brand reputation and result in direct and indirect costs, all of which may have an adverse impact on our operations and financial performance. Even if we believe such third party claims are without merit, a court may hold that we or our vendors have infringed, misappropriated or violated such intellectual property rights or we may settle claims to avoid the cost and uncertainty of litigation. If we were to be found liable for any such infringement, misappropriation or other violation, we could be required to pay substantial monetary damages or royalties and enter into costly license agreements (if available at all), and we could be subject to injunctions preventing further infringement. We may also be required to remove or rebrand any merchandise from our inventory that is the subject of such infringement, misappropriation or other violation, incur costs associated with this removal or rebranding if the vendor is unwilling or unable to reimburse us and purchase new merchandise or merchandise components to replace any we remove or rebrand. Any payments we are required to make and any injunctions with which we are required to comply as a result of infringement claims could be costly. Any of the foregoing could have a material adverse effect on our business, financial condition and operations.

Even if intellectual property claims brought by or against us are settled or resolved in our favor, litigation or other legal, governmental or administrative proceedings relating to intellectual property claims, or the mere threat thereof, may cause us to incur significant expenses and distract our personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential or proprietary information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or other proceedings could substantially increase our operating losses and reduce the resources available for sales, marketing or distribution activities. Any of the foregoing could have a material adverse effect on our business, financial condition and operations.

If our franchisees, vendors and other licensees do not observe our required quality and trademark usage standards, the strength of our brands may be weakened, our trademarks may become invalidated and we may suffer reputational damage.

We license our brands and other intellectual property to our affiliates, franchisees, vendors, advertisers and other third parties and generally require our licensees to adhere to our quality control guidelines and other requirements in order to protect our brands and other intellectual property. However, there can be no assurance that our licensees will use our brands and other intellectual property in accordance with our quality control guidelines and will not take actions that hurt the value or validity of our brands or other intellectual property. Noncompliance by our licensee entities with the terms and conditions of our agreements that pertain to health and safety standards, quality control, product consistency, use of our brands or other intellectual property or proper marketing or other business practices, may adversely impact the goodwill of our brands. For example, our licensees may refer to our brands improperly in communications, resulting in the weakening of the distinctiveness of our brands. Our failure to adequately control the quality of goods and services provided under our brands could cause our trademarks to cease functioning as an indicator of a single source, resulting in invalidity or abandonment of such trademarks. Licensees or third parties may refer to or make statements about our brands that do not make proper use of our trademarks or required designations, that improperly alter our branding, or that are critical of our brands or place our brands in a context that may tarnish their reputation. This may result in impairment, dilution or tarnishment of our brands. Franchisees and other licensees may produce or receive through the supply chain defective products, which may adversely impact our goodwill and our brands. Franchisees or other licensees may also

 

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seek to register or obtain registration for domain names and trademarks involving localizations, variations and versions of certain branding tools, and these activities may limit our ability to obtain or use such rights in such territories.

We may not be able to adequately prevent such practices by our licensees, which could harm the value of our brands, result in the abandonment, tarnishment, dilution or invalidity of our trademarks, and materially adversely affect the results of our operations. There can be no assurance that we will have an adequate remedy available, or that we will be successful, in the event that we take actions to prevent such conduct by licensees. In addition, even if our licensees observe and maintain the quality and integrity of our brands and other intellectual property assets in accordance with the relevant license and other agreements, our suppliers or products manufactured by our suppliers may be subject to regulatory sanctions and other actions by third parties which can, in turn, negatively impact the perceived quality of our products or services and our overall goodwill, regardless of the merits of the sanctions or other actions. Any such sanctions or actions could thereby materially reduce our revenues and the results of our operations.

Risks related to laws, regulations and industry standards

Our business, including our marketing programs, e-commerce initiatives, and use of consumer information, is governed by an evolving set of laws and enforcement trends relating to data privacy or security, and any actual or perceived failure by us to comply with any such existing or future laws or with other obligations relating to data privacy and security could substantially harm our business and results of operations.

We collect, maintain, use, and share personal data, including consumer data, provided to us in the course of our business, including through online activities and other consumer interactions. These activities are subject to evolving laws and enforcement trends, as well as the terms of our privacy policies and certain contractual restrictions in third-party contracts.

For example, one of the ways we track consumer data and interactions for marketing purposes is through the use of third-party “cookies.” The U.S. and European governmental authorities have enacted, have considered, or are considering legislation or regulations that could significantly restrict the ability of companies and individuals to engage in these activities. Additionally, some providers of consumer devices and web browsers have implemented, or announced plans to implement, means to make it easier for internet users to prevent the placement of cookies or to block other tracking technologies. The regulation of the use of cookies and other current online tracking and advertising practices or a loss in our ability to make effective use of services that employ such technologies could increase our costs of operations and limit our ability to acquire new customers on cost-effective terms and, consequently, materially and adversely affect our business, financial condition and results of operations. We also send short message service (“SMS”) text messages to customers for marketing purposes. The actual or perceived improper sending of text messages may subject us to potential risks, including liabilities or claims relating to consumer protection laws such as the U.S. Telephone Consumer Protection Act of 1991. If we do not comply with these laws or regulations or if we become liable under these laws or regulations, we could face direct liability, could be required to change some portions of our business model, could face negative publicity, and our business, financial condition and results of operations could be adversely affected.

Various legislative and regulatory bodies, including governmental agencies such as the FTC, or self-regulatory organizations, may expand or further enforce current laws or regulations, enact new laws or regulations, or issue revised rules or guidance regarding privacy, data protection, consumer protection, and advertising. In fact, the FTC has become increasingly aggressive in prosecuting alleged failure to secure personal data as unfair and deceptive acts or practices under the Federal Trade

 

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Commission Act and increasing fines against companies found to be in violation of the Children’s Online Privacy Protection Act. We are also subject to a number of state laws, which may differ from each other, which could complicate compliance efforts. For example, the California Consumer Privacy Act (the “CCPA”) gives California residents data protection and privacy rights to access and delete their personal information, opt out of certain sales of personal information, and receive detailed disclosures about what personal information is collected, how their personal information is used, and how that personal information is shared and imposes obligations on companies that process their personal information. The CCPA provides for civil penalties for violations enforced by the California Attorney General, as well as a private right of action for data breaches that result in the loss of personal information. Furthermore, the California Privacy Rights Act (the “CPRA”), effective beginning January 1, 2023, imposes additional data protection obligations, including expanding California residents’ rights with respect to certain sensitive personal information. Other states (such as Virginia and Colorado) have also passed or plan to pass data privacy laws that are similar to the CCPA, CPRA and GDPR (described below), and such laws may have potentially conflicting requirements that would make compliance challenging. We have incurred and may continue to incur costs to adapt our systems and practices to comply with the current legal requirements relating to data privacy such as the CCPA and these costs may adversely affect our financial condition and results of operations. Operators of commercial websites and applications may be subject to the Children’s Online Privacy Protection Act (“COPPA”) if their activities are directed to children under the age of 13 and they collect such children’s personal information. Our websites and applications are not intended for children under the age of 13, and we do not knowingly collect any personal information from individuals under the age of 13; however, a regulator may deem our site and application to be directed to children and find us subject to COPPA. Any failure or perceived failure to comply with COPPA may result in government enforcement actions, litigations, fines and penalties or adverse publicity.

We are also subject to laws, regulations and standards in many international jurisdictions that apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information. For example, the General Data Protection Regulation (“GDPR”) includes obligations and restrictions concerning the consent and rights of individuals to whom the personal data relates, the transfer of personal data out of the European Economic Area or the United Kingdom, security breach notifications and the security and confidentiality of personal data. The GDPR authorizes fines for certain violations of up to 4% of global annual revenue or 20 million, whichever is greater. Such fines are in addition to any civil litigation claims by customers and data subjects. Despite our efforts to bring practices into compliance with the GDPR, we may not be successful either due to internal or external factors such as resource allocation limitations or a lack of vendor cooperation. Non-compliance could result in proceedings against us by governmental entities, customers or others. In addition, local data protection authorities may have different interpretations of the GDPR, leading to potential inconsistencies amongst various European Union member states. The Data Protection Act 2018 is the United Kingdom’s implementation of the GDPR, which will continue to apply in the United Kingdom following its departure from the European Union. Additionally, a recent decision from the Court of Justice of the European Union (“CJEU”) and related regulatory guidance may impact our ability to transfer personal data from the European Economic Area or United Kingdom to the United States and other jurisdictions.

This area is rapidly evolving and increasingly rigorous, with new and changing requirements applicable to our business. It is possible that such laws and contractual obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another from time to time, may be interpreted and applied in a manner that may have a material adverse effect on our business, may conflict with other rules, or may conflict with our practices, so that enforcement practices are likely to remain uncertain for the foreseeable future. Evolving privacy, security, compliance and data protection laws and regulations could impose significant limitations, require changes to our business, or restrict our use or storage of personal information, which may increase our compliance expenses, such as

 

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costs related to organizational changes, implementing additional protection technologies, training employees and engaging consultants, which are likely to make our business costlier or less efficient to conduct over time. Any failure or perceived failure by us to comply with any applicable laws and regulations or contractual obligations relating to data privacy and security could result in damage to our reputation and our relationships with our customers, as well as proceedings or litigation by governmental agencies or customers, including class action privacy litigation in certain jurisdictions, which could subject us to significant fines, sanctions, awards, penalties or judgments, force us to spend significant amounts to remediate any non-compliance or to defend or update our practices, distract our management and increase our costs of doing business, any of which could compromise our ability to develop an adequate marketing strategy and pursue our growth strategy effectively, which, in turn, could adversely affect our business, financial condition and results of operations.

Our cost of doing business could increase as a result of changes in regulations regarding the content and sale of our merchandise and our piercing services.

We are subject to laws that regulate the content and sale of our merchandise. For example, the U.S. Consumer Product Safety Improvement Act of 2008 (“CPSIA”) imposes restrictions and requirements on the sale of children’s products, including importing, testing and labeling requirements. In addition, various U.S. states, from time to time, propose or enact legislation regarding heavy metals or chemicals in products that differ from U.S. federal laws. For example, California’s Proposition 65 requires businesses to provide warnings to Californians about significant exposures to chemicals that are harmful to human health. In each of the European Union and the United Kingdom, the “REACH” legislation and regulations require identification and disclosure of chemicals in consumer products. We are also subject to various other health and safety rules and regulations, such as the U.S. Federal Food Drug and Cosmetic Act and the U.S. Federal Hazardous Substance Act. Chemicals and other substances regulated in the United States and the European Union may be in merchandise that we sell. Over time, these regulations, among others, may require us to substitute certain chemicals contained in our products with substances the regulators consider safer. Compliance with these laws could require us to alter or remove certain merchandise, impacting our sales or cost of sales. Moreover, if we are alleged to be in violation of existing or newly adopted regulatory requirements, we could incur significant defense costs, fines or penalties.

We currently offer nose piercing services at certain of our stores in the United Kingdom, Ireland, France, Germany and Canada, and we expect to expand our nose piercing services as part of our growth strategy. Compliance with laws or regulations relating to nose piercing will require us to alter our training programs and piercing services, which could increase our costs of doing business. Any failure or perceived failure by us to comply with any applicable laws relating to nose piercing (or any newly adopted laws relating to ear or nose piercing) could cause us to incur significant fines or penalties and experience harm to our reputation.

Failure to comply with standards, rules and laws governing electronic payments could subject us to penalties and other adverse consequences.

In connection with credit or debit card transactions, we collect and transmit confidential information by way of secure private retail networks. Payment networks, such as Visa, MasterCard and American Express, establish their own rules and standards that allocate liabilities and responsibilities among the payment networks and their participants. These rules and standards govern a variety of areas, including how customers may use their cards, the security features of cards, security standards for processing, data security and allocation of liability for certain acts or omissions, including liability in the event of a data breach. The payment networks may change these rules and standards from time to time as they may determine in their sole discretion and with or without advance notice to their participants. These changes may impose additional costs and expenses on or be disadvantageous to

 

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certain participants. Participants are subject to audit by the payment networks to ensure compliance with applicable rules and standards. The networks may fine, penalize or suspend the registration of participants for certain acts or omissions or the failure of the participants to comply with applicable rules and standards. For example, a payment network imposed a fine in connection with a cybersecurity incident we experienced in June 2020 in which hackers skimmed consumer payment card information that was entered during online purchases on our website.

As a merchant that accepts credit and debit cards for payment, we are subject to the Payment Card Industry (“PCI”) Data Security Standard (“PCI DSS”), issued by the PCI Council. The PCI DSS contains compliance guidelines and standards with regard to our security surrounding the physical administrative and technical storage, processing and transmission of individual cardholder data. In addition, because we accept debit cards for payment, we are subject to American National Standards Institute data encryption standards and payment network security operating guidelines. Our systems are subject to annual review under the PCI DSS requirements, and we have historically had, may now have, and may have in the future items that require improvement. Failure to be PCI compliant or to meet other payment card standards may result in the imposition of financial penalties, legal action, compensation costs, damaged reputation, revenue loss, or federal audits. Our removal from networks’ lists of PCI DSS-compliant service providers could mean that existing merchants, retail partners, sales partners or other third parties may cease using or referring our services. Also, prospective merchants, retail partners, sales partners or other third parties may choose to terminate negotiations with us, or delay or choose not to consider us for their processing needs. In addition, the card networks could refuse to allow us to process through their networks. Even if we are found to be in compliance with PCI-DSS, there is no assurance that we will be protected from a security breach. Moreover, industry groups may in the future adopt additional self-regulatory standards by which we are legally or contractually bound. Any of the foregoing could materially adversely impact our business, financial condition and operations.

In the future, if we offer new payment options to consumers, such as mobile or other payment methods, we may be subject to additional regulations, compliance requirements and fraud. If we fail to comply with the rules or requirements of any provider of a payment method we accept, we may, among other things, be subject to fines, legal proceedings, or higher transaction fees and may lose, or face restrictions placed upon, our ability to accept credit card payments from consumers or facilitate other types of electronic payments.

Failure to comply with anti-bribery, anti-corruption, economic sanctions, export control, anti-terrorism and anti-money laundering laws could subject us to penalties and other adverse consequences.

We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), the UK Bribery Act 2010, regulations of the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) and other anti-bribery, anti-corruption, economic sanctions, export control, anti-terrorism and anti-money laundering laws in various jurisdictions around the world. The FCPA, the UK Bribery Act 2010 and similar applicable laws generally prohibit companies, as well as their officers, directors, employees and third-party intermediaries, business partners and agents, from making improper payments or providing other improper things of value to government officials or other persons. We, our franchisees and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and other third parties where we may be held liable for corrupt or other illegal activities, even if we do not explicitly authorize them. OFAC regulations generally prohibit U.S. companies from directly or indirectly transacting with certain designated jurisdictions and with certain designated persons or entities subject to sanctions.

There can be no assurance that our employees, business partners, agents, and others acting on our behalf will not violate these regulations, either knowingly or inadvertently. In the event that we

 

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believe or have reason to believe that our directors, officers, employees or third-party intermediaries, agents or business partners have or may have violated such laws, we may be required to investigate or to have outside counsel investigate the relevant facts and circumstances. Detecting, investigating and resolving actual or alleged violations can require a significant diversion of time, resources and attention from senior management. Any violation of the FCPA, the UK Bribery Act 2010, OFAC regulations or other applicable anti-bribery, anti-corruption, economic sanctions, export control, anti-terrorism and anti-money laundering laws, or any allegations of such violations, could result in whistleblower complaints, adverse media coverage, significant legal and investigatory fees, loss of export privileges, harm to our reputation (which in turn could diminish the value of our brand and reduce demand for our merchandise), criminal or civil sanctions, penalties and fines and related shareholder lawsuits, any of which may adversely affect our business, financial condition and results of operations.

Risks related to our common stock and this offering

There is no existing market for our common stock and we do not know if one will develop, which could impede your ability to sell your shares and may depress the market price of our common stock.

There has not been a public market for our common stock prior to this offering. We cannot predict the extent to which investor interest in us will lead to the development of an active trading market on the New York Stock Exchange, or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price for the common stock will be determined by negotiations between us and the underwriters, and may not be indicative of prices that will prevail in the open market following this offering. See “Underwriting (Conflicts of Interest).” The market price of shares of our common stock may decline below the initial public offering price, and you may be unable to sell our common stock at prices equal to or greater than the price you pay in this offering.

The price of our common stock may fluctuate significantly and you could lose all or part of your investment.

The trading price of our common stock is likely to be volatile and subject to wide price fluctuations in response to various factors, including those described above in “—Risks related to our business and industry.” In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines significantly, you may be unable to resell your common stock at or above the initial public offering price, if at all. In addition to the factors described above, some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:

 

   

our operating and financial performance and prospects;

 

   

market conditions in the broader stock market in general, or in our industry in particular;

 

   

introduction of new products and services by us or our competitors;

 

   

changes in earnings estimates or recommendations by securities analysts who track our common stock or industry;

 

   

our inability to meet the financial estimates of analysts who follow our company;

 

   

strategic actions by us or our competitors, such as acquisitions, restructurings, significant contracts, joint marketing relationships, joint ventures or capital commitments;

 

   

sales of large blocks of our common stock;

 

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additions or departures of key personnel;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

the public reactions to our press releases, other public announcements and filings with the SEC;

 

   

any increased indebtedness we may incur in the future;

 

   

regulatory developments;

 

   

actions by institutional stockholders;

 

   

litigation and governmental investigations;

 

   

market and industry perception of our success, or lack thereof, in pursuing our growth strategy;

 

   

the number of shares to be publicly traded after this offering; and

 

   

sales of common stock by us, Elliott Investment Management L.P. (together with its affiliates, “Elliott”) and Monarch Alternative Capital LP (“Monarch”) or members of our management team.

These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. The stock market in general has from time to time experienced extreme price and volume fluctuations, including in recent months. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business.

Future sales or the possibility of future sales of a substantial amount of our common stock may depress the price of shares of our common stock.

We may sell additional shares of common stock in subsequent public offerings or otherwise in connection with a capital raise or acquisition. Upon completion of this offering, we will have                  authorized shares of common stock, of which                  shares will be outstanding upon consummation of this offering (assuming no exercise of the underwriters’ option to purchase additional shares of common stock from us). The outstanding share number includes shares that we are selling in this offering, which will be freely tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), except for any shares that may be held or acquired by our directors, executive officers or other affiliates, as that term is defined in the Securities Act, which will be control securities under the Securities Act. Control securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. See “Shares Eligible for Future Sale.” Certain of the remaining outstanding shares are restricted from immediate resale under the lock-up agreements with the underwriters described in the “Underwriting (Conflicts of Interest)” section of this prospectus, but may be sold into the market in the near future. These shares will become available for sale following the expiration of the lock-up agreements, which, without the prior consent of Goldman Sachs & Co. LLC and Citigroup Global Markets Inc., is 180 days after the date of this prospectus, subject to certain exceptions and extensions. Immediately after the expiration of the lock-up period, the shares will be eligible for resale under Rule 144 of the Securities Act, subject to volume and manner of sale limitations. The market price of shares of our common stock may drop significantly when the restrictions on resale by our existing stockholders lapse. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.

As soon as practicable after the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering                  shares of our common stock

 

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reserved for issuance under our 2018 Plan and our 2022 Plan. Accordingly, shares of our common stock registered under such registration statement may become available for sale in the open market upon grants under the plan, subject to vesting restrictions, Rule 144 limitations applicable to our affiliates and the contractual lock-up provisions described in the “Underwriting (Conflicts of Interest)” section of this prospectus.

We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including any shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.

You will experience an immediate and substantial dilution in the net tangible book value of the common stock you purchase.

After giving effect to this offering, the Corporate Conversion and the other adjustments described elsewhere in this prospectus under “Dilution,” we expect that our pro forma as adjusted net tangible book value as of January 29, 2022 would be $             per share. Based on an assumed initial public offering price of $             per share, the midpoint of the estimated offering range set forth on the cover page of this prospectus, you will experience immediate and substantial dilution of approximately $             per share in net tangible book value of the common stock you purchase in this offering (after giving effect to the     -for-     stock split). That is because the price that you pay will be substantially greater than the pro forma as adjusted net tangible book value per share of common stock that you acquire. This dilution is due in large part to the fact that our earlier investors effectively paid substantially less than the initial public offering price when they purchased their shares of our common stock. See “Dilution,” including the discussion of the effects on dilution from a change in the price of this offering.

Moreover, the terms of the Series A Preferred Units require the payment of a make whole premium to the holders of the Series A Preferred Units upon completion of this offering. The make whole premium is required to be paid in cash only to the extent of the net proceeds of the offering (excluding the net proceeds from any exercise by the underwriters of their option to purchase additional shares of common stock from us), with the remainder of the make whole premium to be paid in common shares. The number of common shares to be issued in this regard will be calculated by dividing the amount of the make whole premium that is not paid in cash by the initial public offering price per common share in this offering. The aggregate amount of the make whole premium for all outstanding Series A Preferred Units is $            . Using the mid-point of the price range indicated on the cover page of this prospectus, assuming that the number of common shares offered remains the same as that set forth on the cover page of this prospectus, we expect that net proceeds of the offering (excluding the net proceeds from any exercise by the underwriters of their option to purchase additional shares of common stock from us) in the amount of $             will be the amount of cash we use to pay part of the make whole premium and that we will issue                  common shares to pay the amount of the make whole premium not paid in cash. See “Corporate Conversion.”

If securities or industry analysts do not publish research or reports about our business, or they publish inaccurate or unfavorable reports about our business, the price of our common stock and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares of common stock or change their opinion of our common stock, our common stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our common stock price or trading volume to decline.

 

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Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. Notwithstanding the foregoing, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act, the Securities Act or any other claim for which the federal courts have exclusive jurisdiction. Our amended and restated certificate of incorporation will also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. However, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce a duty or liability created by the Securities Act or the rules and regulations thereunder; accordingly, we cannot be certain that a court would enforce such provision. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the foregoing forum selection provisions. However, our stockholders will not be deemed to have waived (and cannot waive) compliance with the federal securities laws and the rules and regulations thereunder.

The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations.

Although we ceased to be an “emerging growth company,” we can continue to take advantage of certain reduced disclosure requirements applicable to emerging growth companies in this prospectus, which may make our common stock less attractive to investors.

At the time of the initial confidential submission of the registration statement of which this prospectus forms a part, we qualified as an “emerging growth company” as defined in the JOBS Act. Although we ceased to be an emerging growth company on January 29, 2022 because our annual revenues exceeded $1.07 billion for fiscal year 2021, we are permitted to avail ourselves of the reduced disclosure requirements applicable to emerging growth companies until the completion of this offering. In this prospectus, we take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including the reduced disclosure requirements relating to executive compensation.

We cannot predict if investors will find our common stock less attractive because we intend to rely upon these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.

 

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Affiliates of each of Elliott and Monarch may each continue to have significant influence over us after this offering, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.

After giving effect to the Corporate Conversion, and the completion of this offering, affiliates of each of Elliott and Monarch will control approximately     % and     %, respectively, of the outstanding voting power of our company. As long as each of Elliott and Monarch beneficially own or control at least     % and     %, respectively, of our outstanding voting power, each may individually have the ability to exercise significant influence over all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including the election and removal of directors and the size of our board of directors, any amendment of our certificate of incorporation or bylaws, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. Even if their ownership falls below     % and     %, respectively, each of Elliott and Monarch will continue to be able to influence our decisions.

Additionally, each of Elliott’s and Monarch’s interests may not align with the interests of each other or of our other stockholders. Each of Elliott and Monarch, and other investment funds affiliated with them, are in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us. Each of Elliott and Monarch, and other investment funds affiliated with them, may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

Since we have no current plans to pay regular cash dividends on our shares of common stock following this offering, you may not receive any return on investment unless you sell your shares of common stock for a price greater than that which you paid for it.

We do not anticipate paying any regular cash dividends on our shares of common stock following this offering. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends is, and may be, limited by covenants of existing and any future outstanding indebtedness we or our subsidiaries incur, including under the Credit Facilities. Therefore, any return on investment in our shares of common stock is solely dependent upon the appreciation of the price of our shares of common stock on the open market, which may not occur. Please read “Dividend Policy” for more detail.

We are a holding company with nominal net worth and will depend on dividends and distributions from our subsidiaries to pay any dividends.

Claire’s Holdings LLC is a holding company with nominal net worth. We do not have any material assets or conduct any business operations other than our investments in our subsidiaries. Our business operations are conducted primarily out of our subsidiary, Claire’s Stores, Inc. and its subsidiaries. As a result, in addition to the restrictions on payment of dividends that apply under the terms of our existing indebtedness, our ability to pay dividends, if any, will be dependent upon cash dividends and distributions or other transfers from our subsidiaries, including from Claire’s Stores, Inc. Payments to us by our subsidiaries will be contingent upon their respective earnings and subject to any limitations on the ability of such entities to make payments or other distributions to us.

 

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Risks related to our status as a public company

Failure to establish and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and reputation.

We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Furthermore, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting beginning with our second annual report for fiscal year 2023. Our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed, operated or reviewed.

When evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. Testing and maintaining our internal control over financial reporting may also divert management’s attention from other matters that are important to the operation of our business. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations. Moreover, any material weakness or other deficiencies in our internal control over financial reporting may impede our ability to file timely and accurate reports with the SEC. Any of the above could cause a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively affect our results of operations and cash flows.

The requirements of being a public company may strain our resources and divert management’s attention.

As a public company, we will be subject to the reporting and other compliance requirements of the Exchange Act, the Sarbanes-Oxley Act and stock exchange rules promulgated in response to the Sarbanes-Oxley Act. The requirements of these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. These expenses will likely be even more significant because we will no longer be able to rely on certain reduced reporting requirements and certain significant relief available to emerging growth companies upon the closing of this offering. After the closing of this offering, we will be obligated to file with the SEC annual and quarterly reports and other reports that are specified in the Exchange Act, and therefore will be required to prepare financial statements that are compliant with all SEC reporting requirements on a timely basis. In addition, we will be subject to other reporting and corporate governance requirements, including certain requirements of the New York Stock Exchange and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder, which will impose significant compliance obligations upon us. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard,

 

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significant resources and management oversight may be required, and management’s attention may be diverted from other business concerns. These rules and regulations could also make it more difficult for us to attract and retain qualified independent members of our board of directors. The increased costs of compliance with public company reporting requirements and our potential failure to satisfy these requirements could have a material adverse effect on our operations, business, financial condition and results of operations.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, include, among others, our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are based on our current expectations concerning future events. There are important factors that could cause our actual or preliminary results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors.” You should specifically consider the numerous risks outlined under “Risk Factors.” These risks and uncertainties include factors related to:

 

   

the COVID-19 pandemic;

 

   

our ability to maintain, enhance and protect the value and goodwill of our brands;

 

   

our ability to anticipate, identify and respond to merchandise, marketing and promotional trends or consumer shopping patterns and successfully maintain proper merchandise assortment, and our ability to adequately forecast the demand for our products;

 

   

our ability to recruit, train, motivate and retain suitably qualified store associates, distribution center workers and other employees;

 

   

the failure to grow our store (including store-in-store) and concessions businesses or grow our digital business;

 

   

a decline in the number of people who go to shopping malls, especially those mall locations where we experience high sales volumes;

 

   

our sourcing of a substantial majority of our products through production arrangements in Asia;

 

   

our ability to source our merchandise efficiently and cost effectively if new trade restrictions are imposed, existing trade restrictions become more burdensome or relationships with manufacturers are impaired or terminated;

 

   

negative publicity that is accelerated by social media or emergent forms of communication and our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media;

 

   

the retail market is highly competitive and our ability to effectively compete;

 

   

our ability to deliver our products to market if we encounter problems with distribution;

 

   

our concessions and store-in-store locations are operated under agreements that are subject to revocation or modification;

 

   

recent changes to our executive team;

 

   

our ability to renew or replace our distribution center and store leases, or enter into leases for new distribution centers or stores on favorable terms, or if our current leases are terminated prior to the expiration of their stated term and we cannot find suitable alternate locations;

 

   

fluctuations in foreign currency exchange rates;

 

   

macroeconomic conditions may adversely impact levels of consumer spending;

 

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litigation matters and regulatory enforcement actions relating to our business;

 

   

natural disasters or unusually adverse weather conditions, public health crises, political crises and other catastrophic events or other events outside of our control;

 

   

the willingness of vendors and service providers to supply us with goods and services pursuant to customary credit arrangements that may not be available to us in the future;

 

   

some of our European workforce is covered by collective bargaining agreements, national collective agreements and/or works councils;

 

   

goodwill impairments;

 

   

our ability to use our net operating losses to offset future taxable income;

 

   

additional tax liabilities in connection with our operations or due to future legislation;

 

   

failure to maintain our franchising relationships;

 

   

our debt agreements contain restrictions that limit our flexibility in operating our business;

 

   

if our or our third-party providers’ information technology systems are interrupted for a significant period of time or fail to perform as designed;

 

   

if we or our third-party providers experience any compromise or breach of our or our third-party service providers’ data security or information technology systems, including the security of customer, associate, third-party or company information, as we have in the past;

 

   

we may be unable to obtain, maintain, protect or enforce our trademarks and other intellectual property rights;

 

   

legal claims alleging that we, our vendors, our franchisees or licensees or the manufacturers of our merchandise infringe, misappropriate or otherwise violate the intellectual property rights of third parties;

 

   

if our franchisees, vendors and other licensees do not observe our required quality and trademark usage standards;

 

   

our business, including our marketing programs, e-commerce initiatives and use of consumer information, is governed by an evolving set of laws and enforcement trends relating to data privacy or security, and any actual or perceived failure by us to comply with any such existing or future laws or with other obligations relating to data privacy and security;

 

   

our cost of doing business could increase as a result of changes in regulations regarding the content and sale of our merchandise and our piercing services;

 

   

failure to comply with standards, rules and laws governing electronic payments;

 

   

failure to comply with anti-bribery, anti-corruption, economic sanctions, export control, anti-terrorism and anti-money laundering laws; and

 

   

the other risks described under “Risk Factors.”

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions but before deducting the estimated offering expenses, will be approximately $            , or approximately $             if the underwriters exercise their option to purchase additional shares of common stock from us in full, assuming an initial public offering price at the midpoint of the estimated price range set forth on the cover page of this prospectus. We estimate that the offering expenses (other than the underwriting discounts and commissions) will be approximately $            .

We intend to use the net proceeds from this offering (before any exercise by the underwriters of their option to purchase additional shares of common stock from us) to pay, in part, the Series A Preferred Unit make whole premium to the holders of Series A Preferred Units. See “Corporate Conversion—Series A Preferred Unit Make Whole Premium.” If the underwriters’ option to purchase additional shares of common stock from us is exercised, the net proceeds therefrom are expected to be used for general corporate purposes, including the payment of offering expenses.

We will not receive any proceeds from the sale of shares of common stock offered by the selling stockholders pursuant to the underwriters’ option to purchase additional shares from the selling stockholders.

For further information on the relationship between the amount of net proceeds received by us and the payment of the Series A Preferred Unit make whole premium, see “Corporate Conversion—Pricing Sensitivity Analysis.”

 

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DIVIDEND POLICY

We do not anticipate declaring or paying any cash dividends to holders of our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the growth of our business. The declaration, amount and payment of any dividends will be at the sole discretion of our board of directors and subject to certain considerations, including our results of operations, financial condition, capital requirements, investment opportunities, statutory restrictions on our ability to pay dividends and other factors our board of directors may deem relevant. In addition, our Credit Facilities place certain restrictions on our ability to pay cash dividends. See “Risk Factors—Risks related to our business and industry—Our debt agreements contain restrictions that limit our flexibility in operating our business,” “Risk Factors—Risks related to our common stock and this offering—We are a holding company with nominal net worth and will depend on dividends and distributions from our subsidiaries to pay any dividends” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and capital resources,” for descriptions of restrictions on our ability to pay dividends.

 

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CORPORATE CONVERSION

Conversion of Claire’s Holdings LLC to Claire’s Inc.

We currently operate as a Delaware limited liability company under the name Claire’s Holdings LLC. Prior to the effectiveness of the registration statement of which this prospectus forms a part, Claire’s Holdings LLC will convert into a Delaware corporation pursuant to a statutory conversion and change its name to Claire’s Inc. Prior to the closing of this offering, Claire’s Inc. will effect the other corporate actions described below. In this prospectus, we refer to all of the transactions related to our conversion to a corporation as the Corporate Conversion.

The purpose of the Corporate Conversion is to convert the top-tier entity in our corporate structure—the entity that is offering common stock to the public in this offering—from a limited liability company to a corporation so that our existing and future investors will own shares of our common stock rather than membership interests in a limited liability company. Immediately prior to the Corporate Conversion, the outstanding limited liability company membership interests of Claire’s Holdings LLC consist of Common Units and Series A Preferred Units. In connection with the Corporate Conversion and the closing of the offering, all holders of outstanding membership interests of Claire’s Holdings LLC at the time of its conversion to Claire’s Inc. will be issued shares of common stock of Claire’s Inc. The number of common shares to be issued to a former holder of a Series A Preferred Unit will be calculated by dividing the stated value of a Series A Preferred Unit by $            . For details of the number of common shares to be issued in this regard, see “—Pricing Sensitivity Analysis.” In addition, former holders of Series A Preferred Units will be issued common shares as part of their make whole premium, as described below under “—Series A Preferred Unit Make Whole Premium.” Holders of a Common Unit will receive one common share. Such common shares will be subject to a     -for-     split of our common stock to occur after the effectiveness of the registration statement of which this prospectus forms a part and prior to the closing of this offering.

Following the Corporate Conversion, Claire’s Inc. will continue to hold all the property and assets of Claire’s Holdings LLC and continue to be responsible for all of the debts and obligations of Claire’s Holdings LLC. As of the closing of this offering, Claire’s Inc. will be governed by a certificate of incorporation filed with the Delaware Secretary of State and bylaws, the material provisions of which are described in “Description of Capital Stock.”

Except as otherwise noted herein, the consolidated financial statements included elsewhere in this prospectus are those of Claire’s Holdings LLC and its consolidated operations. We do not expect that the Corporate Conversion will have a material effect on the results of our core operations.

Series A Preferred Unit Make Whole Premium

The terms of the Series A Preferred Units require the payment of a make whole premium to the holders of the Series A Preferred Units upon completion of this offering. The make whole premium is required to be paid in cash only to the extent of the net proceeds of the offering (excluding the net proceeds from any exercise by the underwriters of their option to purchase additional shares of common stock from us), with the remainder of the make whole premium to be paid in common shares. The number of common shares to be issued in this regard will be calculated by dividing the amount of the make whole premium that is not paid in cash by $            .

The aggregate amount of the make whole premium for all outstanding Series A Preferred Units is $            . Using the mid-point of the price range indicated on the cover page of this prospectus,

 

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assuming that the number of common shares offered remains the same as that set forth on the cover page of this prospectus, we expect that net proceeds of the offering (excluding the net proceeds from any exercise by the underwriters of their option to purchase additional shares of common stock from us) in the amount of $             will be the amount of cash we use to pay part of the make whole premium and that we will issue                  common shares to pay the amount of the make whole premium not paid in cash. See also “—Pricing Sensitivity Analysis.”

Pricing Sensitivity Analysis

As described above, assuming that the number of common shares offered remains the same as that set forth on the cover page of this prospectus, the number of common shares that will be issued at closing of the offering to a former holder of a Series A Preferred Unit to pay the amount of the make whole premium not paid in cash will depend on the initial public offering price per common share in this offering and the resulting net proceeds available to pay part of the make whole premium in cash.

To the extent that the initial public offering price per common share in this offering is higher than the midpoint of the price range set forth on the cover page of this prospectus (assuming that the number of common shares offered remains the same as that set forth on the cover page of this prospectus):

 

   

the net proceeds from the offering will be higher;

 

   

the amount of the make whole premium to be paid in cash will be higher and the amount of the make whole premium to be paid in common shares will be lower; and

 

   

the number of common shares issued to the former holders of the Series A Preferred Units will be lower.

To the extent the initial public offering price per common share in this offering is lower than the midpoint of the price range set forth on the cover page of this prospectus (assuming that the number of common shares offered remains the same as that set forth on the cover page of this prospectus):

 

   

the net proceeds from the offering will be lower;

 

   

the amount of the make whole premium to be paid in cash will be lower and the amount of the make whole premium to be paid in common shares will be higher; and

 

   

the number of common shares issued to the former holders of the Series A Preferred Units will be higher.

 

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The following table presents how each of (i) the aggregate make whole premium, (ii) the aggregate amount of the make whole premium to be paid in cash, (iii) the number of common shares to be issued to pay the amount of the make whole premium not paid in cash and (iv) the total number of common shares to be outstanding following the Corporate Conversion and the offering would be affected by an initial public offering price per common share at the low-, mid- and high-points of the price range indicated on the cover page of this prospectus, assuming that the underwriters’ option to purchase additional common shares from us is not exercised and that the number of common shares offered remains the same as that set forth on the cover page of this prospectus.

 

     Initial Public Offering Price per Common
Share
 
     $                  $                  $              
     (unaudited)  
     (Dollars in millions, except shares)  

Aggregate Series A Preferred Unit make whole premium amount

   $                    $                    $                

Aggregate amount of the make whole premium to be paid in cash

   $                    $                    $                

Number of common shares to be issued in the aggregate to former holders of Series A Preferred Units to pay the amount of the make whole premium not paid in cash

                                                                       

Total number of common shares to be outstanding after the Corporate Conversion and the offering (including all shares of common stock issued to former holders of Common Units and Series A Preferred Units, including in connection with the payment of the make whole premium, as well as shares of common stock issued in the offering)

                                                                       

Share Sensitivity Analysis

As described above, assuming that the number of common shares offered remains the same as that set forth on the cover page of this prospectus, the number of common shares that will be issued at closing of the offering to a former holder of a Series A Preferred Unit to pay the amount of the make whole premium not paid in cash will depend on the initial public offering price per common share in this offering and the resulting net proceeds available to pay part of the make whole premium in cash.

To the extent that the number of common shares that will be issued in this offering is higher than the number set forth on the cover page of this prospectus (assuming that the initial public offering price per common share in this offering is at the midpoint of the price range set forth on the cover page of this prospectus):

 

   

the net proceeds from the offering will be higher;

 

   

the amount of the make whole premium to be paid in cash will be higher and the amount of the make whole premium to be paid in common shares will be lower; and

 

   

the number of common shares issued to the former holders of the Series A Preferred Units will be lower.

The following table presents how each of (i) the aggregate make whole premium, (ii) the aggregate amount of the make whole premium to be paid in cash, (iii) the number of common shares to be issued to pay the amount of the make whole premium not paid in cash and (iv) the total number of common shares to be outstanding following the Corporate Conversion and the offering would be affected by an increase in the number of shares of common stock sold by us in the offering, as indicated in the table below, assuming in each case that the underwriters’ option to purchase additional

 

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common shares from us is not exercised and an initial public offering price per common share at the midpoint or the high point of the estimated price range set forth on the cover page of this prospectus.

 

     Initial Public Offering Price per Common Share  
     $                  $              
    

Number of

Common Shares Offered

 
     +10%(1)      +20%(2)      +10%(3)      +20%(4)  
     (unaudited)  
     (Dollars in millions, except shares)  

Aggregate Series A Preferred Unit make whole premium amount

   $                    $                    $                    $                

Aggregate amount of the make whole premium to be paid in cash

   $                    $                    $                    $                

Number of common shares to be issued in the aggregate to former holders of Series A Preferred Units to pay the amount of the make whole premium not paid in cash

                                                                                               

Total number of common shares to be outstanding after the Corporate Conversion and the offering (including all shares of common stock issued to former holders of Common Units and Series A Preferred Units, including in connection with the payment of the make whole premium, as well as shares of common stock issued in the offering)

  
 

                

 
  
 

                

 
  
 

                

 
  
 

                

 

 

(1)

Reflects an increase in the number of shares of common stock of                  shares. (This increase represents the number of shares attributable to an increase of 10% of the maximum offering price indicated on the cover page of the registration statement of which this prospectus forms a part, assuming an initial public offering price per common share at the midpoint of the estimated price range set forth on the cover page of this prospectus.)

(2)

Reflects an increase in the number of shares of common stock of                  shares. (This increase represents the number of shares attributable to an increase of 20% of the maximum aggregate offering price indicated on the cover page of the registration statement of which this prospectus forms a part, assuming an initial public offering price per common share at the midpoint of the estimated price range set forth on the cover page of this prospectus.)

(3)

Reflects an increase in the number of shares of common stock of                  shares. (This increase represents the number of shares attributable to an increase of 10% of the maximum aggregate offering price indicated on the cover page of the registration statement of which this prospectus forms a part, assuming an initial public offering price per common share at the high point of the estimated price range set forth on the cover page of this prospectus.)

(4)

Reflects an increase in the number of shares of common stock of                  shares. (This increase represents the number of shares attributable to an increase of 20% of the maximum aggregate offering price indicated on the cover page of the registration statement of which this prospectus forms a part, assuming an initial public offering price per common share at the high point of the estimated price range set forth on the cover page of this prospectus.)

 

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CAPITALIZATION

The following table sets forth our cash, cash equivalents and capitalization as of January 29, 2022:

 

   

on a historical basis;

 

   

on a pro forma basis to give effect to the conversion of Claire’s Holdings LLC into a Delaware corporation pursuant to a statutory conversion as described in “Corporate Conversion” and a     -for-     stock split that will occur prior to the closing of this offering; and

 

   

on a pro forma as adjusted basis to give further effect to (i) the sale of                  shares of our common stock in this offering (excluding the net proceeds from any exercise by the underwriters of their option to purchase additional shares of common stock from us) at an assumed initial offering price of $             per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, (ii) the application of the net proceeds from this offering to pay part of the Series A Preferred Unit make whole premium, as described in “Corporate Conversion” and “Use of Proceeds” and (iii) the issuance of                  common shares to former holders of Series A Preferred Units as described in “Corporate Conversion,” each of which will occur at, or in connection with, the closing of the offering.

The pro forma information set forth in the table below is illustrative only, gives effect to rounding and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. This table should be read in conjunction with “Corporate Conversion,” “Use of Proceeds,” “Summary Historical Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto included elsewhere in this prospectus.

 

     As of January 29, 2022  
     Actual     Pro Forma      Pro Forma
As Adjusted
 
     (In thousands, except share data)  

Cash and cash equivalents

   $ 70,039     $                    $                
  

 

 

   

 

 

    

 

 

 

Debt, including current and long-term:

       

Term Loan

     491,626                                         

Unamortized debt issuance cost

     2,017                                         

Derivative liability

     400,360                                         
  

 

 

   

 

 

    

 

 

 

Total debt and derivative liability

   $ 894,003     $                    $                
  

 

 

   

 

 

    

 

 

 

Mezzanine equity:

       

Series A Preferred Units, $1,000 stated value: 515,143 issued and outstanding

     352,773                                         
  

 

 

   

 

 

    

 

 

 

Series A Preferred Shares, $1,000 stated value:                  and                 issued and outstanding

     —                                           
  

 

 

   

 

 

    

 

 

 

Members’ equity:

       

Common Units: 782,506 issued and outstanding

     790,212                                         

Common Shares:                  and                  issued and outstanding

     —                                          (1) 

Additional paid-in capital

     11,651                                         

Accumulated other comprehensive income (loss), net of tax

     (1,587                                       

Accumulated (deficit) earnings

     (700,540                                      (2) 
  

 

 

   

 

 

    

 

 

 

Total members’ (deficit) equity

   $ 99,736     $                    $                
  

 

 

   

 

 

    

 

 

 

Total capitalization

   $ 1,346,512     $                    $                
  

 

 

   

 

 

    

 

 

 

 

(1)

Reflects                  shares of common stock at $0.01 par value per share.

 

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(2)

Reflects the expected loss on derivative liability of $             as a result of the completion of the offering and elimination of the Series A Preferred Units. See the notes to our historical consolidated financial statements for additional information on the derivative liability associated with our Series A Preferred Units.

 

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DILUTION

If you invest in shares of our common stock, your investment will be immediately diluted to the extent of the difference between the initial public offering price per share of common stock and the pro forma as adjusted net tangible book value (deficit) per share of common stock immediately after this offering. Dilution results from the fact that the per share offering price of the shares of common stock in this offering is substantially in excess of the pro forma as adjusted net tangible book value (deficit) per share immediately after this offering.

Net tangible book value (deficit) represents total tangible assets less total liabilities. Tangible assets represent total assets excluding goodwill and other intangible assets. Net tangible book value (deficit) per share represents net tangible book value (deficit) divided by the aggregate number of shares of common stock outstanding.

Assuming no exercise of the underwriters’ option to purchase additional shares of common stock from us, the following table illustrates:

 

   

pro forma net tangible book value (deficit) per common share as of January 29, 2022 immediately prior to this offering after giving pro forma effect to the conversion of Claire’s Holdings LLC into a Delaware corporation pursuant to a statutory conversion as described in “Corporate Conversion” and a     -for-     stock split as if such corporate conversion and stock split had occurred on January 29, 2022;

 

   

pro forma as adjusted net tangible book value (deficit) per common share as of January 29, 2022 immediately after this offering after giving further effect to (i) the sale of                  shares of our common stock in this offering at an assumed initial offering price of $             per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, (ii) the application of the net proceeds from this offering to pay part of the Series A Preferred Unit make whole premium, as described in “Corporate Conversion” and “Use of Proceeds” and (iii) the issuance of common shares to former holders of Series A Preferred Units as described in “Corporate Conversion”;

 

   

the increase in pro forma net tangible book value (deficit) to the pre-offering common stockholders; and

 

   

the immediate dilution to new common stock investors, with such immediate dilution per share representing the difference between the price per share to be paid by new investors for the shares of our common stock sold in this offering and the pro forma as adjusted net tangible book value (deficit) per share immediately after this offering.

 

Assumed initial public offering price

      $                

Pro forma net tangible book value (deficit) per share immediately before the offering (1)

   $                   

Increase in pro forma net tangible book value (deficit) per share attributable to existing common stockholders

   $                   
  

 

 

    

Pro forma as adjusted net tangible book value (deficit) per share immediately after the offering (2)

      $                
     

 

 

 

Dilution per share to new investors

      $                
     

 

 

 

 

(1)

The computation of pro forma net tangible book value per share as of January 29, 2022 immediately before the offering, as described above, is set forth below:

 

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(in thousands, except per share data)       

Book value of tangible assets

   $                

Less: total liabilities

   $                
  

 

 

 

Net tangible book value (deficit)

   $                

Pro forma shares of common stock outstanding

                       
  

 

 

 

Pro forma net tangible book value (deficit) per share

   $                
  

 

 

 

 

(2)

The computation of pro forma as adjusted net tangible book value per share as of January 29, 2022 immediately after the offering, as described above, is set forth below:

 

(in thousands, except per share data)       

Pro forma as adjusted book value of tangible assets

   $                

Less: Pro forma as adjusted total liabilities

   $                
  

 

 

 

Pro forma as adjusted net tangible book value (deficit)

   $                

Pro forma as adjusted shares of common stock outstanding

  
 

                

 
  

 

 

 

Pro forma as adjusted net tangible book value (deficit) per share

   $                
  

 

 

 

A $1.50 increase (decrease) in the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after the offering by $            , and would increase (decrease) the dilution to new investors in the offering by $             per share, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions.

The following table illustrates, as of January 29, 2022, after giving effect to the sale by us of                  shares of our common stock in this offering at the initial public offering price of $             per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus), the difference between the existing pre-offering LLC members holding common units (as described in note 1 to the table), and the investors purchasing shares of our common stock in this offering with respect to the number of shares of our common stock purchased from us, the total consideration paid or to be paid to us, and the average price per share paid or to be paid to us, before deducting underwriting discounts and commissions and the estimated offering expenses payable by us. In addition, the following table reflects the number of shares to be issued to former Series A Preferred Unit holders at closing of the offering, assuming that the number of common shares offered remains the same as that set forth on the cover page of this prospectus and the price per share is the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus, as described in “Corporate Conversion.”

 

     Shares purchased     Total consideration
(in thousands)
    Average price
Per share
 
     Number      Percent     Amount      Percent  

Pre-offering LLC members holding common units(1)

  

 


                


 
            $                             $                

Investors purchasing shares of our common stock in this offering

  
 

                

 
            $                             $                

Former LLC Series A Preferred Unit holders being issued shares of our common stock upon completion of the offering(2)

  
 

                

 
            $                             $                
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

  
 

                

 
     100   $                      100  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

(1)

The number of shares purchased by pre-offering LLC members holding common units is equal to the number of common units outstanding at January 29, 2022 immediately prior to this offering after giving pro forma effect to the conversion of Claire’s Holdings LLC into a Delaware

 

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  corporation pursuant to a statutory conversion as described in “Corporate Conversion” and a     -for-     stock split as if such corporate conversion and stock split had occurred on January 29, 2022. The total consideration provided by pre-IPO LLC common members is equal to the Total Members’ equity of Claire’s Holdings LLC as of January 29, 2022.
(2)

As described in “Corporate Conversion,” in connection with the closing of the offering, the former holders of Series A Preferred Units will receive common shares in respect of the stated value of each unit as well as in part payment of the make whole premium in respect of such units, in each case using a price per common share of $            .

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a fully integrated global fashion brand powerhouse committed to inspiring self-expression through the creation and delivery of exclusive, well-curated products and experiences. We offer an immersive, experience-driven shopping environment for our consumers, with product offerings including jewelry, fashion accessories, tech accessories, cosmetics and more. Our trend-forward products are distributed in Claire’s®-operated stores, via e-commerce and through our broad base of concession partners. For over 50 years, Claire’s® has been a destination for the curious, creative and influential. Our entire ecosystem is anchored by our legacy in dynamic merchandising and our core piercing expertise and is informed by our unique understanding of and loyal relationship with our consumers worldwide.

We have two brands, Claire’s®, our flagship brand, and Icing®. Claire’s® has a powerful following with the highly influential Generation Z audience, which consists of over 2.5 billion individuals globally. Based on customer feedback, we have a reputation for delivering a differentiated, trendsetting and diverse assortment of products, many of which are proprietary designs, that help young minds style and define themselves. We believe that we are the market share leader in retail piercing services in North America and the world’s largest ear piercing service provider, having pierced the ears of millions of customers over our 40-plus year history of piercing. Piercing services and related product sales represent a meaningful part of our revenue and serve as an important customer acquisition vehicle that draws new consumers to our stores every year. The dynamic combination of strong brand equity, unique and diverse product offerings and revenue from services offered in our stores creates a highly differentiated financial profile with attractive margins.

We are organized into two operating segments: North America and Europe. We identify our operating segments by how we manage and evaluate our business activities. We discuss our operating segments further under “—Segment Results.”

Factors Affecting Our Results of Operations

Our results of operations in any period may be affected by a number of factors. Set forth below is a brief discussion of some of the principal factors that have impacted, or that we expect may impact, our results of operations.

Macroeconomic conditions

General economic conditions and consumer activity in both North America and Europe, in particular general retail customer traffic and discretionary consumer spending, impact our business performance. General consumer demand for our products and services, which may differ between North America and Europe, is influenced by a number of general factors, including inflation, government fiscal policy, wages and employment, the availability of consumer credit and consumer debt, currency exchange rates, taxation, fuel and energy prices, interest rates, consumer confidence and other macroeconomic factors.

Furthermore, macroeconomic conditions, including inflation, currency rates, supply chain disruptions and labor supply and transportation capacity, and in particular the COVID-19 pandemic, also affect our operating and product costs. While we have historically been able to partially offset inflation and wage increases by passing such costs through the price of our merchandise and services,

 

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there can be no assurance that future operating cost increases can be fully offset or that higher prices will be fully passed on to our customers without any resulting change to their visit frequencies or purchasing patterns. For example, we experienced increased wage and shipping costs in 2021 as a result of market-driven cost increases. We expect increased costs to continue in the near term.

Competition

As a specialty retailer of jewelry, accessories and piercing services, we face competition from a variety of other specialty, apparel, online and mass retailers. The product assortment and the service offering, pricing and promotions provided by our competitors impact our results of operations. We also compete for retail talent in the marketplace, and the currently competitive labor environment creates inflationary pressure on our labor rates.

Real estate locations

The choice of location of our Claire’s® and Icing® stores, as well as our concessions locations, is an important factor that contributes to our performance. We believe that one of our largest immediate opportunities is to diversify and grow our retail footprint, both in North America and Europe. As a result, much of our real estate strategy in recent years has focused on diversification of store locations, with particular emphasis on leaving underperforming mall locations in the United States. Individual location performance is driven by a number of factors, including: shopping center health; co-tenancy and overall consumer foot traffic; and the availability of alternative nearby retail locations to a given site (including on-mall and off-mall options).

We operate our stores under lease agreements whose length are generally between two and five years in North America and between five and ten years in Europe. The number of new stores that we open and the number of stores that we close during a particular period will impact our results of operations for that period. Additionally, our ability to negotiate new lease agreements, renegotiate existing lease terms and relocate or close our stores based on market conditions or other factors (such as the COVID-19 pandemic or overall increases in occupancy expenses), may impact our results of operations.

Changes in sales between business channels and products and services

Our results of operations may vary based on the relative sales and growth rates generated at our stores (including store-in-store locations) compared to our concessions locations. The capital expenditures and start-up costs as well as timing differ between store growth and concessions growth. In addition, changes in the mix of sales between jewelry and accessories (including changes in the mix of piercing sales) may also impact our operating performance during a particular period.

Investments

We have invested significantly in supporting the growth of our business. For example, certain capital expenditures, start-up costs and inventory investments are required for opening new stores, upgrading our existing stores and expanding into new concessions locations. These expenditures are generally incurred before our new or upgraded stores or concessions start to generate sales or profits.

We are committed to using technology to enhance our competitive position and have made strategic investments to redesign our supply chain and develop improved planning and allocation capabilities, upgrade our store network and information technology, and develop data analysis capabilities to inform decision making across all areas of the organization, including consumer trends,

 

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promotion management, real estate strategy and cost optimization. We intend to continue to make investments in our information systems to facilitate growth and enhance our competitive position. As we continue to expand and upgrade our footprint and information technology systems, our operating costs, inventory and capital expenditures will likewise reflect this growth.

Seasonality and fashion trends

Our business is relevant to our core customers throughout the year, with less significant seasonal impacts than are typically experienced by most retailers. Our quarterly business performance has historically exhibited more stable quarterly sales activity compared to other retailers, with each quarter typically representing approximately 20% to 30% of annual revenue. Our results can also be impacted by changes in consumer receptivity to our product offering from ever-changing fashion and design trends.

COVID-19

As a result of the public health risk and government-imposed quarantines and other restrictions on commercial activity to contain the spread of COVID-19, the Company’s Retail and Concessions sales were significantly impacted during fiscal years 2020 and 2021. From March 2020 to May 2020, we temporarily closed all of our stores in North America and Europe. During this period, many of our concessions locations were likewise closed and in some geographies, non-essential products (including our own) could not be sold at concessions locations that otherwise remained open.

Though we cannot estimate the precise impact of the COVID-19 pandemic on our results of operations, we note that net sales, gross profit and operating income (loss) were $1,394.7 million, $809.1 million, and $170.7 million, respectively, in fiscal year 2021, compared to $910.3 million, $444.2 million and $(9.4) million, respectively, in fiscal year 2020, compared to $1,284.5 million, $690.2 million and $148.4 million, respectively, in fiscal year 2019. In addition, segment net sales for North America and Europe were $1,107.1 million and $377.6 million, respectively, in fiscal year 2021, compared to $621.9 million and $288.4 million, respectively, in fiscal year 2020, compared to $831.5 million and $453.0 million, respectively, in fiscal year 2019. Segment operating income (loss) for North America and Europe were $160.0 million and $10.7 million, respectively, in fiscal year 2021, compared to $20.8 million and $(30.2) million, respectively, in fiscal year 2020, compared to $110.9 million and $37.4 million, respectively, in fiscal year 2019. We believe that these reductions in net sales, gross profit, operating income (loss) and segment operating income (loss) during fiscal year 2020 were largely attributable to the impact of COVID-19, in particular due to the temporary closure of all of our stores during March 2020 to May 2020, which resulted in no revenues generated at our stores during such period. We also believe our net sales, gross profit, operating income (loss) and segment operating income (loss) continued to be adversely affected by COVID-19, particularly in Europe, in fiscal year 2021.

Beginning in May 2020, we began to reopen our stores, but closed some of our stores again in North America (particularly in California, New York, Texas and certain Canadian provinces) and Europe from October to December 2020. As of January 30, 2021, we had 53 and 568 stores temporarily closed in North America and Europe, respectively. Throughout the pandemic, some of our stores that remained in operation were subject to restrictions on the number of customers allowed in the stores. As of January 29, 2022, none of our stores were closed as a direct result of the COVID-19 pandemic and we had resumed sales at all of our concessions locations. During store closures, we focused on managing costs to preserve financial strength and liquidity through, for example, employee furloughs, executive pay reductions, rent payment negotiations and inventory management. See Note 2, “Summary of Significant Accounting Policies,” and Note 4, “Leases,” of our consolidated financial statements included elsewhere in this prospectus for more information regarding the impact of the COVID-19 pandemic on our lease accounting.

 

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As a result of store closures, restricted business operations after reopening in many areas and other aspects of responding to the COVID-19 pandemic, we incurred a number of costs that do not align with our normal business operations. These include store occupancy costs (primarily lease costs) and store labor costs for periods when our stores were closed, as well as additional cleaning and protective equipment. We estimate that these costs (net of recoveries) for fiscal year 2020 were approximately $60 million, and these costs are included in net income and Adjusted EBITDA for the periods shown. In fiscal year 2020 and fiscal year 2021, we deferred occupancy payments for a significant number of our closed stores due to COVID-19 driven closures. These deferrals are accrued, and we continued to recognize expense during the deferral periods based on the contractual terms of our lease agreements. As of January 29, 2022 and January 30, 2021, approximately $7.1 million and $43.7 million, respectively, of payment deferrals remained outstanding and potentially payable to our lessors, and are included in “Accrued expenses and other current liabilities” on our consolidated balance sheets. In addition, during fiscal year 2021 we continued to incur occupancy and labor costs on stores closed due to the COVID-19 pandemic. Moreover, we anticipate we will continue to experience elevated costs in areas such as freight, energy and payroll as economies continue to recover from the COVID-19 pandemic.

During 2020, the U.S. government enacted a number of emergency and continuing economic stimulus packages, including the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), the Paycheck Protection Program Flexibility Act and the Consolidated Appropriations Act. These measures included spending and tax breaks to strengthen the U.S. economy and fund a nationwide effort to curtail the economic effects of COVID-19. In Canada, the government enacted the Canada Emergency Wage Subsidy and the Canadian Emergency Rent Subsidy, which partially subsidize employee wages and business rental payments, respectively. In the European Union, leaders agreed on a recovery fund (“Next Generation EU”) to help the recovery from the economic and social impacts of the pandemic. We have benefited from these governmental packages, including tax benefits in the United States, Canada and Europe. For example, in the United States, we have received relief from several programs: we received approximately $2 million for employee retention credits; we were permitted to defer payment of approximately $5 million of employee FICA taxes to December 31, 2021 and December 31, 2022; and we were allowed additional interest deductions for tax purposes. In Canada, we have received approximately $2 million under the Canadian Emergency Wage Subsidy and the Canadian Emergency Rent Subsidy programs. In Europe, we have received approximately $13 million from a variety of government occupancy grants in many of the countries in which we operate. In addition, in March 2021, the U.S. government enacted the American Rescue Plan Act of 2021, which resulted in stimulus payments that we believe have had a positive impact on our sales in the United States in fiscal year 2021.

We continue to assess the impact of the COVID-19 pandemic on the assumptions and estimates used when preparing our consolidated financial statements, including inventory valuation, lease accounting impacts, income taxes, and the impairment of long-lived store assets and operating lease assets. These assumptions and estimates are subject to change as the impact of the COVID-19 pandemic becomes more predictable.    

Key Business Metrics

In addition to the components of our results of operations described below in “—Components of our results of operations” (in particular, net sales and gross profit), we review a number of operating and financial metrics, including the following key business metrics, to evaluate the performance of our business, identify trends, formulate business plans, make strategic decisions and assess operational efficiencies. Our calculation of the key business metrics and other measures discussed below may differ from other similarly titled metrics used by other companies, securities analysts or investors.

 

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Store count

Store count represents company-operated stores open as of the end of the reporting period. Store count includes conventional retail formats, which we refer to as “standalone stores,” as well as our “store-in-store” locations (where we operate Claire’s® stores inside a retail partner’s stores). Store count excludes our concessions locations and franchised stores. We consider store count to be a key metric in evaluating the operations and performance of our business. The following table summarizes our company-operated stores as of January 29, 2022, January 30, 2021 and February 1, 2020.

 

    As of  
    January 29, 2022     January 30, 2021     February 1, 2020  

Company-operated Claire’s® stores, North America(1)

    1,489       1,390       1,312  

Company-operated Claire’s® stores, Europe(1)

    878       905       937  

Company-operated Icing® stores(1)

    189       195       198  

 

(1)

As of January 30, 2021, 49 of our company-operated Claire’s® stores in North America were temporarily closed due to the COVID-19 pandemic. As of January 30, 2021, 568 of our company-operated Claire’s® stores in Europe were temporarily closed due to the COVID-19 pandemic. As of January 30, 2021, four of our company-operated Icing® stores were temporarily closed due to the COVID-19 pandemic. No company-operated stores were temporarily closed due to the COVID-19 pandemic as of January 29, 2022 or February 1, 2020.

Same-store sales

Same-store sales include net sales from company-operated stores that have been open for at least 60 weeks since their opening date, and all e-commerce sales. Same-store sales also include net sales from stores that remained open while being remodeled and that have been relocated within close proximity of their initial locations. Stores that are remodeled and are closed during the remodel or are relocated beyond close proximity of the initial location are excluded from same-store sales during the affected period. A store that is temporarily closed, such as during a government ordered shut-down resulting from the COVID-19 pandemic, is generally removed from the same-store sales computation until the store is reopened. A store that is closed permanently, such as upon termination of the lease, is immediately removed from the same-store sales computation. We compute same-store sales on a local currency basis, which eliminates any impact for changes in foreign currency exchange rates.

There may be variations in the way in which some of our competitors and other retailers calculate same-store sales or comparable metrics. As a result, our same-store sales may not be comparable to similar data made available by other retailers. Non-same-store sales consists of sales from new stores that have been open for less than 60 weeks, sales from existing store relocation projects that were temporarily closed, concessions sales and franchise sales.

Measuring the change in fiscal year-over-year same-store sales is a key retail metric that allows us to evaluate how we are performing. Various factors may impact same-store sales, including:

 

   

consumer preferences, buying trends and overall economic trends;

 

   

our ability to identify and respond effectively to customer preferences and trends, as well as changes in our merchandise assortment;

 

   

pricing and promotions;

 

   

the customer experience we provide in our stores;

 

   

the level of customer traffic near our locations in the mall, power, community and lifestyle retail centers in which we operate and the level of customer traffic at the retail partners in which our store-in-stores are located;

 

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competition;

 

   

employee headcount and the ability to efficiently and effectively staff our employees at our stores;

 

   

our ability to renew our leases on favorable terms or at all; and

 

   

the impacts associated with the COVID-19 pandemic, including closure of our stores, adverse impacts on our operations, and consumer sentiment regarding discretionary spending.

We experienced consolidated same-store sales growth in fiscal year 2021 against both fiscal year 2020 and fiscal year 2019. We enjoyed strong same-store sales growth in North America against each prior period. In Europe, same-store sales decreased against fiscal year 2020 and fiscal year 2019. Our same-store sales performance during fiscal year 2021 may not be indicative of results for future periods.

Opening new stores and expanding our concessions business is an important part of our growth strategy. As we continue to pursue our real estate strategy, we expect that a significant percentage of our net sales growth will continue to come from new stores and concessions, which are not included in same-store sales. Accordingly, same-store sales is only one measure we use to assess our business.

Concessions sales

Concessions sales include net sales to consumers for all of our concessions locations for the periods reported. Concessions sales are affected by factors including partner retailer account expansion, consumer traffic in partner retailer locations, pricing and promotions, merchandise assortment (including presentation and location in the partner retailer’s store) and broader macroeconomic factors. Our sales performance by retail partner is affected by the retail partner’s broader sales performance, as well as the retail partner’s alignment with our core consumer demographics.

Gross margin

Gross margin is defined as gross profit divided by net sales. Gross profit is defined as sales net of cost of sales, occupancy and buying expense (exclusive of depreciation and amortization expense). There may be variations in the way gross profit is defined and how gross margin is computed by some of our competitors and other retailers. As a result, our gross margin may not be comparable to similar data made available by our competitors and other retailers. Gross margin is a key retail metric reflecting our product profitability from overall product cost management as well as promotional effectiveness. Since we largely leverage similar product procurement infrastructure and modes of transportation, this metric normalizes product profitability performance for sales growth.

Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA is a non-GAAP financial measure that represents net income (loss), adjusted to exclude income taxes, interest expense and income, depreciation and amortization, gain (loss) on early debt extinguishments, asset impairments, severance and transaction-related costs, certain transformation costs and certain non-cash and other items. Adjusted EBITDA margin is a non-GAAP financial measure that represents Adjusted EBITDA divided by net sales for the applicable period, expressed as a percentage. We use Adjusted EBITDA as an important tool to assess our operating performance. We consider Adjusted EBITDA and Adjusted EBITDA margin to be useful measures in highlighting trends in our business.

Please read “Summary Historical Consolidated Financial and Other Data—Non-GAAP financial measures” for more information about why we believe Adjusted EBITDA and Adjusted EBITDA margin are useful indicators for investors and us to better understand our performance and for a reconciliation to net income (loss), the most comparable GAAP measure.

 

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Components of Our Results of Operations

Net sales

Net sales consists of company-operated store sales and other sales, including concessions and e-commerce sales (including shipping and handling revenues) and sales to third parties under franchising and licensing agreements. Revenue from the sale of gift cards is deferred and (i) is not included in net sales until the gift cards are redeemed by the customer to purchase merchandise or (ii) is otherwise included as breakage income in proportion to the pattern of historical redemptions of the gift card by the customer. Net sales is presented as net of an allowance for estimated returns, which is based on historic experience and also excludes sales taxes and VAT collected from customers. In fiscal year 2020, we introduced our Claire’s® Rewards loyalty reward program, through which we issue redeemable coupons to our customers as they achieve certain point levels. We recognize the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the coupons are subsequently redeemed by a customer.

Cost of sales, occupancy and buying expense and gross profit

Cost of sales consists of the cost of merchandise sold to our customers, inbound and outbound freight charges and product inspection costs. Occupancy expense consists of the costs of the Company’s stores, including rent, common area maintenance (“CAM”), utilities and property taxes for all locations. Buying expense consists of the Company’s internal costs of facilitating the merchandise procurement process, including compensation and benefits for our merchandise buying teams.

Gross profit is equal to our net sales minus our cost of sales, occupancy and buying expense (exclusive of depreciation and amortization expense).    

Operating expenses

Operating expenses consists of:

Selling, general and administrative expense.    Selling, general and administrative (“SG&A”) expense consists of payroll and other compensation, marketing and advertising expense and commission expenses paid to our concessions retail partners. SG&A also includes all operating costs of our distribution centers.

Depreciation and amortization.    Depreciation and amortization represents the depreciation of capitalized assets over their useful life and the amortization of franchise and concession agreements and other intangible assets subject to amortization.

Other income, net.    Other income, net primarily consists of franchise fees charged under franchising agreements.

 

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Results of Operations

The following table summarizes, for the periods indicated, our consolidated results of operations (in thousands):

 

     Fiscal Year
Ended
January 29,
2022
    Fiscal Year
Ended
January 30,
2021
    Fiscal Year
Ended
February 1,
2020
 

Net sales

   $ 1,394,676     $ 910,341     $ 1,284,541  

Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)

     585,615       466,125       594,334  
  

 

 

   

 

 

   

 

 

 

Gross profit

     809,061       444,216       690,207  
  

 

 

   

 

 

   

 

 

 

Selling, general and administrative expenses

     572,256       387,683       489,839  

Depreciation and amortization

     70,569       72,145       60,645  

Other income, net

     (4,486     (6,214     (8,650
  

 

 

   

 

 

   

 

 

 

Operating income (loss) before reorganization items, loss on early debt extinguishment, loss on derivative liability, interest and income taxes

     170,722       (9,398     148,373  
  

 

 

   

 

 

   

 

 

 

Reorganization items, net

     200       (372     4,871  

Loss on early debt extinguishment

     —         —         250,588  

Loss on derivative liability

     134,846       41,349       55,095  

Interest expense, net

     36,887       41,333       28,389  
  

 

 

   

 

 

   

 

 

 

Income (loss) before income tax (benefit) expense

     (1,211     (91,708     (190,570

Income tax (benefit) expense

     (9,395     (24,728     7,647  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 8,184     $ (66,980   $ (198,217
  

 

 

   

 

 

   

 

 

 

 

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The following table shows, for the periods indicated, the percentage of our net sales represented by the line items included in our consolidated statements of operations and comprehensive income (loss).

 

     Percentage of Net Sales  
     Fiscal Year
Ended
January 29,
2022
    Fiscal Year
Ended
January 30,
2021
    Fiscal Year
Ended
February 1,
2020
 

Net sales

     100.0     100.0     100.0

Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)

     42.0     51.2     46.3
  

 

 

   

 

 

   

 

 

 

Gross profit

     58.0     48.8     53.7
  

 

 

   

 

 

   

 

 

 

Selling, general and administrative expenses

     41.0     42.6     38.1

Depreciation and amortization

     5.1     7.9     4.7

Other income, net

     (0.3 %)      (0.7 %)      (0.7 %) 
  

 

 

   

 

 

   

 

 

 

Operating income (loss) before reorganization items, loss on early debt extinguishment, loss on derivative liability, interest and income taxes

     12.2     (1.0 %)      11.6
  

 

 

   

 

 

   

 

 

 

Reorganization items, net

     0.0     0.0     0.4

Loss on early debt extinguishment

     0.0     0.0     19.5

Loss on derivative liability

     9.7     4.5     4.3

Interest expense, net

     2.6     4.5     2.2
  

 

 

   

 

 

   

 

 

 

Income (loss) before income tax (benefit) expense

     (0.1 %)      (10.1 %)      (14.8 %) 

Income tax (benefit) expense

     (0.7 %)      (2.7 %)      0.6
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     0.6     (7.4 %)      (15.4 %) 
  

 

 

   

 

 

   

 

 

 

Fiscal Year 2021 Compared to Fiscal Year 2020

Net sales

Net sales increased $484.4 million, or 53.2%, to $1,394.7 million in fiscal year 2021 compared to $910.3 million in fiscal year 2020. This increase was primarily driven by the favorable impact from stronger consumer confidence, government stimulus payments, and the easing of COVID-19 restrictions in both North America and Europe. Same-store sales increased by 17.8% in fiscal year 2021.

Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization)

Cost of sales, occupancy and buying expenses increased $119.5 million, or 25.6%, to $585.6 million in fiscal year 2021 compared to $466.1 million in fiscal year 2020. This increase was primarily driven by a significant increase in sales volume, and in turn, total cost of merchandise sold, as a result of the re-opening of stores and customers’ increased confidence and return to shopping. Increases in cost of transportation of goods due to world-wide supply chain constraints also negatively impacted cost of sales during fiscal year 2021.

 

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Gross profit

Gross profit increased $ 364.9 million, or 82.1%, to $809.1 million in fiscal year 2021 compared to $444.2 million in fiscal year 2020. Gross profit as a percentage of net sales increased 920 basis points to 58.0% in fiscal year 2021, compared to 48.8% in fiscal year, 2020. The increase in gross profit margin was primarily due to:

 

   

830 basis points as a result of decreasing occupancy costs as a percentage of sales and growth of the concessions business;

 

   

60 basis points of buying expense leverage related to higher sales and growth of the concessions business; and

 

   

30 basis points of merchandise margin improvements driven by lower markdowns and promotional activity

Selling, general and administrative expenses

SG&A expenses increased $184.5 million, or 47.6%, to $572.2 million in fiscal year 2021 compared to $387.7 million in fiscal year 2020. As a percentage of net sales, SG&A expenses decreased 160 basis points to 41.0% in fiscal year, 2021 compared to 42.6% in fiscal year 2020. The decrease in SG&A expenses as a percentage of sales was primarily due to cost leverage achieved from higher sales during fiscal year 2021.

Depreciation and amortization

Depreciation and amortization decreased $1.5 million, or 2.2%, to $70.6 million in fiscal year 2021 compared to $72.1 million. in fiscal year 2020. This decrease was primarily driven by the balance sheet reclassification of certain lease-related intangibles assets upon adoption of ASC 842 at the beginning of fiscal year 2021, partially offset by additional capital spending related to store and technology investments in fiscal year 2021.

Other income, net

Other income, net decreased $1.7 million, or 27.8%, to $4.5 million in fiscal year 2021 compared to $6.2 million in fiscal year 2020. This decrease was primarily driven by an increase in foreign currency transaction losses in fiscal year 2021.

Operating income (loss) before reorganization items, loss on early debt extinguishment, loss on derivative liability, interest expense and income taxes

As a result of the items discussed above, operating income (loss) was 12.2% of net sales, or $170.8 million, in fiscal year 2021 compared to -1.0% of net sales, or $(9.4) million, in fiscal year 2020.

Reorganization items, net

Reorganization items, net increased $0.6 million, or 153.8%, to $0.2 million in fiscal year 2021 compared to $(0.4) million in fiscal year 2020.

Loss on derivative liability

Loss on derivative liability increased $93.4 million, or 226.1%, to $134.8 million in fiscal year 2021 compared to $41.3 million in fiscal year 2020. This increase was primarily driven by changes in management’s assumptions about the increased likelihood of an initial public offering or a change in control event occurring in the future that would result in mandatory conversion of the Company’s Redeemable Series A Preferred Units into Common Units. These assumptions are key inputs to the Black-Scholes model used to measure fair value of the derivative liability. See Note 6, “Redeemable Series A Preferred Units,” and Note 8, “Fair Value Measurements,” of our consolidated financial statements included elsewhere in this prospectus for more information regarding the derivative liability.

 

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Interest expense, net

Interest expense, net decreased $4.4 million, or 10.8%, to $36.9 million in fiscal year 2021 compared to $41.3 million in fiscal year 2020. This decrease was primarily driven by lower interest rates and principal payments made on the Company’s Term Loan (as defined below) in fiscal year 2021. See “—Indebtedness—Term Loan” and Note 7, “Long-Term Debt, Net,” of our consolidated financial statements included elsewhere in this prospectus for more information regarding the Term Loan.

Income tax (benefit) expense

Income tax (benefit) expense of $(9.4) million in fiscal year 2021 represented an effective tax rate of 769.5%, compared to fiscal year 2020 income tax (benefit) expense of $(24.7) million and an effective tax rate of 27.0%. The decrease in income tax benefit was primarily due to higher operating income compared to fiscal year 2020, partially offset by the release of valuation allowances related to certain deferred tax balances in fiscal year 2021. See Note 11, “Income Taxes,” of our consolidated financial statements included elsewhere in this prospectus for a reconciliation of the statutory U.S. federal income tax rate to our effective tax rates.

Net income (loss)

As a result of the foregoing, net income (loss) increased $75.2 million, or 112.2%, to $8.2 million in fiscal year 2021 compared to $(67.0) million in fiscal year 2020.

 

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Fiscal Year 2020 Compared to Fiscal Year 2019

Net sales

Net sales decreased $374.2 million, or 29.1%, to $910.3 million in fiscal year 2020 compared to $1,284.5 million in fiscal year 2019. This decrease was primarily driven by store closures (including franchised stores) throughout the year as a result of COVID-19, including in the fourth quarter of fiscal year 2020, when many of our stores in North America and Europe were closed during the holiday shopping season. Same-store sales decreased by 9.8% (net of an increase in e-commerce sales of 112%) in fiscal year 2020. Sales to third parties under our franchising and licensing agreements decreased by $8.1 million in fiscal year 2020, primarily due to a former franchisee in Japan that did not extend its agreement with us upon the expiration of the agreement in October 2020 and also due in part to the impact of COVID-19, and concession sales decreased by $2.0 million. The decreases in same-store sales, franchise sales and concessions sales were the result of the broader global economic impact of the COVID-19 pandemic. See “—COVID-19” above.

Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization)

Cost of sales, occupancy and buying expenses decreased $128.2 million, or 21.6%, to $466.1 million in fiscal year 2020 compared to $594.3 million in fiscal year 2019. This decrease was primarily driven by the significant decrease in sales related to the impacts of COVID-19.

Gross profit

Gross profit decreased $246.0 million, or 35.6%, to $444.2 million in fiscal year 2020 compared to $690.2 million in fiscal year 2019. Gross profit as a percentage of net sales decreased 490 basis points to 48.8% in fiscal year 2020 compared to 53.7% in fiscal year 2019. The decrease in gross profit margin was primarily due to :

 

   

420 basis points decrease from occupancy cost deleverage resulting primarily from store closures and store sales being negatively impacted by COVID-19 once stores reopened;

 

   

50 basis points decrease from buying and buying-related cost deleverage resulting similarly from the fixed nature of these costs while net sales were negatively impacted by COVID-19; and

 

   

20 basis points decrease due to higher product costs, primarily from increased freight costs.

Selling, general and administrative expenses

SG&A expenses decreased $102.1 million, or 20.9%, to $387.7 million in fiscal year 2020 compared to $489.8 million in fiscal year 2019. SG&A expense decreased primarily from a reduction in store labor costs related to the COVID-19 temporary store closures, continued lower staffing levels in our stores from reduced operating hours as well as reduced field payroll and travel costs related to employee furloughs implemented in conjunction with temporary COVID-19 store closures. As a percentage of net sales, SG&A expenses increased 450 basis points to 42.6% in fiscal year 2020 compared to 38.1% in fiscal year 2019. The increase in SG&A expenses as a percentage of net sales was primarily due to the significant reduction in net sales from the impact of COVID-19 during fiscal year 2020.

Depreciation and amortization

Depreciation and amortization increased $11.5 million, or 19.0%, to $72.1 million in fiscal year 2020 compared to $60.6 million in fiscal year 2019. This increase was primarily driven by an increase in capital spending in fiscal year 2020 primarily related to store and technology investments.    

 

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Other income, net

Other income, net decreased $2.4 million, or 28.2%, to $6.2 million in fiscal year 2020 compared to $8.6 million in fiscal year 2019. This decrease was primarily driven by a decrease in franchise fees in fiscal year 2020.

Operating income (loss) before reorganization items, loss on early debt extinguishment, loss on derivative liability, interest expense and income taxes

As a result of the items discussed above, operating income (loss) was -1.0% of net sales, or $(9.4) million, in fiscal year 2020, compared to 11.6% of net sales, or $148.4 million, in fiscal year 2019.

Reorganization items, net

Reorganization items, net decreased $5.3 million, or 107.6%, to $(0.4) million in fiscal year 2020 compared to $4.9 million in fiscal year 2019.

Loss on early debt extinguishment

In fiscal year 2019, the Company recognized a $250.6 million loss on early debt extinguishment attributed to payment of a make-whole premium feature of $238.7 million in connection with repayment of the Refinanced Term Loan (as defined below) and the write-off of $11.9 million of unamortized debt financing costs in connection with the Debt Exchange (as defined below). See Note 7, “Long-Term Debt, Net,” of our consolidated financial statements included elsewhere in this prospectus for more information regarding the Refinanced Term Loan and Debt Exchange.

Loss on derivative liability

Loss on derivative liability decreased $13.7 million, or 24.9%, to $41.3 million in fiscal year 2020 compared to $55.1 million in fiscal year 2019. This decrease was primarily driven by the variable interest rate impact on the valuation calculation of the derivative liability related to our Redeemable Series A Preferred Units. See Note 6, “Redeemable Series A Preferred Units,” and Note 8, “Fair Value Measurements,” of our consolidated financial statements included elsewhere in this prospectus for more information regarding the derivative liability.

Interest expense, net

Interest expense, net increased $12.9 million, or 45.6%, to $41.3 million in fiscal year 2020 compared to $28.4 million in fiscal year 2019. This increase was primarily driven by increased interest on the Term Loan resulting from the Debt Exchange. See Note 7, “Long-Term Debt, Net,” of our consolidated financial statements included elsewhere in this prospectus for more information regarding the Term Loan and Debt Exchange.

Income tax (benefit) expense

Income tax (benefit) expense of $(24.7) million in fiscal year 2020 represented an effective tax rate of 27.0%, compared to fiscal year 2019 income tax (benefit) expense of $7.6 million and an effective tax rate of -4.0%. The decrease in income tax expense was primarily due to operating losses incurred in fiscal year 2020 as a result of the impact of COVID-19. See Note 11, “Income Taxes,” of our consolidated financial statements included elsewhere in this prospectus for a reconciliation of the statutory U.S. federal income tax rate to our effective tax rates.

 

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Net income (loss)

As a result of the foregoing, net income (loss) improved by $131.2 million, or 66.2%, to $(67.0) million in fiscal year 2020 compared to $(198.2) million in fiscal year 2019.

Segment Results

We have two reportable segments: North America and Europe. Our North America segment generated approximately 70% of our net sales in the year ended January 29, 2022, and includes company-operated stores throughout Canada, Puerto Rico, the U.S. Virgin Islands and the United States. Our Europe segment generated approximately 30% of our net sales during the same period, and includes company-operated stores in Austria, Belgium, the Czech Republic, France, Germany, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Poland, Portugal, Spain, Switzerland and the United Kingdom. In each segment, we have two net sales categories: Retail and Concessions. The Retail net sales category in our North America segment consists of net sales by our company-operated stores and e-commerce business, and the Concessions net sales category in our North America segment consists of net sales by retail partner concessions. The Retail net sales category in our Europe segment consists of net sales by our company-operated stores and e-commerce business as well as net sales to third parties under our franchising and licensing agreements, and the Concessions net sales category in our Europe segment consists of net sales by retail partner concessions.

We evaluate the performance of each of our two operating segments based on segment net sales and segment operating income. Expenses for each segment are based on the direct costs incurred by and within the operating segments. Each segment has its own distribution center (and, in the case of our franchise business, which is reported in our Europe segment, our distribution center in Hong Kong) and store network, and maintains a separate administrative function. Certain operating expenses for shared information technology products and services are allocated between the segments based upon relative usage. The operating expenses associated with our global corporate headquarters located in North America are recorded in our North America segment.

In addition, we account for the products sold to third parties under franchising and licensing agreements within “Net sales” and “Cost of sales, occupancy and buying expenses” in our consolidated statements of operations and comprehensive income (loss) within our Europe segment. The franchise fees we charge under our franchising agreements are reported in “Other income, net” in our consolidated statements of operations and comprehensive income (loss) within our Europe segment. Most of our franchise-operated stores are located in the Middle East and South Africa. Substantially all of the interest expense on our outstanding debt is recorded in our North America segment.

See Note 15, “Segment Reporting,” of our consolidated financial statements included elsewhere in this prospectus for more information regarding the financial results of our reportable segments.

 

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The following table presents, for the periods indicated, net sales by our Retail and Concessions categories within each reportable segment (in thousands, except percentages):

 

    Net Sales  
    Fiscal Year Ended
January 29, 2022
    % of Total     Fiscal Year Ended
January 30, 2021
    % of Total     Fiscal Year Ended
February 1, 2020
    % of Total  

North America:

           

Retail

  $ 958,299       68.7   $ 588,480       64.6   $ 797,242       62.1

Concessions

    58,769       4.2     33,448       3.7     34,267       2.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total North America

    1,017,068       72.9     621,928       68.3     831,509       64.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Europe:

           

Retail

    341,790       24.5     266,494       29.3     429,892       33.5

Concessions

    35,818       2.6     21,919       2.4     23,140       1.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Europe

    377,608       27.1     288,413       31.7     453,032       35.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

  $ 1,394,676       100.0   $ 910,341       100.0   $ 1,284,541       100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table shows, for the periods indicated, a comparison of the percentage of net sales by product category within each reportable segment:

 

     Percentage of Total  
     Fiscal Year Ended
January 29, 2022
    Fiscal Year Ended
January 30, 2021
    Fiscal Year Ended
February 1, 2020
 

Jewelry:

      

North America

     40.4     36.8     34.2

Europe

     10.4     11.3     12.9
  

 

 

   

 

 

   

 

 

 

Total jewelry

     50.8     48.1     47.1
  

 

 

   

 

 

   

 

 

 

Accessories:

      

North America

     33.4     31.5     30.5

Europe

     15.8     20.4     22.4
  

 

 

   

 

 

   

 

 

 

Total accessories

     49.2     51.9     52.9
  

 

 

   

 

 

   

 

 

 

Total net sales

     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

 

The following table summarizes, for the periods indicated, operating income (loss) by each reportable segment (in thousands):

 

     Fiscal Year Ended
January 29, 2022
     Fiscal Year Ended
January 30, 2021
    Fiscal Year Ended
February 1, 2020
 

Operating income (loss):

       

North America

   $ 159,997      $ 20,824     $ 110,938  

Europe

     10,725        (30,222     37,435  
  

 

 

    

 

 

   

 

 

 

Total operating income (loss)

   $ 170,722      $ (9,398   $ 148,373  
  

 

 

    

 

 

   

 

 

 

Fiscal Year 2021 Compared to Fiscal Year 2020

North America net sales increased $395.2 million, or 63.5%, to $1,017.1 million in fiscal year 2021 compared to $621.9 million in fiscal year 2020. North America same store sales increased during fiscal year 2021 by 27.0%. The increase in net sales was primarily driven by the reopening of stores and return of more normalized shopping during fiscal year 2021 as well as strong growth in our piercing business.

 

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Europe net sales increased $89.2 million, or 30.9%, to $377.6 million in fiscal year 2021 compared to $288.4 million in fiscal year 2020. Europe same store sales decreased during fiscal year 2021 by 1.7%. The increase in net sales was primarily driven by the reopening of stores and return of more normalized shopping during fiscal year 2021.

North America operating income (loss) increased $139.2 million, or 668.3%, to $160.0 million in fiscal year 2021 compared to $20.8 million in fiscal year 2020. This increase was primarily driven by the reopening of stores and gradual return of more normalized shopping, coupled with continued cost leverage as sales increased in fiscal year 2021.

Europe operating income (loss) increased $40.9 million, or 135.5%, to $10.7 million in fiscal year 2021 compared to $(30.2) million in fiscal year 2020. This increase was primarily driven by the reopening of stores and gradual return of more normalized shopping, coupled with continued cost leverage as sales increased in fiscal year 2021.

Fiscal Year 2020 Compared to Fiscal Year 2019

North America net sales decreased $209.6 million, or 25.2%, to $621.9 million in fiscal year 2020 compared to $831.5 million in fiscal year 2019. This decrease was primarily driven by COVID-19-related store closures throughout fiscal year 2020 (including the fourth quarter, when many stores in North America were closed during the holiday shopping season), which was partially offset by an increase in concessions and e-commerce net sales in fiscal year 2020.

Europe net sales decreased $164.6 million, or 36.3%, to $288.4 million in fiscal year 2020 compared to $453.0 million in fiscal year 2019. This decrease was primarily driven by COVID-19-related store closures throughout fiscal year 2020 (including the fourth quarter, when many stores in Europe were closed during the holiday shopping season) and a decrease in net sales to third parties under franchising agreements, and was partially offset by an increase in e-commerce net sales in fiscal year 2020.

North America operating income (loss) decreased $90.1 million, or 81.2%, to $20.8 million in fiscal year 2020 compared to $110.9 million in fiscal year 2019. This decrease was primarily driven by COVID-19-related store closures throughout fiscal year 2020, partially offset by actions including employee furloughs, rent payment negotiations and executive pay reductions.

Europe operating income (loss) decreased $67.7 million, or 180.7%, to $(30.2) million in fiscal year 2020 compared to $37.5 million in fiscal year 2019. This decrease was primarily driven by COVID-19-related store closures throughout fiscal year 2020, partially offset by actions including employee furloughs, rent payment negotiations and executive pay reductions.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are funds generated by operating activities and borrowings under our ABL Credit Facility (as defined below). Our ability to fund our operations, to make planned capital investments, to make scheduled debt payments and to repay or refinance indebtedness depends on our future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control.

We expect that our current resources, together with anticipated cash flows from operations and borrowing capacity under the ABL Credit Facility, will be sufficient to finance our operations, meet our

 

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current debt obligations, and fund anticipated capital investments for the next 12 months. We may, however, seek additional financing to fund future growth or refinance our existing indebtedness through the debt and equity capital markets, but we cannot be assured that any such financing will be available on favorable terms, or at all.

We expect that our primary liquidity needs will be comprised of cash to provide capital to facilitate the growth of our business, including our expansion in North America, Europe and other geographies, pay operating expenses, including cash compensation to our employees and payments to satisfy our lease obligations, pay interest and principal due on borrowings under our ABL Credit Facility and Term Loan Credit Agreement and pay income taxes.

We are a party to contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the consolidated balance sheet as of January 29, 2022, while others are considered future obligations. These contractual obligations primarily consist of principal and interest payments related to long-term debt and payments related to operating and finance leases. We also enter into short-term lease commitments, letters of credit and purchase obligations in the normal course of business. For more information regarding our primary obligations, see Note 4, “Leases,” and Note 7, “Long-Term Debt, Net” of our consolidated financial statements included elsewhere in this prospectus for amounts outstanding and future obligations as of January 29, 2022 and January 30, 2021 related to finance and operating leases and long-term debt, respectively.

Cash flows

The following table sets forth our cash flows for the periods indicated (in thousands):

 

    Fiscal Year     Fiscal Year     Fiscal Year  
    Ended
January 29,
2022
    Ended
January 30,
2021
    Ended
February 1,
2020
 

Net cash provided by (used in) operating activities

  $ 170,593     $ 93,933     $ 159,714  

Net cash provided by (used in) investing activities

    (63,681     (34,602     (33,595

Net cash provided by (used in) financing activities

    (206,389     (154,623     (6,164

Effect of foreign currency exchange rate changes on cash

    (7,970     2,472       2,488  
 

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

    (107,447     (92,820     122,443  

Cash, cash equivalents and restricted cash, at beginning of period

    179,146       271,966       149,523  
 

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash, at end of period

  $ 71,699     $ 179,146     $ 271,966  
 

 

 

   

 

 

   

 

 

 

Fiscal Year 2021 Compared to Fiscal Year 2020

Net cash provided by operating activities increased $76.7 million, or 81.6%, to $170.6 million in fiscal year 2021 compared to $93.9 million in fiscal year 2020. This increase was primarily driven by higher operating income in fiscal year 2021.

Net cash used in investing activities increased $29.1 million, or 84.0%, to $63.7 million in fiscal year 2021 compared to $34.6 million in fiscal year 2020. This increase was primarily the result of additional investment in property and equipment during fiscal year 2021 associated with growth of our business.

Net cash used in financing activities increased $51.8 million, or 33.5%, to $206.4 million in fiscal year 2021 compared to $154.6 million in fiscal year 2020. This increase was primarily due to additional

 

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redemptions of Redeemable Series A Preferred Units in fiscal year 2021. See Note 6, “Redeemable Series A Preferred Units,” of our consolidated financial statements for more information.

Fiscal Year 2020 Compared to Fiscal Year 2019

Net cash provided by operating activities decreased $65.8 million, or 41.2%, to $93.9 million in fiscal year 2020 compared to $159.7 million in fiscal year 2019. This decrease was primarily due to operating losses driven by the impact of COVID-19, including temporary store closures throughout fiscal year 2020.

Net cash used in investing activities increased $1.0 million, or 3.0%, to $34.6 million in fiscal year 2020 compared to $33.6 million in fiscal year 2019. This increase was primarily the result of increased purchases of property and equipment related to store openings in fiscal year 2020.

Net cash used in financing activities increased $148.4 million, or 2,408.5%, to $154.6 million in fiscal year 2020 compared to $6.2 million in fiscal year 2019. This increase was primarily due to additional redemptions of Redeemable Series A Preferred Units in fiscal year 2020. See Note 6, “Redeemable Series A Preferred Units,” of our consolidated financial statements for more information.

Indebtedness

Term Loan

On December 18, 2019, the Company entered into the term loan credit agreement (the “Term Loan Credit Agreement”) among Claire’s Stores, Inc. (“Claire’s Stores”), as borrower, the lenders party thereto and JP Morgan Chase Bank, N.A., as administrative agent and collateral agent, providing for $502.4 million aggregate principal amount of term loan maturing on December 18, 2026 (the “Term Loan”). Principal repayments under the Term Loan Credit Agreement are due on the last business day of each March, June, September and December in an amount per payment equal to 0.25% of the principal amount. Each borrowing under the Term Loan Credit Agreement will bear interest at a rate equal to a base rate plus a margin. The Company has the option to choose from two base rates: the Adjusted LIBOR Rate and the alternate base rate (the “ABR”). The margin under the Term Loan Credit Agreement is 6.50% for Adjusted LIBOR Rate borrowings and 5.50% for ABR borrowings.

The Term Loan contains certain covenants that, among other things, subject to certain exceptions and other basket amounts, restrict Claire’s Store’s ability and the ability of our subsidiaries to:

 

   

incur additional indebtedness;

 

   

create or incur certain liens;

 

   

make certain investments;

 

   

declare or pay any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any of its equity interests, directly or indirectly redeem, purchase, retire or otherwise acquire for value any of its equity interests or set aside any amount for any such purpose or make any payment, whether in cash, property securities or a combination thereof;

 

   

create restrictions on the payment of dividends or other distributions from our subsidiaries; and

 

   

transfer or sell assets.

See Note 8, “Fair Value Measurements,” of our consolidated financial statements included elsewhere in this prospectus for more information regarding fair value measurements of our debt.

 

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On December 18, 2019, the Company entered into the Term Loan, which refinanced the $250.0 million aggregate principal amount of the then-outstanding term loan (the “Refinanced Term Loan”) and consummated an offer to exchange 10,049 of its preferred units, including accrued preferred return for $1,500 of Term Loan for each preferred unit tendered (the “Debt Exchange”). The Refinanced Term Loan bore interest at a rate of LIBOR plus 7.25% per annum, payable quarterly.

ABL Credit Facility

On January 24, 2019, the Company entered into a new $75.0 million asset-based revolving credit facility (the “ABL Credit Facility”) among Claire’s Stores, Inc., as a U.S. borrower; Claire’s (Gibraltar) Holdings Limited, as a UK borrower; other U.S. and UK borrowers; and Citibank, N.A., as administrative agent and collateral agent. The ABL Credit Facility provides for $75.0 million in availability, maturing on January 24, 2024. As of January 29, 2022, no amounts were outstanding under the ABL Credit Facility.

Europe Bank Credit Facilities

The Company’s non-U.S. subsidiaries have bank credit facilities totaling approximately $2.5 million. The facilities are used for working capital requirements, letters of credit and various guarantees. These credit facilities have been arranged in accordance with customary lending practices in the respective country of operation. As of January 29, 2022, there was a reduction of $1.6 million for outstanding bank guarantees, which reduced the borrowing availability to $0.9 million as of that date.

Off-balance Sheet Arrangements

We had no off-balance sheet arrangements as of January 29, 2022 and January 30, 2021.

Quantitative and Qualitative Disclosures about Market Risks

In the ordinary course of our business activities, we are exposed to market risks that are beyond our control and which may have an adverse effect on the value of our financial assets and liabilities, future cash flows and profit. We are exposed to market risks associated with cash, interest rates, foreign currency and general market risk.

Cash

We have significant amounts of cash at financial institutions that are in excess of federally insured limits. We cannot be assured that we will not experience losses on our deposits. We mitigate this risk by maintaining bank accounts with a group of credit-worthy financial institutions.

Interest rates

As of January 29, 2022 and January 30, 2021, excluding unamortized debt issuance costs, the carrying value of long-term debt was $493.6 million and $498.7 million, respectively, and the estimated fair value of our long-term debt was $484.4 million and $505.7 million, respectively. We have entered into an interest rate cap agreement to manage a significant portion of the interest rate risk related to the floating interest rate on our outstanding debt. See Note 8, “Fair Value Measurements,” of our consolidated financial statements included elsewhere in this prospectus for information about our debt and interest rate cap agreement.

 

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Foreign currency

We are exposed to market risk from foreign currency exchange rate fluctuations on the U.S. dollar (“USD” or “dollar”) value of foreign currency denominated transactions and our investments in foreign subsidiaries. We manage this exposure to market risk through our regular operating and financing activities and may from time to time use foreign currency hedges. Exposure to market risk for changes in foreign currency exchange rates relates primarily to our foreign operations’ buying, selling and financing in currencies other than local currencies and to the carrying value of net investments in foreign subsidiaries. As of January 29, 2022 and January 30, 2021, we maintained no foreign currency hedges. We generally do not hedge the translation exposure related to our net investment in foreign subsidiaries. Included in “Comprehensive income (loss)” are $(7.3) million, $10.1 million and $(3.2) million, net of tax, reflecting the unrealized (loss) gain on foreign currency translations and intra-entity foreign currency transactions for the fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020, respectively.

In countries outside of the United States where we operate stores, we generate revenues and incur expenses denominated in local currencies. In fiscal year 2021, approximately 31% of our net sales were earned in currencies other than the USD, the majority of which were denominated in euros. As foreign currency exchange rates fluctuate, the amount of USD into which our foreign earnings are converted is affected, which impacts our cash flows. Foreign currency exchange rate fluctuations also impact our results of operations because the results of operations of our foreign subsidiaries, when translated into USD, reflect the average foreign currency exchange rates for the months that comprise the periods presented. See “Risk Factors—Risks related to our business and industry—Fluctuations in foreign currency exchange rates could negatively impact our results of operations.”

Certain of our subsidiaries make significant USD purchases from Asian suppliers, particularly in China. China allows the renminbi (“RMB”) to float to a limited degree against a basket of major international currencies, including the USD and the euro. The official exchange rate has historically remained stable; however, there are no assurances that this currency exchange rate will continue to be as stable in the future. This floating exchange rate and any appreciation of the RMB that may result from such rate could have various effects on our business, which include making our purchases of Chinese products more expensive. If we are unable to negotiate commensurate price decreases from our Chinese suppliers, these higher prices would eventually translate into higher costs of sales, which could have a material adverse effect on our results of operations.

General market risk

Our competitors include department stores, specialty stores, mass merchandisers, discount stores and other retail and internet channels. Our operations are impacted by consumer spending levels, which are affected by general economic conditions, consumer confidence, employment levels, inflation, availability of consumer credit and interest rates on credit, consumer debt levels, consumption of consumer staples including food and energy, consumption of other goods, adverse weather conditions and other factors over which we have little or no control. Increases in costs of such staple items may reduce the amount of discretionary funds that consumers are willing and able to spend for other goods, which may include our merchandise. Should there be continued volatility in food, energy costs or other costs, recession in the United States and Europe, rising unemployment and continued declines in discretionary income, our revenue and margins could be significantly affected in the future. We cannot predict whether, when or the manner in which the economic conditions described above will change.

 

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Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and related disclosures of contingent assets and liabilities. Such estimates include, but are not limited to, the value of inventories, goodwill, intangible assets and other long-lived assets, legal contingencies and assumptions used in the calculation of income taxes, residual values and other items. We base these estimates on our historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results experienced may vary materially and adversely from our estimates. Revisions to estimates are recognized prospectively. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are reasonably uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. See Note 2, “Summary of Significant Accounting Policies,” of our consolidated financial statements included elsewhere in this prospectus.    

Inventories

Merchandise inventories in North America are valued at the lower of cost or market, with cost determined using the retail method. Inherent in the retail inventory calculation are certain significant management judgments and estimates including, among others, merchandise markups, markdowns and shrinkage, which impact the ending inventory valuation at cost as well as resulting gross margins. The methodologies used to value merchandise inventories include the development of the cost-to-retail ratios, the groupings of homogeneous classes of merchandise, development of shrinkage reserves and the accounting for retail price changes. Merchandise inventories in Europe are accounted for under the lower of cost or net realizable value method, with cost determined using the average cost method at an individual item level. Net realizable value is generally the merchandise selling price. Inventory valuation is impacted by the estimation of slow moving goods, shrinkage and markdowns. Management monitors merchandise inventory levels to identify slow-moving items and uses markdowns to clear such inventories. Changes in consumer demand of our products could affect our retail prices, and therefore impact the retail method and lower of cost or net realizable value valuations.    

Impairment of long-lived assets

We review our long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the net book value of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the net book value of an asset or asset group to the future net undiscounted cash flows expected to be generated by the asset or asset group. If these comparisons indicate that the asset or asset group is not recoverable, an impairment loss is recognized for the excess of the carrying amount over the fair value of the asset or asset group. The fair value is estimated based on discounted future cash flows expected to result from the use and eventual disposition of the asset or asset group using a rate that reflects the operating segment’s average cost of capital. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell and are no longer depreciated. A prolonged decrease in consumer spending would require us to modify our models and cash flow estimates, and could create a risk of an impairment-triggering event in the future. Our impairment analyses contain estimates due to the inherently judgmental nature of forecasting long-term estimated cash flows and determining the ultimate useful lives of assets. Actual results may differ from those estimates, which could materially impact our impairment assessment.

 

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Goodwill

We continually evaluate whether events and changes in circumstances warrant recognition of an impairment of goodwill. The conditions that would trigger an impairment assessment of goodwill include a significant, sustained negative trend in our operating results or cash flows, a sustained decrease in demand for our products, a significant change in the competitive environment and other industry and economic factors. We conduct our annual impairment test to determine whether an impairment of the value of goodwill has occurred in accordance with the guidance set forth in Accounting Standards Codification (“ASC”) Topic 350, Intangibles—Goodwill and Other (“ASC 350”). Our determination of the fair value of each of our reporting units incorporates multiple assumptions and contains inherent uncertainties, including significant estimates relating to future business growth, earnings projections, and the weighted average cost of capital used for purposes of discounting. Decreases in revenue growth, decreases in earnings projections and increases in the weighted average cost of capital will all cause the fair value of the reporting unit to decrease, which could require us to modify future models and cash flow estimates, and could result in an impairment-triggering event in the future.

Intangible assets

Intangible assets include tradenames, franchise agreements, lease rights and territory rights. Indefinite-lived intangible assets are tested for impairment annually or more frequently when events or circumstances indicate that impairment may have occurred. Definite-lived intangible assets are tested for impairment when events or circumstances indicate the carrying value may not be recoverable. We estimate the fair value of these intangible assets primarily utilizing a discounted cash flow model. The forecasted cash flows used in the model contain inherent uncertainties, including significant estimates and assumptions related to growth rates, margins and cost of capital. Changes in any of the assumptions utilized could affect the fair value of the intangible assets and result in an impairment-triggering event.

Income taxes

We account for income taxes under the provisions of ASC Topic 740, Income Taxes, (“ASC 740”), which generally requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in income in the period the new legislation is enacted. Valuation allowances are recognized to reduce the carrying amounts of deferred tax assets to the amounts expected to be realized unless it is more likely than not that such assets will be realized in full. We consider projected future taxable income and the availability of tax planning strategies in determining the need for valuation allowances.

We are subject to tax audits in numerous jurisdictions, including the United States, individual states and localities, and internationally. Tax audits by their very nature are often complex and can require several years to complete. In the normal course of business, we are subject to challenges from the Internal Revenue Service and other tax authorities regarding amounts of taxes due. These challenges may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. We recognize income tax benefits related to uncertain tax positions when it is more likely than not that the position will be sustained upon examination by the tax authorities. This determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant tax authority that has full knowledge of all relevant

 

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information. Penalties and interest related to unrecognized income tax benefits are included within interest expense, net in the consolidated statements of operations and comprehensive income (loss).

Recent Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies,” of our consolidated financial statements included elsewhere in this prospectus for a summary of recent accounting pronouncements.

Emerging Growth Company Status

We ceased to be an emerging growth company on January 29, 2022 because our annual revenues exceeded $1.07 billion for our fiscal year 2021. However, we will continue to be treated as an emerging growth company for disclosure purposes in this prospectus until the completion of this offering. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued by FASB or the SEC subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to opt out of the extended transition period, and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies. The decision to opt out of the extended transition period under the JOBS Act is irrevocable.

 

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BUSINESS

Who We Are

We are a fully integrated global fashion brand powerhouse committed to inspiring self-expression through the creation and delivery of exclusive, well-curated products and experiences. We offer an immersive, experience-driven shopping environment for our consumers, with product offerings including jewelry, fashion accessories, tech accessories, cosmetics and more. Our trend-forward products are distributed in Claire’s®-operated stores, via e-commerce and through our broad base of concession partners. For over 50 years, Claire’s® has been a destination for the curious, creative and influential. Our entire ecosystem is anchored by our legacy in dynamic merchandising and our core piercing expertise and is informed by our unique understanding of and loyal relationship with our consumers worldwide.

We have two brands, Claire’s®, our flagship brand, and Icing®. Claire’s® has a powerful following with the highly influential Generation Z audience, which consists of over 2.5 billion individuals globally. Based on customer feedback, we have a reputation for delivering a differentiated, trendsetting and diverse assortment of products, many of which are proprietary designs, that help young minds style and define themselves. We believe that we are the market share leader in retail piercing services in North America and the world’s largest ear piercing service provider, having pierced the ears of millions of customers over our 40-plus year history of piercing. Piercing services and related product sales represent a meaningful part of our revenue and serve as an important customer acquisition vehicle that draws new consumers to our stores every year. The dynamic combination of strong brand equity, unique and diverse product offerings and revenue from services offered in our stores creates a highly differentiated financial profile with attractive margins.

Claire’s® offers an omni-present, multi-dimensional shopping experience, creating unique touchpoints with our consumers where they live and shop. Our offering is anchored in a strong physical retail presence which includes a global network of company-operated stores—consisting of conventional retail formats (which we refer to as standalone stores) and Claire’s® stores we operate inside a retail partner’s stores (which we refer to as store-in-stores)—and franchised stores. In addition, we operate in over 11,500 concessions located within approximately 30 retail partners in North America and Europe, including Walmart, CVS, Asda, Tesco and Matalan. In our concession formats, Claire’s® owns, merchandises and manages the inventory located in our partners’ stores and pays a sales-based variable fee for the right to operate in the concession.

Our retail stores offer a fun “treasure hunt” shopping experience that encourages our customers to explore and find the latest trends to create their own unique looks. We merchandize our stores with the intention of delighting and surprising our customers at every visit, which we believe encourages them to return to our stores frequently. We operate stores averaging 1,200 square feet in North America and 835 square feet in Europe in a broad variety of retail formats including mall, outlet, lifestyle, high street, strip centers and store-in-stores. As of January 29, 2022, there were 1,489 company-operated Claire’s® stores in North America, 878 company-operated Claire’s® stores in Europe across 15 countries and 289 franchised Claire’s® stores primarily located in the Middle East and South Africa. We believe our service-led retail model and attractive target consumer makes us a desirable tenant for commercial real estate operators, allowing us to be selective in choosing retail locations.

We use our Claire’s® and Icing® websites and the Claire’s® app for commerce and community, promoting and selling the latest products available at Claire’s® and Icing® and connecting with our customers, including educating them on recent trends, current offerings and our ear piercing service process and options. We continue to invest in our digital offerings to enable seamless and consistent

 

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brand interactions across every channel. We are enhancing our Buy Online, Pick-Up in Store (“BOPIS”) capability. We rolled out this capability in the United States in early 2021, the United Kingdom in November 2021 and France and Ireland in February 2022. We anticipate further pilot programs in other countries in the future. We launched our Claire’s® Rewards loyalty program in the United States in November 2020 and in the United Kingdom and Ireland in September 2021, and are in the process of expanding the program to additional countries. As of January 29, 2022, we had over 10.2 million loyalty members, and sales to Claire’s® Rewards members represented over 55% of our total U.S. Retail sales (including e-commerce) for fiscal year 2021. In September 2021, we launched our subscription program in the United States, offering curated boxes of jewelry and accessories to our subscription members.

We also operate our sister brand, Icing®, which had 189 stores in North America as of January 29, 2022. Icing® offers an inspiring merchandise assortment of fashionable products, as well as piercing services, targeting young women looking to express themselves. Our product offering includes jewelry, beauty, hair, fashion and bridal accessories. We believe Icing® allows us to reach age groups beyond our Claire’s® core customer demographic, including the over 76 million Millennial consumers in North America, and retain Claire’s® customers as they age. Many of our customers later introduce their children or other family members to the Claire’s® brand as they become mothers, aunts and grandmothers. Our Icing® product offering leverages our brand merchandising capabilities, consumer trend insights and other core expertise, including our product development and sourcing expertise.

Our Recent Transformation

Our management team has identified and enacted initiatives to leverage our strong brand equity and recognition in service and product excellence to accelerate growth, amplify brand value, expand our offerings and optimize our operating structure. Through the end of fiscal year 2021, we have invested over $150 million in the business to better align our offering with consumer trends, augment our physical and digital presence and enhance growth. These investments include the following:

Growth investments across all aspects of our business:

 

   

Assembling a growth-oriented management team with deep experience across all aspects of our company

 

   

Expanding and upgrading our retail footprint to meet our customers where they prefer to shop

 

   

Investing in new formats and channels to increase consumer interaction and access new customers

 

   

Building e-commerce capabilities to drive a seamless omni-channel experience and personalization at scale

 

   

Improving our ear piercing experience through digital enhancements and service expansion

 

   

Launching a consumer loyalty program to create more rewarding customer relationships with deeper insights

 

   

Designing subscription services to offer curated products with more frequent consumer interaction

 

   

Enhancing our buying and merchandise systems, including localizing assortment

Operational investments:

 

   

Redesigning our supply chain and developing improved planning and allocation capabilities

 

   

Upgrading our store network and IT to support our growth

 

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Developing data analysis excellence to drive decision making across all areas of the organization, including consumer trends, promotion management, real estate strategy and cost optimization

Our Recent Financial Performance

Since reopening our stores as COVID-19-related operating restrictions eased, we have experienced strong performance in North America and improving performance in Europe as the COVID-19 vaccine roll-out gains traction across the continent. We believe our operating results for fiscal year 2021 highlight the strength of our brand and unique nature of our business model, which combines growth potential with robust operating metrics.

For fiscal year 2021, we achieved the following results:

 

   

Increase in total same store sales of 17.8% compared to the same period in 2020 and 10.8% compared to the same period in 2019. North America same store sales grew 27.0% compared to 2020 and 18.8% compared to 2019. European same store sales decreased 1.7% compared to 2020 and 6.8% compared to 2019.

 

   

Total net sales growth of 53.2% compared to the same period in 2020 and 8.6% compared to the same period in 2019. North America sales grew 63.5% compared to 2020 and 22.3% compared to 2019. European sales grew 30.9% compared to 2020 and decreased 16.6% compared to 2019.

 

   

Net income of $8.2 million, representing a $75.2 million increase compared to the same period in 2020.

 

   

Adjusted EBITDA growth of 227.6% compared to the same period in 2020.

 

   

Net income (loss) margin of 0.6%, compared to (7.4)% for the same period in 2020.

 

   

Adjusted EBITDA margin of 19.8%, compared to 9.2% for the same period in 2020.

 

   

Partnered with 22 retail partners to open 3,495 net new concessions.

Our Competitive Strengths

Global brand powerhouse for self-expression

We are a category leader in the girl’s fashion jewelry and accessories market with strong brand recognition among our core demographic. According to surveys commissioned by Claire’s and conducted by The Morning Consult LLC, we enjoy between 82% and 99% brand awareness among 13 to 17 year-old girls, women 18 and over, and mothers with children aged 3 to 12 in the United States, the United Kingdom and France. Our Claire’s® brand is viewed by many as synonymous with self-expression and while Generation Z is our primary target, our brand appeals to consumers of all ages around the world. Our products are regularly featured in editorial coverage, social media and fashion periodicals relevant for our target audience. We believe there is an opportunity to further leverage our brand by extending into additional categories to capture a larger share of spending from or influenced by Generation Z consumers. In 2020, according to Euromonitor, the total addressable market of the jewelry, apparel accessories, color cosmetics, toys and writing instruments product categories was approximately $450 billion, with jewelry representing approximately $288 billion.

We believe we are the leading retail piercing destination, providing customers with a safe and affordable experience from a brand they trust. Ear piercing is a memorable life experience that we believe establishes a lifelong connection between customers and our brand. We offer piercing in all of our stores in North America and in over 98% of our stores in Europe. We have experienced

 

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27 consecutive quarters of positive year-over-year same-store sales growth of our ear-piercing business (excluding the first three months of fiscal year 2020 due to shut-downs resulting from the COVID-19 pandemic), although there are no assurances this growth will continue at the same rate or at all. See “Risk Factors.” We believe our highly trained associates and over 40 years of piercing experience have made us a desirable destination worldwide for a variety of piercing services.

Experiential, service-led business model

We are a preferred destination for consumers looking for a safe, fun and affordable ear piercing service. Our specially-trained staff pierce millions of customers’ ears annually. During fiscal year 2021, we averaged over 85,000 piercings per week. Revenue generated from our ear piercing experience has consistently accounted for a meaningful part of our Retail sales. For fiscal year 2019 through fiscal year 2021, more than 20% of our Retail sales came from ear-piercing-related transactions, with a substantially higher percentage of Retail sales from these transactions in North America than in Europe, and spend per piercing transaction grew at a compound annual growth rate of approximately 13% during this period. Our ear piercing service also functions as an attractive customer acquisition vehicle and drives significant traffic to our stores. For fiscal year 2021, approximately 50% of all ear piercing customers purchased fashion jewelry or accessories during their visit to our stores. Since the launch of our Claire’s® Rewards loyalty program in the United States, over 55% of piercing customers have joined the program. In addition to piercing, we offer other in-store activities, including birthday parties and life event celebrations. Special events represent a small but growing part of our business.

We strategically design the layout of our stores to encourage impulse buying and a “treasure hunt” experience for our customers. We constantly refresh our store merchandise, changing our floor plans eight to ten times per year, ensuring there is a feeling of newness each time a customer visits. We amplify this experience with promotions designed to fuel exploration and discovery of merchandise, such as our “buy three, get three” promotion.

We believe our experiential and service-led model differentiates us from other brick-and-mortar and online competition, given that our ear piercing service and in-store experience cannot be replicated online.

Multichannel flexible distribution strategy

We strive to connect with our customers where they prefer to shop. Reflective of the continuously evolving retail environment, we have strategically created a multichannel shopping experience, which includes a global company-operated and franchised retail store network, store-in-store formats and retail partner concessions, as well as a growing digital presence.

We have a highly flexible and differentiated real estate strategy, which allows us to grow and operate a variety of formats that generate positive store-level four-wall EBITDA. Our company-operated stores average 1,200 square feet in North America and 835 square feet in Europe. Each of our stores is a retail destination that draws in consumers looking for a fun shopping environment and drives foot traffic. Our customers rely on us to highlight new trends and provide them with a deep assortment of products to inspire their self-expression. As of January 29, 2022, we had 1,678 company-operated stores, which included 265 store-in-stores, in North America and 878 company-operated stores, which included 9 store-in-stores, in Europe. For fiscal year 2019, prior to the onset of the COVID-19 pandemic, 96% of our company-operated stores generated positive four-wall EBITDA, and we experienced strong same-store sales growth in fiscal year 2021, further enhancing store performance. We define four-wall EBITDA as store-level operating income before

 

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depreciation, including store wages, rent, distribution costs and other store operating expenses, adjusted to exclude corporate overhead expense.

 

   

Over one-third of our stores in North America were located in non-mall locations as of January 29, 2022. Our mall stores are located in many of the top malls in the country (with approximately 75% of the malls in which our stores are located graded by Green Street Advisors as mall grades A or grades B (excluding malls not rated by Green Street Advisors)), and are expected to continue to generate strong traffic trends and generate positive four-wall EBITDA. For fiscal year 2019, prior to the onset of the COVID-19 pandemic, 99% of our company-operated stores in North America generated positive four-wall EBITDA. For our stores located in lower-graded malls, the average remaining lease term was approximately 12 months as of January 29, 2022, which provides the opportunity for us to continue to evolve our retail footprint.

 

   

Our European locations are comprised primarily of mall and high street locations, with malls containing some of our top-performing stores. For fiscal year 2019, prior to the onset of the COVID-19 pandemic, 93% of our company-operated stores in Europe generated positive four-wall EBITDA, and we closed a number of unprofitable stores in Europe during 2020 and fiscal year 2021. A primary focus of our strategy is to improve the performance of European stores on a four-wall EBITDA basis by optimizing our existing store fleet through strategic relocations or closures of under-performing stores and opening new stores in under-penetrated markets within countries where we currently operate high-performing stores.

The following graphics summarize our number of company-operated stores by state, territory or country in our North America and Europe segments as of January 29, 2022.

North America:

 

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Europe:

 

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We also operate in over 11,500 concessions globally across approximately 30 retail partners. Further, expansion in the concessions business represents an attractive growth opportunity with low upfront investment.

We also have numerous avenues outside of our physical retail presence that extend our offering to meet our customers where they are, including our Claire’s® and Icing® websites, our Claire’s® app, our presence on third-party marketplaces including Amazon.com and our subscription program, which we launched in September 2021. We believe there is opportunity to grow our digital sales and subscription program by offering convenience, engaging content and a curated selection of merchandise.

Vertical integration resulting in differentiated merchandizing strategy and unique product assortment

Both our design team and sourcing team are vertically integrated. Our design team conceptualizes the vast majority of our merchandise, and over 90% of our merchandise is designed or sourced exclusively for, or otherwise sold exclusively by, Claire’s® or Icing®, including Claire’s® exclusive products from various licensed partners. Our sourcing team is responsible for generating and maintaining vendor relationships. We have solid, long-standing relationships with our over 200 vendors, some continuing for over 30 years, resulting in strong collaboration and competitive bidding

 

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across our vendor base. We believe that our vertically-integrated design and sourcing model allows us to respond quickly and nimbly to new trends and yields low cost sourcing that results in strong margins for our Claire’s® and Icing® products.

Differentiated financial profile with strong operating margins and many visible growth opportunities

Our differentiated business model combines significant top line growth opportunity with operating margin expansion and operating cash flow generation. Our brand, service-led offering and flexible real estate strategy allow us to continuously expand the market we serve and attract new consumers. We believe our scale, vertical integration and operational excellence allow us to offer consumers a unique and affordable product assortment and popular services while maintaining high operating income margins. Due to our strong operating margins, the relatively low capital investments required to open our stores and concessions and our low run-rate maintenance capital expenditure costs, we are able to generate strong operating cash flow and strong conversion of Adjusted EBITDA to operating cash flow. We believe the combination of our financial profile and strong balance sheet creates significant flexibility for us to capitalize on numerous visible growth opportunities.

Experienced and talented management team

Our senior management team has extensive retail experience and complementary expertise across a broad range of disciplines including merchandising, supply chain, real estate, e-commerce and finance. In total, our senior management team consists of nine members with over 225 years of collective experience in the retail sector. Ryan Vero, who joined as Chief Executive Officer in July of 2019, brings with him a strong track record of propelling retail growth through innovation.

Our Market Opportunity

While we serve customers across multiple generations, we consider the Generation Z audience, which encompasses individuals from 5 to 24 years of age in 2021, to be our core and most important demographic focus. The Generation Z consumer segment is over 2.5 billion strong globally. Relative to older generations, a high proportion of Generation Z spending is discretionary in nature given that much of Generation Z’s essential spending needs are paid by parents or other family members.

We believe there is a significant opportunity to not only grow product sales to our target consumers, but also to continue to enhance long-term brand equity and engagement, creating another generation of loyal and enthusiastic Claire’s® consumers. Our vision is to remain an influencer and creator of youth and fashion culture and a leader in the fashion jewelry and accessories market.

Our Growth Strategies

We believe we have significant opportunities to drive long-term growth in revenue and earnings by further leveraging our brand and dynamic operating platform to expand our physical footprint, attract new consumers and increase our share of wallet with our core demographic while enhancing our digital presence and consumers’ experience. We plan to execute on the following strategies:

Expand our multichannel presence to meet our customers where they are

 

   

Continue to grow and evolve our store footprint.    Our service-led global retail network serves as an attractive consumer acquisition vehicle and the foundation for our multichannel presence and experiential model. Our flexible business model allows us to operate various formats that generate positive store-level four-wall EBITDA, including standalone stores and store-in-store locations. With

 

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the exception of the period during the COVID-19 pandemic, we have consistently generated positive store-level four-wall EBITDA across our existing store footprint. For fiscal year 2019, prior to the onset of the COVID-19 pandemic, 96% of our company-operated stores generated positive four-wall EBITDA, and we closed some of our least productive locations during 2020 and 2021. We set certain targets when we evaluate new store locations. Our mall-based stores are expected to generate $600,000 to $900,000 in sales per year, require approximately $0.2 million of capital and inventory investment and typically have a 15-month payback period. Our off-mall stores are expected to generate $375,000 to $900,000 in sales per year, require approximately $0.2 million of capital and inventory investment and typically have a 14-month payback period. Our store-in-store locations are expected to generate $250,000 to $400,000 in sales per year, require approximately $0.1 million of capital and inventory investment and typically have a 14-month payback period. Although we set these targets for new store openings, such targets may not be reached or obtained.

 

   

Over one-third of our stores in North America were located outside of shopping malls as of January 29, 2022. We have identified over 500 potential new standalone Claire’s® store locations in strip, power, outlet and lifestyle centers and select top-tier mall locations where we are currently not present. In fiscal year 2022, we expect to open 220 to 240 new store locations, of which the majority will be located in non-mall locations. We also expect to close approximately 55 standalone store locations, the majority of which will be located in malls. At the end of fiscal year 2021, approximately 36% of our stores in North America were located in non-mall locations, up from approximately 20% from fiscal year 2019. As of January 29, 2022, our average remaining lease commitment on our existing real estate portfolio was less than 24 months in North America.

 

   

In Europe, we expect to improve the performance on a four-wall EBITDA basis of our existing stores as well as open new locations in select markets. We plan to continue to optimize our existing store fleet through strategic relocations or closures of under-performing stores and opening new stores in under-penetrated markets within countries where we currently operate high-performing stores. We expect to open 55 to 60 new standalone store locations and close approximately 20 underperforming stores in fiscal year 2022. As of January 29, 2022, our average remaining lease commitment on our existing real estate portfolio was approximately 26 months in Europe.

 

   

Over the next several years, we anticipate annually opening approximately 90 to 110 net-new standalone stores (new stores less closing stores) globally, most of which will be located in non-mall locations. We further expect to continue optimizing our real estate portfolio, through strategic relocations, to reduce exposure to lower quality and lower grade mall locations.

 

   

Grow concessions.    We currently operate in over 11,500 concessions across approximately 30 retail partners in North America and Europe. During fiscal year 2021, our average weekly sales were between $50 and $250 at our small-format concessions locations, between $250 and $650 at our medium-format concessions locations, and between $650 and $3,000 at our large-format concessions locations. We believe we have a significant opportunity to grow and deepen these existing partnerships as well as launch concession offerings with new retail partners. We maintain inventory ownership and only incur minimal fixed operating costs with limited upfront investment for our concessions, which results in a lucrative revenue stream and earnings profile. We currently operate successful concession partnerships in a variety of retail segments across North America and Europe. We focus on partnering with large chains where we can scale quickly. We have an existing presence in approximately 30 retailers globally, including Walmart, CVS and Matalan. We believe there are meaningful identified opportunities for our concessions, which we are only in the early stages of addressing, including through continued expansion into new retail partner stores and through the rollout of additional stores with existing partners. We focus on top retailers across a variety of retail segments, including mass, grocery, apparel, department and specialty stores in the

 

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United States and Europe. Given the impulse nature of purchases for many of our categories and unique shopping experience, we have not experienced any meaningful cannibalization in our Claire’s® and Icing® banner stores as we have grown our concessions partnerships. We also believe we have numerous incremental opportunities with our retail partners, including expansion of our product offerings and offering ear piercing services in some partners’ stores.

 

   

Expand geographically. We believe there is an opportunity to expand our business in new geographies in the future, including expanding our presence in Central and South America and entering Mexico and the Asia-Pacific region, each of which we believe is an untapped market for the Claire’s® brand.

Acquire new consumers and increase our share of the customer’s wallet

 

   

Enhance and grow our piercing services.    We believe we are the world’s largest ear piercing services provider as well as the market share leader in retail piercing services in North America. We have an opportunity to further leverage our piercing experience and reputation for piercing safety to grow our market share and our revenue per piercing by enhancing the consumer piercing experience, including by increasing the product mix of premium offerings. We are investing in capabilities that will allow us to elevate consumers’ pre-appointment, in-store and aftercare piercing experience, including online scheduling and registration, virtual earring try-on and digital aftercare notifications. We are also planning to expand our nose piercing services, which we currently only offer in certain stores in the United Kingdom, Ireland, France, Germany and Canada. In addition, we see an opportunity to continue to expand our products to include a higher percentage of premium items in a majority of our stores, including gold and diamond options.

 

   

Localize our merchandise.    We are continuously elevating our merchandise to deliver a differentiated selection of proprietary and exclusive products that are highly relevant to our customers. This includes varying our product inventory and assortment across our store base to reflect the unique characteristics of our local markets. We believe this is especially important across our footprint in Europe, which spans several distinct markets. We have invested in a new merchandizing system we are implementing to enable us to further leverage our global consumer insights to customize our offering to local preferences at scale, further enhancing store performance and reducing markdowns.

 

   

Increase consumer lifetime value by expanding our loyalty program.    We believe there is an opportunity to capture a larger share of the spend by and for our core demographic by offering a focused and compelling loyalty program. We launched our loyalty program in the United States in November 2020 and, as of January 29, 2022, we had over 10.2 million members. Our loyalty program rewards our customers with cash back and exclusive discounts while allowing us to leverage consumer data analytics from the program to employ more personalized consumer messaging and marketing to drive a higher share of our customer’s wallet. For fiscal year 2021, over 55% of our U.S. Retail revenue (including e-commerce) was attributable to loyalty members. We expanded the loyalty program into the United Kingdom and Ireland in September 2021.

 

   

Enhance our digital presence. Our goal is to become the most engaging customer-centric digital destination for discovery, inspiration and purchase of fashion jewelry and accessories. We use our online presence to highlight current trends, provide purchase recommendations as well as interact and transact with our consumers. Since 2018, we have invested over $15 million in enhancing our digital capabilities, resulting in meaningful increases in traffic to Claires.com and Icing.com and improved conversion rates. We believe we have an opportunity to grow our digital business by making the online shopping experience easier, with improvements in website navigation, product pages and checkout experience, as well as by

 

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leveraging our expanded Buy Online, Pick-Up in Store (“BOPIS”) capabilities. We also have the opportunity to expand our digital footprint to additional countries where we currently have a retail store presence but where our e-commerce presence is not customized to the local market as well as to capture additional sales through Amazon’s marketplace and similar opportunities globally. We also launched a subscription service in the United States in September 2021 to offer customers access to the latest trends and products from Claire’s®. We believe growth in subscription represents a sizable opportunity.

Our Merchandise

We offer a curated, on-trend selection of products across a broad range of jewelry and accessory categories in an environment that inspires self-expression, encouraging our customer to convey their personality, creativity and individuality. Our merchandise assortment consists primarily of Claire’s® or Icing® brand products, with licensed products in select categories. Over 90% of our merchandise is designed or sourced exclusively for, or otherwise sold exclusively by, Claire’s® or Icing®, including Claire’s® exclusive products from various licensed partners. We offer consumers a strong value proposition, with accessibly priced products merchandised to encourage a “treasure hunt” experience in our stores; and during fiscal year 2021, the company-wide average unit retail price was approximately $8.00. Our merchandising strategy also leverages our status as an ear piercing destination.

Our merchandise primarily falls into the following categories:

 

   

Jewelry:    includes earrings; necklaces; bracelets; body jewelry; rings; and merchandise associated with our piercing services (such as after-care cleansers and piercing earrings); and

 

   

Accessories:    includes hair goods; beauty products; room decor; personal, fashion and seasonal accessories, including tech accessories (such as phone cases), jewelry holders, stationery, toys, key rings, attitude glasses, headwear, legwear, armwear and sunglasses; and handbags.

As of January 29, 2022, each Claire’s® store offered approximately 8,900 SKUs and each Icing® store offered approximately 5,400 SKUs.

Piercing Services

We have been piercing ears in our stores for over 40 years. Our specially-trained staff pierce millions of customers’ ears annually, and we believe we are the world’s largest ear piercing service provider and the market share retail leader in North America. As of January 29, 2022, we offered ear piercing in all of our stores in North America and in over 98% of stores in Europe. We also offer nose piercing in select markets in Europe and Canada. Our piercing service drives significant traffic to our stores and functions as an attractive customer acquisition vehicle; since its launch in the United States market, over 55% of all piercing customers have also joined our Claire’s® Rewards loyalty program.

Our ear piercing services are currently complimentary with the purchase of a starter kit priced from $30 to approximately $230. The starter kit includes specialized hypo-allergenic piercing earrings that are part of a sealed, pre-sterilized cartridge that is placed directly into the piercing instrument (without the piercing earrings ever being touched by the store associate) and after care solution. Our ear piercing services are currently offered on a walk-in basis or through in-store scheduling, and we are investing in capabilities that will allow us to offer online piercing appointment scheduling and registration, virtual earring try-on and digital aftercare notifications. We currently provide traditional earlobe piercing and dual earlobe piercing, and we also offer ear cartilage piercing in many markets.

 

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We have learned through internal studies and research that a segment of our customers desires additional piercing services. To that end, we currently offer nose piercing services in select stores in Canada, France, Germany, the United Kingdom and Ireland, and we plan to expand this service at more of our locations globally.

All of our store associates are trained in local piercing policy, practice and procedures in order to provide clean, hygienic, safe and compliant piercing services. Each associate must complete “practical sign off,” which means they must demonstrate excellent piercing technique prior to our piercing trainer validating the associate’s certification. In addition to the initial training, all piercing specialists must undergo refresher training on an annual basis. For information regarding risks related to our ear piercing services, see “Risk Factors—Risks related to laws, regulations and industry standards —Our cost of doing business could increase as a result of changes in regulations regarding the content and sale of our merchandise and our piercing services.”

Stores

Store design and environment

The in-store shopping experience is integral to the Claire’s® and Icing® brands. We design the layout of our stores to foster a “treasure hunt” experience that encourages exploration and discovery. We are constantly refreshing our store merchandise to ensure there is a feeling of newness each time a customer visits. Our store layout is also structured to showcase our piercing services. We strive to maintain a consistent look and feel across all of our owned and franchised stores through a disciplined plan-o-gram process that coordinates floor plan changes 8 to 10 times per year.

Each of our stores is typically led by a manager and an assistant manager. In addition, each store has one or more part-time employees, depending on store volume. We believe that our store design and in-store teams together foster a welcoming environment where customers feel invited to express their personalities, creativity and individuality.

Company-operated stores

As of January 29, 2022, we operated 1,489 Claire’s® and 189 Icing® stores in North America and 878 Claire’s® stores in Europe. Our stores are located in shopping malls, strip centers, outlets, lifestyle centers, in high street locations and as store-in-stores in partner retailers. We enter into agreements with our partner retailers pursuant to which we operate our store-in-store locations within the partner retailers’ stores. As consideration for operating store-in-store locations, we typically pay our partner retailers a percentage of our gross sales from the store-in-store locations. Our agreements generally have a term of five years, with the option for renewal, and generally include an option for either party to terminate the lease agreement upon certain specified events of default.

Of the approximately 900 malls in North America that have Claire’s® or Icing® stores and that are rated by Green Street Advisors, approximately 75% were located in malls with grades A or grades B as of January 29, 2022. The remainder of our North American stores are located in strip centers, outlets, lifestyle centers and partner retailers. Our Claire’s® stores in North America averaged approximately 1,200 square feet as of January 29, 2022. Our North America store footprint also included 265 Claire’s® store-in-stores that we operate within our retail partners’ retail locations. Our store-in-store locations feature a layout, product offerings and piercing services similar to other retail stores but with a smaller footprint (averaging approximately 850 square feet as of January 29, 2022). In Europe, our stores are comprised primarily of mall (633 stores) and high street (187 stores) locations. Our remaining stores in Europe were positioned in outlet centers, retail parks, train stations and airports. Our stores in Europe averaged approximately 835 square feet as of January 29, 2022.

 

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Our real estate strategy is driven by a strong focus on engaging our core customer wherever they may be shopping. As a result, our goal is to maintain a diverse and flexible footprint that can adapt to changing consumer trends as they occur. This allows us to adapt to changing consumer activity. As a result of this strategy, over the last four fiscal years we have altered our real estate footprint in North America from being approximately 80% mall-based to approximately 64% mall-based, and we expect to continue to diversify our real estate portfolio over the next several years. As of January 29, 2022, our average remaining lease commitment on our existing real estate portfolio was less than 24 months in North America and approximately 26 months in Europe.

We also intend to increase the density of our store fleet in certain geographies, which will allow for further economies of scale from market concentration. We target a store model that generates positive store-level four-wall EBITDA across a wide variety of urban and suburban areas as well as numerous real estate venues, including malls, power centers, lifestyle centers, outlets and store-in-store locations. We evaluate potential store sites based on criteria that include relevant population demographics and density, space requirements, positioning within a center and rent and other lease terms. Our real estate team spends considerable time evaluating prospective locations before bringing specific proposals to our real estate committee (which includes several of our executive officers), which approves all locations before a lease is signed.

We believe there is significant opportunity to expand our store base in North America and Europe. Our target is to open between 275 and 300 new stores globally in fiscal year 2022. We also expect approximately 75 store closures globally in fiscal year 2022. We have built and maintain a pipeline of real estate site opportunities that we believe will continue to facilitate growth in North America and Europe.

The following table summarizes our company-operated stores as of the fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020:

 

     As of  
     January 29, 2022      January 30, 2021      February 1, 2020  

Company-operated Claire’s® stores, North America(1)

     1,489        1,390        1,312  

Company-operated Claire’s® stores, Europe(1)

     878        905        937  

Company-operated Icing® stores(1)

     189        195        198  

 

(1)

As of January 30, 2021, 49 of our company-operated Claire’s® stores in North America were temporarily closed due to the COVID-19 pandemic. As of January 30, 2021, 568 of our company-operated Claire’s® stores in Europe were temporarily closed due to the COVID-19 pandemic. As of January 30, 2021, four of our company-operated Icing® stores were temporarily closed due to the COVID-19 pandemic. No company-operated stores were temporarily closed due to the COVID-19 pandemic as of January 29, 2022 and February 1, 2020.

Opening stores within existing markets enables us to benefit from established brand awareness and to achieve operating efficiencies. Our store growth is supported by our new store economics, which we believe to be compelling. Our new standalone and store-in-store locations are expected to have a 12 to 18 month payback period with standalone stores requiring approximately $0.2 million of capital and inventory investment and store-in-store locations requiring approximately $0.1 million of capital and inventory investment, including our store build-out (net of tenant allowances), inventory (net of payables) and cash pre-opening expenses.

Franchise-operated stores

In addition to our company-operated stores, we have a presence in approximately 23 countries through a network of franchise partners that operated 289 Claire’s® stores as of January 29, 2022.

 

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These stores are primarily located in the Middle East and South Africa, with smaller presences in Latin America and Europe. Franchised stores carry a similar assortment and brand experience as our company-operated stores, with some localized changes that reflect the fashion and consumer experience preferences of those countries.

Our franchising and licensing agreements are with unaffiliated third parties who are familiar with the local retail environment and have sufficient retail experience to run the day-to-day operations of stores (including by having full discretion to set store hours and promotional and pricing strategies) in accordance with our business model. Typically, franchise agreements range between five to ten years, provide the option for renewals, and are terminable by either party for cause. We account for the merchandise we sell to third parties under our franchising and licensing agreements as net sales and cost of sales. We also charge franchise fees, which may include fees equal to a percentage of merchandise sales by the third party, under our franchising agreements; we account for these fees as “Other income, net.”

Concessions

We partner with prominent retailers to offer our merchandise for sale within the partners’ retail locations. Most of our concession locations are not located within traditional shopping malls. By partnering with these retailers, we have access to sales channels that enable us to diversify our retail footprint and drive Claire’s® brand awareness to new consumer groups. Our retail partnerships span mass, grocery, drug, toy, apparel, department store and specialty retail channels and focus on large chains where we can scale quickly; our current retail partners include Walmart, CVS and Matalan.

Our concessions partners are provided with a full service category management model that leverages the strength of the Claire’s® brand and our unique merchandise assortment with the added value of consigned inventory. Our concession partner locations are primarily serviced by dedicated Claire’s® concession merchandising teams across all markets, and in some cases Claire’s® also utilizes third party and Claire’s® retail store team members. Our agreements with our concessions partners typically provide for our Claire’s®-branded merchandise to be delivered to the concession partner’s stores by us, and displayed in designated areas within the concession partner’s stores. In consideration for selling our merchandise at their stores, our concessions partners retain a portion of the net sales of our merchandise as a commission and pay us the balance. Our agreements either have a term of one year (in the case of our typical agreements with our U.S. concessions partners) or an unlimited term unless the agreement has been terminated upon three months’ written notice (in the case of our typical agreements with our European concessions partners). Our agreements are generally terminable by either party upon certain specified events of default or other events. As of January 29, 2022, we operated in over 11,500 concessions globally across approximately 30 retail partners.

Design, Sourcing and Distribution

Design

Over 90% of our merchandise is designed or sourced exclusively for, or otherwise sold exclusively by, Claire’s® or Icing®, including Claire’s® exclusive products from various licensed partners. Many of our designs are conceptualized in-house by our design and trend team. Our trend team is constantly monitoring trends and supplying timely information to our design and buying teams to develop a wide range of products that allows us to capitalize on a spectrum of trends, ideas and merchandise concepts. The remainder of our merchandise consists primarily of various licensed products.

 

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Sourcing

We purchase merchandise from a network of over 200 vendors that turn our designs or specifications into a finished product, with the merchandise primarily produced in Asia. We have longstanding relationships with many of our vendors that in some cases exceed 30 years. Our supply network is well diversified, with no single vendor accounting for more than 20% of our purchases in fiscal year 2021. We believe we are a material part of most of our merchandise suppliers’ business.

Our vertically integrated merchandising and global sourcing team is responsible for originating and managing our vendor relationships. Our Asian sourcing team is located in Hong Kong and has been in operation for over two decades. We believe that the combination of our vertically integrated design and sourcing model and our local vendor relationships allows us to respond quickly and nimbly to trends and yields low-cost sourcing that results in strong margins for our products.

Distribution

We operate from three distribution centers. Our two primary distribution centers are a 370,527-square foot distribution center in Hoffman Estates, Illinois, a suburb of Chicago, and a 45,450 square foot distribution center in Birmingham, United Kingdom. We operate our Hoffman Estates distribution center that supplies our Claire’s® and Icing® company-operated stores and Claire’s® concessions in North America and fulfills orders for our North American websites. Our Birmingham, United Kingdom distribution center is operated by a third party and services our Claire’s® company-operated stores and concessions in Europe as well as our franchised Claire’s® stores in Europe and fulfills orders for our European website. We are in the preliminary stages of evaluating the possibility of opening an additional distribution center in Europe. Both our U.S. and UK distribution centers ship merchandise by third party carrier to our individual store locations. To keep our assortment fresh and exciting, we typically ship merchandise to our stores three to five times per week. We also utilize an 11,500 square foot distribution center in Hong Kong that is operated by a third party to supply our franchised stores primarily based in the Middle East and South Africa.

Quality Assurance

We source a substantial majority of our products through vendors that are principally coordinated by our Hong Kong sourcing office. These vendors in turn rely on a number of production facilities, primarily in China. Before placing any orders with a production facility, we conduct an audit that has three components: social and environmental; business accountability; and technical. The social and environmental and business accountability audits are conducted on a pass/fail basis. If a production facility fails any such audit, we will not place any orders until the production facility has passed a re-audit. Production facilities are generally re-audited every one-to-three years, depending on performance on the previous audit.

In addition, before we order a product for the first time (even from an existing vendor), the product must pass a compliance test by a Consumer Product Safety Commission (CPSC)-approved lab. Upon receipt of goods at our U.S. and UK distribution centers, we test products for compliance with applicable regulations on heavy metals and other legal requirements.

Marketing and E-commerce

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customers’ connections with our brands. Given our focus as a shopping destination, we invest in locating our stores (including store-in-store locations) and concessions in prominent, high-traffic locations. Our stores and concessions feature colorful displays showcasing our fun merchandise, latest trends and key items, adding to the fun and playful atmosphere of the store. Our brands are also featured on the packaging for most of our products. We believe that our customer develops an affinity for the Claire’s® brand through their interactions with our associates, stores and digital platforms, through their piercing experience and through our marketing campaigns. In November 2020, we launched our Claire’s® Rewards program in the United States to drive customer traffic, sales and brand loyalty, and we are in the process of expanding the loyalty program to additional countries. Customers can enroll in the program in-store, online or via our app. Members earn points for every dollar spent and can also unlock a $5 reward after every $100 of spend in-store or online. Members receive free shipping twice annually and personalized promotions, and are eligible for exclusive events. As of January 29, 2022, we counted over 10.2 million rewards members. During fiscal year 2021, over 55% of our U.S. Retail sales were made to customers who are members of Claire’s® Rewards. The Claire’s® Rewards program gives us greater insight into our customers and allows us to employ more personalized consumer messaging and marketing. We communicate with members of our Claire’s® Rewards program via SMS messaging, email and direct mail.

In September 2021, we launched our subscription program in the United States, offering curated boxes of jewelry and accessories to our subscription members. Our subscription program provides customers with access to the latest trends from Claire’s®, in some cases before they are available in stores or online, and offers several different subscription boxes that will appeal to various consumer segments distributed multiple times per year.

We use our Claire’s® and Icing® websites for commerce and community, promoting and selling the latest products available at Claire’s® and Icing® and further connecting with our customers, including educating them on recent trends, current offerings and our ear piercing process and options. We are continuing to invest in our digital offerings to improve the customer experience and provide seamless and consistent brand interactions across every channel. We are enhancing our Buy Online, Pick-Up in Store (“BOPIS”) capability. We rolled out this capability in the United States in early 2021, the United Kingdom in November 2021 and France and Ireland in February 2022. We anticipate further pilot programs in other countries in the future.

Our digital media, social media, email and texting campaigns are complementary to the in-store experience. We leverage our social media presence by posting engaging and fun content focused on key trend items, “behind-the-scenes” snippets and user-generated images. As of January 29, 2022, we had over 3.6 million followers across our social media channels (including Facebook, Instagram, Pinterest, TikTok, Twitter and YouTube), and our mobile app, which is currently available in the United States and United Kingdom, had been downloaded approximately 1.5 million times.

Competition

We compete with international, national and local department stores, specialty and discount store chains, mass merchants, independent retail stores, e-commerce services, direct marketing to consumers and catalog businesses that market similar lines of merchandise. We have strong brand recognition among our core demographic, with our products being regularly featured in editorial coverage, social media and fashion periodicals relevant for our target audience. We are also known as the leading retail piercing destination, providing customers with a safe and affordable experience from a brand they trust. Our highly trained associates and over 40 years of piercing experience have made us a destination worldwide for ear piercing.

 

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We believe that we compare favorably relative to many of our competitors based on our brand recognition, piercing services, merchandise assortment, compelling value, store and concession locations, e-commerce capabilities, speed to market and the shopping experience. Nonetheless, certain of our competitors have greater financial, distribution, marketing, e-commerce and other resources than we do.

Seasonality

Our quarterly business performance has historically exhibited less volatile quarterly sales activity compared to other jewelry, accessories and apparel retailers, with each quarter representing approximately 20% to 30% of revenue during a typical fiscal year. However, we experience peak selling periods during or around certain holidays and key retail shopping periods such as the year-end holiday season, back-to-school periods, Easter, spring break, Halloween, St. Patrick’s Day and the Fourth of July. In addition, our sales of each product category can vary from period to period depending on current trends.

Principal Properties

Our principal executive offices, headquarters and North American distribution centers are presently located in Hoffman Estates, Illinois, consisting of approximately 530,000 square feet under a lease that expires in 2030. We also have an office and distribution center in Birmingham, United Kingdom, consisting of approximately 70,000 square feet under a lease that expires in 2024, and an office in Hong Kong, consisting of approximately 8,500 square feet under a lease that expires in 2023.

We lease all of our store (including store-in-store) locations. We generally operate our stores under lease commitments that are between two and five years in North American and between five and ten years in Europe. As of January 29, 2022, our average remaining lease commitment on our existing real estate portfolio was less than 24 months in North America and approximately 26 months in Europe.

Intellectual Property

Our Claire’s® and Icing® trademarks, which constitute our primary intellectual property, have been registered in the U.S. Patent and Trademark Office and with the registries of certain other foreign jurisdictions, including in the jurisdictions where our products are manufactured and/or sold. In particular, our trademark portfolio consists of over 300 trademark registrations and applications in the United States and other jurisdictions around the world, including for Claire’s® and Icing® in the United States, the United Kingdom, the European Union, China and multiple other countries. We intend to maintain our trademarks and related registrations and protect our intellectual property assets against counterfeiting, infringement, misappropriation, dilution or other violations. However, we may be unable to register or otherwise protect our trademarks in all jurisdictions or in all classes relevant to us. There can be no assurance that the actions we have taken to establish and protect our trademarks will be adequate to prevent the imitation of our products or brands by others, or to prevent others from seeking to block our use or registration of our trademarks as a violation of the trademarks and other intellectual property rights of others.

Due to the broad consumer recognition of the Claire’s® brand in North America and Europe and the Icing® brand in North America, we face a risk of counterfeiting by third parties. We monitor and enforce our intellectual property and proprietary rights against counterfeiting, infringement, misappropriation, dilution and other violations by third parties where and to the extent we deem feasible and appropriate. However, the actions we take to protect our intellectual property rights may not be adequate to prevent third parties from counterfeiting or copying our products or infringing,

 

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misappropriating, diluting or otherwise violating our trademarks or other intellectual property rights, and the laws of foreign jurisdictions may not protect intellectual property rights to the same extent as do the laws of the U.S. For more information regarding risks related to our intellectual property, see “Risk Factors—Risks related to information technology, data security and intellectual property.”

Employees and Human Capital Resources

Our success depends on our ability to attract, retain and motivate highly qualified personnel. As of January 29, 2022, we had approximately 14,600 employees, of which approximately 5,400 employees were full time. Our employees are based in a variety of locations, with our corporate employees based primarily at our offices located at Hoffman Estates, Illinois; Pembroke Pines, Florida; Birmingham, United Kingdom; and Hong Kong. The majority of our employees are sales associates and store managers, located across the geographic footprint of our businesses. As of January 29, 2022, approximately 8% of our employees were represented by works councils with whom we regularly consult and approximately 15% were party to a collective bargaining agreement, and all of these representations and agreements reside within our European workforce. We have not experienced any work stoppages and we consider our relationship with our employees to be good. However, we, like other members of the retail and hospitality industries, have been challenged by higher than average turnover during fiscal year 2021 than in prior years.

We strive to foster an innovative culture as we further build our business and expand our products and services, and we view our human capital-related initiatives as an ongoing priority. Such initiatives include: the launch of a global human capital system, targeted to be operational in the latter half of fiscal year 2022; investment in workplace culture enhancements such as global employee resources groups and company-wide Diversity, Equity and Inclusion events and objectives; the creation of development and training programs and resources aligned to the forward-looking needs of both employees and the organization; and specific investments in key talent additions to upskill areas of strategic importance.

Government Regulation

We are subject to laws and regulations affecting our business, including product safety (as further described below); trade, transportation and customs (as further described below); anti-bribery and anti-corruption (such as the U.S. Foreign Corrupt Practices Act and the UK Bribery Act 2010); privacy and data security (such as the EU General Data Protection Act, the California Consumer Privacy Act and the California Privacy Rights Act); advertising and consumer protection (such as the Federal Trade Commission Act and the U.S. Telephone Consumer Protection Act of 1991); accessibility; health care, employment and labor laws; and zoning and occupancy ordinances that regulate retailers generally and/or govern the promotion and sale of merchandise and the operation of retail stores and e-commerce sites.

We are committed to providing products to our consumers that are safe as well as fun and fashionable. Our product safety program is designed to offer products that comply with all applicable laws and regulations, including the U.S. Consumer Product Safety Improvement Act of 2008 (“CPSIA”), the U.S. Federal Food Drug and Cosmetic Act, the U.S. Federal Hazardous Substance Act, the U.S. Flammable Fabrics Act, the UK’s and the EU’s Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulation and the Canada Consumer Product Safety Act (“CCPSA”).

We source substantially all of our products through a network of vendors primarily in Asia. These products are subject to various customs laws, which may impose tariffs, as well as quota restrictions. In addition, each of the countries in which our products are sold has laws and regulations covering

 

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imports and exports. The United States and other countries in which our products are sold may impose, from time to time, new duties, tariffs, surcharges, or other import controls or restrictions, or adjust presently prevailing duty or tariff rates or levels. We therefore monitor import restrictions and developments and seek to minimize our potential exposure to import related risks, including, to the extent practicable, through shifts of production among countries.

Legal Proceedings

We are and from time to time we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business. Although the results of litigation and claims are inherently unpredictable and uncertain, we are not currently a party to any legal proceedings the outcome of which, if determined adversely to us and either individually or taken together, would be expected to have a material adverse effect on our business, financial condition or results of operations in excess of our litigation reserves. Regardless of the outcome, litigation has the potential to have a material adverse impact on us because of defense and settlement costs, diversion of management resources, damage to our brands and other factors. See “Risk factors—Risks related to our business and industry—Litigation matters and regulatory enforcement actions relating to our business could be adversely determined against us or otherwise distract management from our business activities and result in significant liability or damage to our brands.”

 

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MANAGEMENT

Executive Officers and Directors

The following table presents the names of the current executive officers and directors.

 

Name

  

Age

  

Position

Executive Officers

     

Ryan Vero

   52    Chief Executive Officer and Director

Colleen Collins

   58    Executive Vice President, Stores

Richard Flint

   51    Executive Vice President, President of Europe

Jordana Kammerud

   45    Executive Vice President, Chief Human Resources Officer

Brendan McKeough

   55    Executive Vice President, General Counsel and Secretary

Beth Moeri

   55    Executive Vice President, Chief Merchandising Officer

Kristin Patrick

   51    Executive Vice President, Chief Marketing Officer

Marc Saffer

   64    Executive Vice President, Chief Information Officer

Michael Schwindle

   55    Executive Vice President, Chief Financial Officer

Directors

     

Laurie Ann Goldman

   59    Director and Chair of the Board of Directors

Samantha Algaze

   34    Director

Carmen Bauza

  

60

   Director

Paul Best

   43    Director

DeAnn Brunts

  

60

   Director

Patrick Fallon

   33    Director

Theophlius Killion

   71    Director

Samantha Lomow

   48    Director

Arthur Rubinfeld

   68    Director

Executive officers

Ryan Vero

Mr. Vero has served as Chief Executive Officer and Director of the Company since July 2019. Prior to this, from 2016 to 2019, Mr. Vero served as President, Retail at Party City Holdings. From 2014 to 2016, he served as President, Grocery and Drugstore at Sears Holdings Corporation. Mr. Vero served as Executive Vice President, Chief Merchandising and Marketing Officer at OfficeMax from 2005 to 2011. Mr. Vero holds a BS and BBA in Finance from St. Bonaventure University and an MBA from the Weatherhead School of Management at Case Western Reserve University. We believe Mr. Vero’s extensive experience in the consumer goods and retail space, leadership and management expertise make him a valuable member of our board of directors.

Colleen Collins

Ms. Collins joined the Company in 1987, and currently serves as Executive Vice President, Stores, a position she has held since October 2017. Prior to this, from 2015 to 2017, she served as Global Senior Vice President, Stores of the Company, and from 2005 to 2015, she served as Senior Vice President of North America Stores of the Company.

Richard Flint

Mr. Flint has served as President, Europe of the Company since August 2021. Prior to this, he was at HEMA BV, serving as Chief Operating Officer and an Executive Board member from 2016 to

 

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2021. Prior to HEMA BV, he was at Nike, serving as Vice President - Direct to Consumer from 2010 to 2016. Mr. Flint previously held positions at Marks & Spencer. Mr. Flint received a BA in English and Philosophy from the University of Manchester and has completed further leadership executive courses at INSEAD and Duke University.

Jordana Kammerud

Ms. Kammerud has served as Executive Vice President, Chief Human Resources Officer of the Company since February 2020. Prior to this, she was at Core-Mark, serving as Chief Human Resources Officer, Senior Vice President from 2017 to 2020. Prior to Core-Mark, she was at SC Johnson from 2010 to 2017, lastly serving as Vice President, Human Resources, Global Commercial Division from 2014 to 2017. Ms. Kammerud received a BS in Sociology from the University of Wisconsin-La Crosse and an MS in Industrial Relations from the University of Wisconsin-Madison.

Brendan McKeough

Mr. McKeough has served as Executive Vice President, General Counsel and Secretary of the Company since January 2020. Prior to this, he was at Essendant Inc., serving as Senior Vice President, General Counsel, Secretary and Chief Compliance Officer from 2017 to 2019, Deputy General Counsel and Assistant Secretary from 2013 to 2017 and Assistant General Counsel from 2003 to 2013. He previously held positions at Sears and in private practice. He received his BA in History from the University of Illinois Urbana-Champaign and JD from the University of California, Los Angeles.

Beth Moeri

Ms. Moeri rejoined the Company as Executive Vice President, Chief Merchandising Officer in June 2020, after previously serving as Vice President and Divisional Merchandise Manager of Fashion, Jewelry and Accessories from 1997 to 2007. Ms. Moeri previously served as Executive Vice President, Portfolio Brands at Fossil Group from 2018 to 2020. From 2012 to 2018, she was Chief Merchandising Officer at Pandora Jewelry and from 2007 to 2011, she was Vice President, General Merchandise Manager at Yankee Candle. Ms. Moeri serves as a director for Jewelers for Children. Ms. Moeri holds a BS in Human Environmental Science from the University of Missouri—Columbia.

Kristin Patrick

Ms. Patrick has served as Executive Vice President, Chief Marketing Officer of the Company since March 2021. Prior to this, Ms. Patrick served as the interim Chief Marketing Officer of Torrid from 2019 to 2021. Prior to Torrid, she was at PepsiCo, serving as Global Chief Marketing Officer from 2015 to 2019 and the first ever Global Chief Marketing Officer, Pepsi Brand from 2013 to 2015. She previously held positions at Playboy Enterprises, William Morris Endeavor, GAP, Liz Claiborne, NBC Universal, Calvin Klein, The Walt Disney Company and Revlon. Ms. Patrick holds a BA in Business from Emerson College.

Marc Saffer

Mr. Saffer has served as Executive Vice President, Chief Information Officer of the Company since April 2020. Prior to this, he served as Senior Vice President and Interim Chief Information Officer at Centric Brands from 2018 to 2019. From 2016 to 2018, Mr. Saffer served as Senior Vice President, Information Technology at Global Brands Group and, from 2010 to 2016, Chief Information Officer at J. Crew. He previously held positions at Duane Reade, Langdon Technology Group and Columbia House. Mr. Saffer serves on the board of directors of Taylored Fulfillment Services. Mr. Saffer holds an associate’s degree in Electro-Mechanical Technology from the City University of New York.

 

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Michael Schwindle

Mr. Schwindle has served as Executive Vice President, Chief Financial Officer of the Company since March 2020. Prior to this, he served as Executive Vice President, Chief Financial Officer for Fleet Farm from 2018 to 2020, where he led the Finance, Human Resources and Information Technology departments. From 2015 to 2017, Mr. Schwindle served as Chief Financial Officer at Payless ShoeSource, from 2011 to 2015, as Chief Financial Officer at Harry & David and from 2008 to 2011, as Chief Financial Officer at Musicians Friend. Mr. Schwindle also previously held leadership positions at Home Depot and began his career at Deloitte & Touche. Mr. Schwindle holds a BA in Accounting and an MBA from Wright State University.

Directors (who are not executive officers)

Laurie Ann Goldman

Ms. Goldman has served as Chair of the board of directors of the Company since January 2022. Ms. Goldman served on the board of Avon North America starting in 2018 and then became CEO in January 2019 until Avon was sold to LG in August 2019. Prior to Avon, she served as CEO of Spanx, Inc. from 2002 to 2014, growing the company from a startup into a global brand. Before Spanx, she spent a decade at The Coca-Cola Company. Ms. Goldman serves as an independent director of Terminix Global Holdings, Inc. (Chair of Governance) and European Wax Center Inc. as well as other private equity backed boards. She previously served on the board of GUESS?, Inc. She holds a BS in Communication from the Moody College of Communications at the University of Texas at Austin. We believe Ms. Goldman’s extensive leadership, marketing and operational experience make her a valuable member of our board of directors

Samantha Algaze

Ms. Algaze has served on the board of directors of the Company since October 2018, serving as Chairman from October 2018 to January 2022. Ms. Algaze has been at Elliott Investment Management L.P. since 2013. She has served as a Portfolio Manager since 2020 and served as an Associate Portfolio Manager from 2017 to 2019 and an Analyst from 2013 to 2016. Prior to Elliott, from 2012 to 2013, she was an Associate at H.I.G. Capital in the Private Equity division and, from 2010 to 2012, an Investment Banking Analyst at Deutsche Bank. She also serves as a Director at Peabody Energy Corporation and at Automotores Gildemeister. Ms. Algaze holds a BS in Economics from the University of Pennsylvania, Wharton School of Business. We believe Ms. Algaze’s extensive experience in the investment space and operational expertise make her a valuable member of our board of directors.

Carmen Bauza

Ms. Bauza has served on the board of directors of the Company since October 2018. From 2019 to 2021, Ms. Bauza served as Chief Merchandising Officer at Fanatics. Prior to this, she was Chief Merchandising Officer at HSN from 2016 to 2017 and Senior Vice President, General Merchandise Manager Consumables, Health and Wellness at Walmart from 2007 to 2016. She has previously held roles at Bath & Body Works, Five Below and The Walt Disney Company. Ms. Bauza serves on the board of directors of Destination XL Group Inc. and Zumiez Inc. Ms. Bauza is currently a member of the board of trustees at Seton Hill University and the advisory board of RoundTable Healthcare Partners Council. She previously served as a Director of Walmart of Mexico, the National Association of Chain Drug Stores, the Network of Executive Women and the Literacy Council of Benton County. Ms. Bauza holds a BS in Fashion Merchandising and Business from Seton Hill University. We believe Ms. Bauza’s extensive experience in merchandising and leadership make her a valuable member of our board of directors.

 

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Paul Best

Mr. Best has served on the board of directors of the Company since August 2020. Since 2017, Mr. Best has been at Elliott Advisors (UK), where he serves as Senior Managing Director and Head of European Private Equity. Prior to joining Elliott, he was at Warburg Pincus, serving as Managing Director from 2012 to 2017, Principal from 2007 to 2011, Associate from 2004 to 2007 and Analyst from 2002 to 2004. Before this, he was at Morgan Stanley. He is Chairman of the board of directors at Barnes & Noble, Book Retail Bidco Ltd. (the parent company of Waterstones Ltd.) and Paper Source Inc. He has previously served on the board of directors of Apteki Gemini, Inea, Reiss, Poundland and Ziggo. Mr. Best holds an MA in Mathematics from Cambridge University. We believe Mr. Best’s extensive experience in the investment space and operational expertise make him a valuable member of our board of directors.

DeAnn Brunts

Ms. Brunts has served on the board of directors of the Company since August 2021. Since November 2020, Ms. Brunts served on the board of Benson Hill, where she also served as Chief Financial Officer from January 2021 to April 2022. During 2020, she provided financial, accounting, capital structure and leadership consulting services to private equity backed companies. Prior to this, from 2017 to 2020, she was Chief Financial Officer of Solaray, LLC; from 2015 to 2016, she was Chief Financial Officer of Transworld Systems, Inc.; from 2012 to 2014, she was Chief Financial Officer of Maverik, Inc.; and from 2010 to 2012, she was Chief Financial Officer of Rocky Mountain Foods. Prior to these roles, Ms. Brunts served in various other chief financial and executive officer roles. Ms. Brunts also held various positions at PricewaterhouseCoopers from 1985 to 1999, including as transaction services and audit partner. Ms. Brunts currently serves on the board of directors and on the audit committee, as audit committee chair, of B&G Foods Inc. and on the board of directors of the Kempe Foundation. She previously has served on the board of directors and the audit committee, as audit committee chair, of the Women’s Foundation of Colorado and on the board of directors and the audit committee, as audit committee chair, of Springboard to Learning. Ms. Brunts holds an MBA from The Wharton School and a BSBA from the University of Missouri-Saint Louis. We believe Ms. Brunts’s extensive experience in financial management, accounting and auditing services make her a valuable member of our board of directors.

Patrick Fallon

Mr. Fallon has served on the board of directors of the Company since November 2018. Since 2012, Mr. Fallon has been at Monarch Alternative Capital LP, where he currently serves as a Managing Principal. Prior to Monarch, Mr. Fallon was an Analyst in the Leveraged Finance Group at Deutsche Bank. Mr. Fallon serves as a Director of CorePower Holdco LLC, All Day Holdings LLC and Pyxus International. He previously served as a director of Navig8 Product Tankers Inc. Mr. Fallon holds a BS in Economics from Duke University. We believe Mr. Fallon’s extensive experience in the investment space and operational expertise make him a valuable member of our board of directors.

Theophlius Killion

Mr. Killion has served on the board of directors of the Company since October 2018. Since 2016, Mr. Killion has been a managing partner of The Sierra Institute, a Dallas-based human resources consortium. Prior to this, Mr. Killion served as Chief Executive Officer of The Zale Corporation from 2008 to 2014. He previously held leadership roles at Tommy Hilfiger, Limited Brands (now L Brands), The Home Shopping Network and Macy’s. He also serves on the board of directors of Torrid. He previously served on the board of directors of Tailored Brands, Inc., Libbey, Inc., Express, Inc., and The Zale Corporation. Mr. Killion is also a member of the National Association of Corporate Directors.

 

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Mr. Killion holds a BA in History and English and a MEd from Tufts University. We believe Mr. Killion’s experience in retail merchandising, human capital management, diversity, equity and inclusion and board governance make him a valuable member of our board of directors.

Samantha Lomow

Ms. Lomow has served on the board of directors of the Company since 2018. In March 2022, Ms. Lomow was appointed President of Global Brands at Foot Locker overseeing the company’s global brand portfolio and operating divisions across North America, EMEA and APAC. From February 2021 to February 2022, Ms. Lomow served as a Special Advisor to Hasbro, which she re-joined in 2001. Ms. Lomow’s previous roles at Hasbro include President, Branded Entertainment; Hasbro & eOne from 2020 to 2021, President, Entertainment Brands from 2018 to 2020 and Senior Vice President, Hasbro Brands from 2016 to 2018. She is a board member of the Day One Organization in Rhode Island. Ms. Lomow holds a BA in International Relations from the University of Toronto. We believe Ms. Lomow’s extensive experience managing consumer brands and leadership make her a valuable member of our board of directors.

Arthur Rubinfeld

Mr. Rubinfeld has served as a Director of the Company since September 2020. Since 2017, Mr. Rubinfeld has served as Founder and President of Airvision, a strategy advisory firm. Prior to this, he was at Starbucks, which he joined in 1992, and most recently served as President, Global Innovation from 2014 to 2017, President, Chief Creative Officer from 2012 to 2014, President, Global Development from 2008 to 2014 and Executive Vice President, Real Estate and Store Development from 1992 to 2002. Mr. Rubinfeld serves as a director of Shopko Optical. He previously served on the boards of The Essential Baking Company, United Capital, Aeropostale and Savers/Value Village. Mr. Rubinfeld holds a BA in Environmental Design and a Masters in Architecture from the University of Colorado. We believe Mr. Rubinfeld’s extensive experience growing brands and leadership make him a valuable member of our board of directors.

Board Structure

Our board of directors consists of ten members and upon closing of this offering, our board of directors will continue to consist of ten members.

Each director is to hold office until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. Vacancies and newly created directorships on the board of directors may be filled at any time by the remaining directors.

Director Independence

Our board of directors has determined that Laurie Ann Goldman, Samantha Algaze, Carmen Bauza, Paul Best, DeAnn Brunts, Patrick Fallon, Theophlius Killion, Samantha Lomow and Arthur Rubinfeld are independent directors under the New York Stock Exchange rules, and DeAnn Brunts, Theophlius Killion and Samantha Lomow are independent under Rule 10A-3 under the Exchange Act for audit committee purposes.

Board Committees

Upon the consummation of this offering, our board of directors will have three standing committees: an audit committee, a compensation committee and a nominating, governance and ESG committee, each consisting entirely of independent directors. The following is a brief description of our committees.

 

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Audit Committee

The members of our audit committee are DeAnn Brunts, Theophlius Killion and Samantha Lomow, and DeAnn Brunts is the chair of our audit committee. The composition of our audit committee meets the requirements for independence under the current New York Stock Exchange listing standards and SEC rules and regulations. Each member of our audit committee is financially literate. In addition, our board of directors has determined that DeAnn Brunts is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. This designation does not impose any duties, obligations or liabilities that are greater than are generally imposed on members of our audit committee and our board of directors. Our audit committee is directly responsible for, among other things:

 

   

selecting a firm to serve as the independent registered public accounting firm to audit our financial statements;

 

   

ensuring the independence of the independent registered public accounting firm;

 

   

approving the planned scope and timing, and discussing the findings, of the audit with the independent registered public accounting firm, and reviewing, with management and that firm, our interim and year-end operating results;

 

   

establishing procedures for employees to anonymously submit concerns about questionable accounting or auditing matters;

 

   

considering the adequacy of our internal controls and internal audit function; and

 

   

approving or, as permitted, pre-approving all audit and non-audit services to be provided by the independent registered public accounting firm.

Compensation and Organization Committee

The members of our compensation and organization committee are Theophlius Killion, Samantha Algaze, Patrick Fallon and Arthur Rubinfeld, and Theophlius Killion is the chairman of our compensation and organization committee. The composition of our compensation and organization committee meets the requirements for independence under the current New York Stock Exchange listing standards and SEC rules and regulations. Our compensation and organization committee is responsible for, among other things:

 

   

reviewing and approving, or recommending that our board of directors approve, the compensation of our executive officers;

 

   

reviewing and recommending to our board of directors the compensation of our directors;

 

   

reviewing and approving, or making recommendations to our board of directors with respect to, incentive compensation and equity plans; and

 

   

reviewing our overall executive compensation philosophy.

Nominating, Governance and ESG Committee

The members of our nominating, governance and ESG committee are Samantha Lomow, Samantha Algaze and Carmen Bauza, and Samantha Lomow is the chairman of our nominating, governance and ESG committee. The composition of our nominating, governance and ESG committee meets the requirements for independence under the current New York Stock Exchange listing standards. Our nominating, governance and ESG committee is responsible for, among other things:

 

   

identifying and recommending candidates for membership on our board of directors;

 

   

reviewing and recommending our corporate governance guidelines and policies;

 

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overseeing the process of evaluating the performance of our board of directors;

 

   

reviewing and overseeing the Company’s Environmental, Social, and Governance (“ESG”) initiatives; and

 

   

assisting our board of directors on corporate governance matters.

Code of Business Conduct and Ethics

In connection with this offering, our board of directors will adopt a new code of business conduct and ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. Upon closing of this offering, the full text of our codes of business conduct and ethics will be posted on the investor relations section of our website. We intend to disclose future amendments to our code of business conduct and ethics, or any waivers of such code, on our website or in public filings.

Compensation Committee Interlocks and Insider Participation

None of our executive officers has served as a member of a compensation committee (or if no committee performs that function, the board of directors) of any other entity that has an executive officer serving as a member of our board of directors.

 

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EXECUTIVE COMPENSATION

At the time of the initial confidential submission of the registration statement of which this prospectus forms a part, we qualified as an “emerging growth company” as defined in the JOBS Act. Although we ceased to be an emerging growth company on January 29, 2022 because our annual revenues exceeded $1.07 billion for fiscal year 2021, we are permitted to avail ourselves of the reduced disclosure requirements applicable to emerging growth companies until the completion of this offering. We have elected to take advantage of the reduced disclosure requirements relating to executive compensation.

Summary Compensation Table

The following table sets forth information concerning the compensation paid to our principal executive officer and our two other most highly compensated executive officers during our fiscal year 2021 (collectively referred to as our “named executive officers,” or “NEOs”).

2021 SUMMARY COMPENSATION TABLE

 

Name and Principal Position

  Year     Salary ($)     Bonus
($)(1)
    Stock
Awards
($)(2)
    Non-Equity
Incentive Plan
Compensation
($)(3)
    All Other
Compensation
($)(4)
    Total ($)  

Ryan Vero

    2021     $ 933,588           $ 281,233     $ 2,046,000     $ 8,700     $ 3,269,521  

Chief Executive Officer

    2020     $ 842,884     $ 800,000                 $ 570,560     $ 2,213,444  

Kristin Patrick(5)

    2021     $ 389,423     $ 388,192     $ 757,658     $ 238,192     $ 5,452     $ 1,778,917  

Chief Marketing Officer

             

Richard Flint(6)

    2021     $ 265,799           $ 987,864     $ 364,433     $ 14,460     $ 1,632,556  

President, Europe

             

 

(1)

The amounts reported in this column represent for Ms. Patrick (i) the portion of her 2021 annual management cash incentive that was guaranteed pursuant to her offer letter (as described below under “—Employment agreements and offer letters—Offer letter with Kristin Patrick”) and (y) a $150,000 bonus paid as a hiring incentive in two equal installments in April and May 2021.

(2)

Under the Claire’s Holdings LLC 2018 Management Equity Incentive Plan (the “2018 Plan”), we granted restricted stock units (“RSUs”) to Mr. Vero, Ms. Patrick and Mr. Flint in fiscal year 2021. The RSUs are a mixture of RSUs with respect to our Common Units (“Common RSUs”) and RSUs with respect to our Series A Preferred Units (“Preferred RSUs”) (see “Fiscal year 2021 equity compensation” below for further information). The amounts reported in this column represent the aggregate grant date fair value of such RSUs, as calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures, assuming target performance with respect to the performance-based RSUs (which was the probable outcome of the related performance conditions as of their grant date), and taking into account the preferred return that accrues on Series A Preferred Units underlying Preferred RSUs (see “Fiscal year 2021 equity compensation” below for further information regarding the preferred return). The assumptions used in calculating the grant date fair value of the RSU awards are described in Note 12, “Stock-Based Compensation,” to our consolidated financial statements included elsewhere in this prospectus.

 

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The grant date fair market value for the time-based RSUs granted to Mr. Vero, Ms. Patrick and Mr. Flint was as follows:

 

Named Executive Officer

   Grant Date FMV
of Time-Based
Common RSUs
     Grant Date
FMV of Time-
Based Preferred
RSUs
     Aggregate
Grant Date
FMV of Time-
Based RSUs
 

Ryan Vero

   $      $      $  

Kristin Patrick

   $ 47,680      $ 331,992      $ 379,672  

Richard Flint

   $ 62,878      $ 431,897      $ 494,775  

The grant date fair market value for the performance-based RSUs granted to Mr. Vero, Ms. Patrick and Mr. Flint at target (included in the table above) and maximum performance levels were as follows:

 

Target Performance

 

Named Executive Officer

   Grant Date FMV
of Performance-
Based Common
RSUs
     Grant Date
FMV of
Performance-
Based Preferred
RSUs
     Aggregate
Grant Date
FMV of
Performance-
Based RSUs
 

Ryan Vero

   $ 35,313      $ 245,920      $ 281,233  

Kristin Patrick

   $ 47,531      $ 330,455      $ 377,986  

Richard Flint

   $ 62,729      $ 430,360      $ 493,089  

 

Maximum Performance

 

Named Executive Officer

   Grant Date FMV
of Performance-
Based Common
RSUs
     Grant Date
FMV of
Performance-
Based Preferred
RSUs
     Aggregate
Grant Date
FMV of
Performance-
Based RSUs
 

Ryan Vero

   $ 52,970      $ 368,880      $ 421,850  

Kristin Patrick

   $ 71,297      $ 495,683      $ 566,979  

Richard Flint

   $ 94,094      $ 645,540      $ 739,634  

 

(3)

The amounts reported in this column represent annual management incentives earned by each of our NEOs pursuant to our fiscal year 2021 management cash incentive program, as described below under “—Fiscal year 2021 annual management incentives”. For Ms. Patrick, the amounts reflect the portion of her fiscal year 2021 management cash incentive that was earned in excess of the amount guaranteed pursuant to her offer letter, as described in footnote (1) to the Summary Compensation Table.

(4)

The amounts reported in this column represent, (i) for Mr. Flint, $7,414 in expenses relating to a car allowance, (ii) $7,047 in Company contributions relating to Mr. Flint’s Pension Cash Supplement as described under “—Retirement savings and health and welfare benefits” below, and (iii) 401(k) matching contributions for Mr. Vero and Ms. Patrick ($8,700 and $5,451.92, respectively).

(5)

Ms. Patrick commenced employment with us on March 15, 2021. The amount reported in the “Salary” column for Ms. Patrick reflects the base salary paid to her for the portion of fiscal year 2021 during which she was employed by us.

(6)

Mr. Flint commenced employment with us on July 26, 2021. The amount reported in the “Salary” column for Mr. Flint reflects the base salary paid to him for the portion of fiscal year 2021 during which he was employed by us. The amounts provided to Mr. Flint were paid in British pounds and have been converted into U.S. dollars for purposes of this table using an average conversion rate for the 2021 fiscal year, as reported by ExchangeRates.org.uk (GBP £1: USD $1.38).

 

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Narrative to the Summary Compensation Table

Fiscal year 2021 base salary

The following table sets forth the fiscal year 2021 annual base salaries of our named executive officers as of the commencement of fiscal year 2021 and any increases approved by our compensation and organization committee as of the commencement of fiscal year 2022.

 

Named Executive Officer

   Fiscal Year 2021
Annual Base Salary
     Fiscal Year 2022
Annual Base Salary(1)
 

Ryan Vero

   $ 930,000      $ 1,023,000  

Kristin Patrick

   $ 450,000      $ 450,000  

Richard Flint

   £ 425,000      £ 425,000  

 

(1)

As of May 2022, Mr. Vero’s base salary was increased to $1,040,000; Ms. Patrick’s base salary was increased to $459,000; and Mr. Flint’s base salary was increased to £431,375.

Fiscal year 2021 annual management incentives

We maintain a fiscal year management cash incentive program in which each of our named executive officers was eligible to participate for fiscal year 2021. Each named executive officer’s target incentive is expressed as a percentage of base salary, which for fiscal year 2021 was as follows: Mr. Vero: 100%; Ms. Patrick: 60%; and Mr. Flint: 60%. For fiscal year 2021, the management incentives for Ms. Patrick and Mr. Flint were pro-rated based on their March 15, 2021 and July 26, 2021 start dates, respectively. Payment of the annual management incentive is subject to the NEO’s continued employment with us on the date such incentive is paid.

For fiscal year 2021, cash incentives were payable based on the achievement of global EBITDA performance goals, which, for fiscal year 2021, were achieved at the maximum performance levels. Accordingly, amounts pursuant to the management incentive program were paid at 200% of target levels (and pro-rated for Ms. Patrick and Mr. Flint), as follows:

 

Named Executive Officer

   Fiscal Year 2021
Target Bonus
    Fiscal Year 2021
Actual
Performance as
% of Target
    Fiscal Year 2021
Management
Incentive
 

Ryan Vero

   $ 1,023,000       200   $ 2,046,000  

Kristin Patrick

   $ 270,000 (1)      200   $ 476,384 (2) 

Richard Flint

   $ 350,803 (1)      200   $ 364,433 (2) 

 

(1)

These amounts do not reflect proration for Ms. Patrick’s or Mr. Flint’s first year of employment. In addition, for Mr. Flint, reflects a conversion from GBP to USD as described in footnote 6 to the Summary Compensation Table.

(2)

These amounts reflect pro-rated annual cash incentives paid to Ms. Patrick and Mr. Flint. In addition, for Mr. Flint, the amount reflects a conversion from GBP to USD using an average conversion rate for the 2021 fiscal year, as reported by ExchangeRates.org.uk (GBP £1: USD $1.38).

 

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Employment agreements and offer letters

We have entered into an employment agreement or an offer letter with each of our NEOs, the material terms of which are summarized below.

Amended and restated employment agreement with Ryan Vero

On September 27, 2021, effective on the date of, and subject to the consummation of, this offering, we entered into an amended and restated employment agreement with Ryan Vero, our CEO (the “Vero Employment Agreement”). The Vero Employment Agreement amended the terms of Mr. Vero’s previous employment agreement dated as of June 23, 2019, as amended as of February 13, 2020 (the “Prior Agreement”) and will remain in effect through the termination of Mr. Vero’s employment with us. The Vero Employment Agreement provides for an initial annual base salary of not less than $930,000, increasing to $1,023,000 as of October 1, 2021 and subject to additional increases (if any) as may be approved by the compensation and organization committee, an annual discretionary management incentive award and an annual discretionary equity award. The target amount of Mr. Vero’s annual management incentive is equal to 100% of his annual base salary, with the actual amount determined by the compensation and organization committee in its discretion, and the grant date fair value of each annual equity award is currently expected to equal 300% of Mr. Vero’s then-current base salary.

In the event that we terminate Mr. Vero’s employment without “cause”, or if Mr. Vero resigns for “good reason”, other than within three months prior to or within 12 months after a “change in control” (as defined in the Vero Employment Agreement), subject to his execution and non-revocation of a release of claims, he will be eligible to receive (a) 18 months’ base salary (using the base salary rate in effect immediately prior to his termination or, if greater, the base salary rate in effect at any time in the 12 months prior to termination), payable in a lump sum cash payment, (b) any unpaid prior year annual management incentive, (c) a pro rata target annual management incentive for the year of termination, (d) an additional 18 months vesting of all outstanding time-based equity awards held by Mr. Vero at the time of termination, (e) pro rata vesting of all unvested performance-based equity awards held by Mr. Vero at the time of termination with achievement of the applicable performance metrics based on actual performance for the applicable performance period, and (f) a monthly payment equal to 100% of his COBRA premiums, if elected, for up to 18 months.

In the event that we terminate Mr. Vero’s employment without “cause”, or if Mr. Vero resigns for “good reason”, within three months prior to or within 12 months after a change in control, subject to his execution and non-revocation of a release of claims, Mr. Vero will be eligible to receive (a) an amount equal to the sum of (i) 36 months’ base salary (using the base salary rate in effect immediately prior to his termination or, if greater, the base salary rate in effect at any time in the 12 months prior to termination) plus (ii) an amount equal to 150% of Mr. Vero’s target annual management incentive for the year of termination, payable in a lump sum cash payment, (b) any unpaid prior year annual management incentive, (c) a pro rata target annual management incentive for the year of termination, (d) full accelerated vesting of all time-based equity awards held by Mr. Vero at the time of termination, (e) accelerated vesting of unvested performance-based equity awards held by Mr. Vero at the time of termination based on the Company’s reasonable determination of achievement of the applicable performance metrics as of immediately prior to the change in control, or, if not determinable, based on achievement at target performance, and (f) a monthly payment equal to 100% of his COBRA premiums, if elected, for up to 18 months.

In the event that Mr. Vero’s employment is terminated due to his death or disability, Mr. Vero will be eligible to receive (a) a pro rata target annual management incentive for the year of termination and (b) pro rata vesting of all unvested performance-based equity awards held by Mr. Vero at the time of termination with achievement of the applicable performance metrics based on actual performance for the applicable performance period.

 

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In connection with the Prior Agreement, Mr. Vero entered into a restrictive covenant agreement, which provides for perpetual confidentiality obligations, a non-competition covenant for a period of 18 months following his termination of employment, a non-solicitation of employees and consultants for a period of 24 months following his termination of employment, and a perpetual non-disparagement covenant.

Offer letter with Kristin Patrick

On March 15, 2021, we entered into an offer letter with Kristin Patrick, our Executive Vice President and Chief Marketing Officer (the “Patrick Offer Letter”). The Patrick Offer Letter provides for an initial annual base salary of $450,000 and participation in our annual incentive plan, with an annual target bonus opportunity of 60% of base salary and with Ms. Patrick’s bonus in respect of fiscal year 2021 guaranteed at 100% of target. In addition, the Patrick Offer Letter provides for payment of a one-time sign-on bonus in the amount of $150,000 which was paid in two equal installments 30 days and 60 days after Ms. Patrick’s March 15, 2021 start date, and was subject to a one year retention agreement. The Patrick Offer Letter provides that Ms. Patrick will be eligible to participate in our long-term incentive program, with a target award value equal to 75% of her annual base salary. In accordance with the Patrick Offer Letter, in 2021 Ms. Patrick received an initial three-year grant having an aggregate grant date value equal to three times her target award value, comprised 50% of time-based RSUs and 50% of performance-based RSUs. The ratio of Common RSUs and Preferred RSUs in Ms. Patrick’s 2021 RSU award was based on the ratio of our outstanding Common Units and Series A Preferred Units as of the grant date. Ms. Patrick is eligible to participate in our benefits plans and programs on the same terms and conditions as other similarly situated executives.

In the event that we terminate Ms. Patrick’s employment without “cause” or if Ms. Patrick resigns for “good reason” (each as defined in the Patrick Offer Letter), she will be eligible to receive accrued but unpaid prior year annual bonus and, subject to her execution and non-revocation of a release of claims, (a) 12 months’ base salary as in effect at the time of termination or, if greater, as in effect at any time in the 12 months prior to termination, paid in 12 equal monthly installments, (b) a pro rata annual bonus for the year of termination based on actual performance had Ms. Patrick remained employed through the end of the performance year, and (c) subject to her timely election of COBRA coverage, an amount sufficient to cover the employer portion of medical benefits for a period of 12 months at the levels in effect for Ms. Patrick and her dependents immediately prior to termination of employment.

In connection with her commencement of employment, Ms. Patrick entered into an employee restrictive covenant and intellectual property assignment agreement, which provides for perpetual confidentiality obligations, a non-competition covenant for a period of 12 months following her termination of employment and a non-solicitation of employees for a period of 12 months following her termination of employment.

Contract of Employment and Offer letter with Richard Flint

On June 30, 2021, we (through our subsidiary, Claire’s European Services Limited) entered into a contract of employment and an offer letter with Richard Flint, our Executive Vice President, President of Europe, (together, the “Flint Employment Agreement”). The Flint Employment Agreement provides for an annual base salary of £425,000 and participation in our annual incentive plan, with an annual target bonus opportunity of 60% of base salary and with Mr. Flint’s bonus in respect of fiscal year 2021 prorated based on his July 26, 2021 start date. The Flint Employment Agreement also provides that Mr. Flint will be eligible to participate in our long-term incentive program, with a target award value equal to 75% of his annual base salary. In accordance with the Flint Employment Agreement, in 2021 Mr. Flint received an initial three-year grant having an aggregate grant date value of $1,276,000, which

 

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represents three times his target award value, comprised 50% of time-based RSUs and 50% of performance-based RSUs. The ratio of Common RSUs and Preferred RSUs in Mr. Flint’s 2021 RSU award was based on the ratio of our outstanding Common Units and Series A Preferred Units as of the grant date. Mr. Flint is eligible to participate in our pension scheme and other benefits available for employees based in the UK.

In connection with Mr. Flint’s relocation to the UK for purposes of his employment with us, for a period of 24 months following his commencement of employment (the “Relocation Period”), Mr. Flint will be eligible to receive: (i) the costs of two return economy flights from the UK to the Netherlands per month, (ii) reimbursement for the cost of private schools for Mr. Flint’s two children of up to £50,000 net of taxes for both children per year (and pro-rated based on the expiration of the Relocation Period), (iii) reimbursement for the cost of renting an apartment in Birmingham of up to £2,500 per month for 18 months (grossed up for taxes) and (iv) reimbursement for the cost of purchasing a permanent residence in or near Birmingham of up to £25,000 within the Relocation Period (grossed up for taxes). In the event that Mr. Flint terminates employment with us for any reason during the Relocation Period or within 3 months after the expiration of the Relocation Period, he will be required to repay 100% of the amounts provided to him pursuant to the immediately preceding sentence; if his termination occurs during the period between three months and six months after the expiration of the Relocation Period, he will be required to repay 66% of such amounts; and if his termination occurs during the period between six months and nine months after the expiration of the Relocation Period, he will be required to repay 33% of such amounts. In addition, the Flint Employment Agreement provides that he will be entitled to a company car or car allowance of £10,000 per year.

We, along with Mr. Flint, are required to provide six months advance written notice of a termination of employment under the Flint Employment Agreement, except that we may terminate Mr. Flint’s employment without notice if he engages in certain misconduct or other acts as defined in the Flint Employment Agreement. During any notice period, we may place Mr. Flint on garden leave, during which we would continue to pay his base salary and provide contractual benefits, but he would not perform some or all of his duties for us. In the event that Mr. Flint is offered employment with a successor in connection with a change of control of our company on terms not materially less favorable than those provided under the Flint Employment Agreement, and if he rejects such offer of employment, he will have no claim against us or any of our affiliates or any successor in respect of his employment with us or the termination thereof.

The Flint Employment Agreement provides for perpetual confidentiality obligations, a non-competition covenant for a period of 6 months following his termination of employment, a non-solicitation of employees for a period of 6 months following his termination of employment and a non-solicitation of clients, prospective clients or suppliers for a period of 6 months following his termination of employment (in each case, less any garden leave period).

Fiscal year 2021 equity compensation

Mr. Vero, Ms. Patrick and Mr. Flint each received grants of RSUs in fiscal year 2021 under the 2018 Plan as follows:

 

        Time-Based RSUs     Performance-
Based RSUs
       

Named Executive Officer

  Grant Date   Common
RSUs
    Preferred
RSUs
    Common
RSUs
    Preferred
RSUs
    Total
RSUs
 

Ryan Vero

  3/21/2021                 237       160       397  

Kristin Patrick

  3/15/2021     320       216       319       215       1,070  

Richard Flint

  7/26/2021     422       281       421       280       1,404  

 

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The time-based RSUs granted to Ms. Patrick and Mr. Flint will vest in equal annual installments on each of the first three anniversaries of the grant date, subject to continued service through the applicable vesting date. The performance-based RSUs are subject to continued service through the applicable vesting date and our level of achievement against EBITDA-based performance targets. Each Preferred RSU also accrues the preferred return that is payable on our Series A Preferred Units. The preferred return on Series A Preferred Units is payable in additional Series A Preferred Units which are referred to herein as “PIK Units.” The preferred return on Preferred RSUs is payable in additional Preferred RSUs, which are subject to the same vesting and settlement terms as the underlying Preferred RSU and are referred to herein as “PIK RSUs.” The number of PIK RSUs held by each named executive officer as of the end of fiscal year 2021 is included in the “Outstanding Equity Awards at 2021 Fiscal Year End” table below.

Any vested RSUs will be settled on the earlier of a change in control of the Company and February 1, 2025 (or, if later, the date on which the RSU vested). In connection with the closing of the offering, all outstanding RSUs will convert to awards of RSUs to receive shares of common stock of Claire’s Inc. in the same manner as the conversion of outstanding Common Units and Series A Preferred Units. See “Corporate Conversion.”

IPO equity compensation

In connection with, and subject to the consummation of, this offering, under our 2022 Plan (as defined below), our compensation and organization committee expects to approve grants of equity incentive awards to our named executive officers, other executive officers and our non-employee directors that will be valued based on the price to the public of our common stock in this offering (with the number of shares subject to each award determined by dividing the grant date values of the awards by the price to the public of our common stock in this offering).

Retirement savings and health and welfare benefits

We maintain a tax-qualified defined contribution 401(k) plan for our U.S. employees (including our named executive officers other than Mr. Flint), who satisfy certain eligibility requirements. Our named executive officers are eligible to participate in the 401(k) plan on the same terms as other full-time U.S. employees. Company matching contributions under the 401(k) plan of up to 3% of a participant’s contribution are made on a discretionary basis. For fiscal year 2021, we made matching contributions under the 401(k) plan totaling $1,317,856.

In the UK, we maintain a retirement pension scheme in which UK employees are automatically enrolled with respect to a minimum contribution of 5% of eligible compensation, with Company matching contributions equal to 3% of participant contributions. Mr. Flint has reached the lifetime limit of pension contributions under UK law, and he therefore does not participate in this retirement pension scheme. Instead, we provide him with a pension cash supplement in an amount equal to the employer contributions that he would receive if he participated in the retirement pension scheme.

All of our full-time employees, including our named executive officers, are eligible to participate in a broad array of customary health and welfare plans.

 

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OUTSTANDING EQUITY AWARDS AT 2021 FISCAL YEAR END

The following table sets forth specified information concerning unvested RSUs held by each of the named executive officers as of January 29, 2022.

 

          Stock Awards  

Name

  Grant Date     Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
    Market Value
of Shares or
Units of
Stock That
Have Not
Vested
($)(1)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested (#)
    Equity
Incentive Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)(1)
 

Ryan Vero(2)(3)

    3/21/2021                   404 (4)    $ 463,692 (5) 
    1/30/2020       3,250 (6)    $ 3,654,142       5,413 (7)    $ 6,084,563 (8) 
    1/30/2020       605 (9)    $ 683,483              

Kristin Patrick(3)

    3/15/2021       546 (10)    $ 627,214       544 (11)    $ 624,608 (12) 

Richard Flint(3)

    7/26/2021       700 (13)    $ 783,076       698 (14)    $ 780,470 (15) 

 

(1)

RSUs were valued based on a fair market value of $407 per unit for our Common Units and $2,199 per unit for our Series A Preferred Units as of January 29, 2022, in each case on a fully diluted basis.

(2)

The Company redeemed approximately 9.6% of its outstanding Series A Preferred Units on November 2, 2020 and approximately 5.5% of its outstanding Series A Preferred Units on April 9, 2021. As of those dates, a corresponding percentage of the Preferred RSUs held by Mr. Vero was converted into a cash value that remains subject to the vesting and settlement provisions of the underlying Preferred RSU awards. In connection with the November 2, 2020 redemption, 486 of Mr. Vero’s Preferred RSUs were converted into a cash value of $1,378,831, based on a redemption price per Series A Preferred Unit of $2,837.10. In connection with the April 9, 2021 redemption, 272 of Mr. Vero’s Preferred RSUs were converted into a cash value of $711,013, based on a redemption price per Series A Preferred Unit of $2,614.02. On July 15, 2021, $535,802 of the aggregate cash value vested; $53,363 of this amount settled and was paid to Mr. Vero.

(3)

The Company redeemed approximately 8.6% of its outstanding Series A Preferred Units on December 14, 2021. As of such date, a corresponding percentage of the Preferred RSUs held by Mr. Vero, Ms. Patrick and Mr. Flint were converted into a cash value that remains subject to the vesting and settlement provisions of the underlying Preferred RSUs. In connection with the redemption, 431 of Mr. Vero’s Preferred RSUs were converted into a cash value of $1,146,732; 40 of Ms. Patrick’s Preferred RSUs were converted into a cash value of $106,425; and 50 of Mr. Flint’s Preferred RSUs were converted into a cash value of $133,032; in each case based on a redemption price per Series A Preferred Unit of $2,660.63.

(4)

Reflects 237 unvested performance-based Common RSUs, 145 unvested performance-based Preferred RSUs and 22 unvested PIK RSUs issued with respect to the performance-based Preferred RSUs included in this award. These RSUs will vest on February 3, 2024 subject to continued service through such vesting date and the Company’s level of achievement toward EBITDA-based performance targets, with 50% earned for threshold performance and 150% earned for maximum performance, or earlier upon a change in control to the extent performance conditions are achieved. Vested RSUs will settle upon the earlier of a change in control and February 1, 2025.

 

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(5)

Reported assuming target performance. The market value assuming maximum performance was $695,538.

(6)

Reflects 1,949 unvested time-based Common RSUs, 835 unvested time-based Preferred RSUs, and 466 unvested PIK RSUs issued with respect to the time-based Preferred RSUs included in this award as of January 29, 2022. An additional 20% of the remaining time-based RSUs, including aggregate PIK RSUs accrued through the applicable vesting date with respect to the time-based Preferred RSUs included in this award, will become vested on each of July 15, 2022, 2023 and 2024, or earlier upon a change in control, subject to continued service through each vesting date. Any such vested time-based RSUs and PIK RSUs will settle upon the earlier of a change in control and February 1, 2025.

(7)

Reflects 3,247 unvested performance-based Common RSUs, 1,390 unvested performance-based Preferred RSUs and 776 unvested PIK RSUs issued with respect to the performance-based Preferred RSUs included in this award. These RSUs will vest on February 3, 2024 subject to continued service through such vesting date and the Company’s level of achievement toward EBITDA-based performance targets, with 50% earned for threshold performance and 150% earned for maximum performance, or earlier upon a change in control to the extent performance conditions are achieved. Vested RSUs will settle upon the earlier of a change in control and February 1, 2025.

(8)

Reported assuming target performance. The market value assuming maximum performance was $9,126,845.

(9)

Reflects 361 unvested time-based Common RSUs, 177 unvested time-based Preferred RSUs, and 67 unvested PIK RSUs issued with respect to the time-based Preferred RSUs included in this award as of January 29, 2022. An additional 25% of the remaining time-based RSUs, including aggregate PIK RSUs accrued through the applicable vesting date with respect to the time-based Preferred RSUs included in this award, will become vested on each of July 15, 2022 and 2023, or earlier upon a change in control, subject to continued service through each vesting date. Any such vested time-based RSUs and PIK RSUs will settle within 30 days of vesting.

(10)

Reflects 320 unvested time-based Common RSUs, 196 unvested time-based Preferred RSUs, and 30 unvested PIK RSUs issued with respect to the time-based Preferred RSUs included in this award as of January 29, 2022. On March 15, 2022, the following time-based RSUs included in this award vested: 106 Common RSUs, 65 Preferred RSUs and 13 PIK RSUs issued with respect to the Preferred RSUs included in this award. An approximately equal number of the remaining time-based RSUs, including an additional 33% of the aggregate PIK RSUs accrued through the applicable vesting date with respect to the time-based Preferred RSUs included in this award, will become vested on each of March 15, 2023 and 2024, or earlier upon a change in control, subject to continued service through each vesting date. Any such vested time-based RSUs and PIK RSUs will settle upon the earlier of a change in control and February 1, 2025.

(11)

Reflects 319 unvested performance-based Common RSUs, 195 unvested performance-based Preferred RSUs and 30 unvested PIK RSUs issued with respect to the performance-based Preferred RSUs included in this award. These RSUs will vest on the last day of the Company’s 2023 fiscal year subject to continued service through such vesting date and the Company’s level of achievement toward EBITDA-based performance targets, with 50% earned for threshold performance and 150% earned for maximum performance, or earlier upon a change in control to the extent performance conditions are achieved. Vested RSUs will settle upon the earlier of a change in control and February 1, 2025.

(12)

Reported assuming target performance. The market value assuming maximum performance was $936,912.

(13)

Reflects 422 unvested time-based Common RSUs, 256 unvested time-based Preferred RSUs, and 22 unvested PIK RSUs issued with respect to the performance-based Preferred RSUs included in this award as of January 29, 2022. Approximately 33% the time-based RSUs, including aggregate PIK RSUs accrued through the applicable vesting date with respect to the time-based Preferred RSUs included in this award, will become vested on each of July 26, 2022,

 

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  2023 and 2024, or earlier upon a change in control, subject to continued service through each vesting date. Any such vested time-based RSUs and PIK RSUs will settle upon the earlier of a change in control and February 1, 2025.
(14)

Reflects 421 unvested performance-based Common RSUs, 255 unvested performance-based Preferred RSUs, and 22 unvested PIK RSUs issued with respect to the performance-based Preferred RSUs included in this award. These RSUs will vest on the last day of the Company’s 2023 fiscal year subject to continued service through such vesting date and the Company’s level of achievement toward EBITDA-based performance targets, with 50% earned for threshold performance and 150% earned for maximum performance, or earlier upon a change in control to the extent performance conditions are achieved. Vested RSUs will settle upon the earlier of a change in control and February 1, 2025.

(15)

Reported assuming target performance. The market value assuming maximum performance was $1,170,705.

 

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

In addition to the payments due to our NEOs in connection with their termination of employment as described above under “Employment Agreement and Offer Letters,” each of the NEOs is entitled to accelerated vesting of their RSUs as follows in the event of a change in control, subject to continued service through the change in control: (i) any unvested and outstanding service-based RSUs will vest immediately prior to the change in control, and (ii) any unvested and outstanding performance-based RSUs will vest immediately prior to the change in control based on actual achievement of the applicable performance criteria.

INCENTIVE PLANS

Claire’s Inc. 2022 Long-Term Incentive Plan

We expect that our new 2022 Long-Term Incentive Plan (the “2022 Plan”) will become effective in connection with this offering. The 2022 Plan provides for the grant of equity-based awards to our employees, consultants, service providers and non-employee directors. The following is a summary of the material terms of the 2022 Plan. This summary is not a complete description of all provisions of the 2022 Plan and is qualified in its entirety by reference to the 2022 Plan, which will be filed as an exhibit to the registration statement of which this prospectus is a part.

Administration.    The 2022 Plan will be administered by the compensation and organization committee (the “Committee”) of our Board, unless another committee is designated by our Board. The Committee will have the authority to, among other actions, determine eligible participants, the types of awards to be granted, the number of shares covered by any awards, the terms and conditions of any awards (and amend any terms and conditions) and the methods by which awards may be settled, exercised, cancelled, forfeited or suspended. In addition, the Committee has the authority to waive restrictions or accelerate vesting of any award at any time. The Committee may interpret and administer the 2022 Plan or any award thereunder and make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the 2022 Plan.

Shares Reserve; Adjustments.    The maximum number of shares of our common stock available for issuance under the 2022 Plan will not exceed                  shares of our common stock. Any shares underlying substitute awards, shares remaining available for grant under a plan of an acquired company and awards that are forfeited, cancelled, expired, terminated or are otherwise lapsed, in whole or in part, or are settled in cash or withheld by us in respect of taxes (other than with respect to stock options or stock appreciation rights), will become available for future grant under our 2022 Plan.

In the event of certain changes in our corporate structure, including any extraordinary dividend or other distribution, recapitalization, stock split, reorganization, merger, consolidation, spin-off, or other similar corporate transaction or event affecting our common stock, or changes in applicable laws, regulations or accounting principles, the Committee will make appropriate adjustments to prevent undue enrichment or harm to the number and type of shares of our common stock subject to awards, and to the grant, purchase, exercise or hurdle price for any award.

Non-Employee Director Limits.    Under the 2022 Plan, the maximum number of shares of our common stock subject to an award granted during a single fiscal year to any non-employee director, taken together with any cash fees paid during the fiscal year, in respect to the director’s service as a member of our Board during such year, shall not exceed $750,000 in total value. The independent directors may make exception to this limit for a non-executive chair of our Board, provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation.

 

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Stock Options.    The 2022 Plan permits the grant of incentive stock options to employees and/or nonstatutory stock options to all eligible participants. The exercise price of stock options may not be less than the fair market value of our common stock on the grant date, provided that if an incentive stock option is granted to a 10% stockholder, the exercise price may not be less than 110% of the fair market value of our common stock. Each stock option agreement will set forth the vesting schedule of the options and the term of the options, which may not exceed 10 years (or five years in the case of an incentive stock option granted to a 10% stockholder). The Committee will determine the method of payment of the exercise price. The Committee may provide in an applicable award agreement that, to the extent a stock option is not previously exercised as to all of the shares of our common stock subject thereto, and, if the fair market value of one share of our common stock is greater than the exercise price then in effect, then the stock option shall be deemed automatically exercised immediately before its expiration.

Stock Appreciation Rights.     The 2022 Plan permits the grant of stock appreciation rights, which entitle the holder to receive shares of our common stock or cash having an aggregate value equal to the appreciation in the fair market value of our common stock between the grant date and the exercise date, times the number of shares of our common stock subject to the award. The exercise price of stock appreciation rights may not be less than the fair market value of our common stock on the date of grant. Each stock appreciation rights agreement will set forth the vesting schedule of the stock appreciation rights. The Committee may provide in an applicable award agreement that, to the extent a stock appreciation right is not previously exercised as to all of the shares of our common stock subject thereto, and, if the fair market value of one share of our common stock is greater than the exercise price then in effect, then the stock appreciation right shall be deemed automatically exercised immediately before its expiration.

Restricted Stock and Restricted Stock Units.    The 2022 Plan permits the grant of restricted stock and restricted stock units. Restricted stock awards are grants of shares of our common