10-K 1 cbk-20160130x10k.htm 10-K cbk_Current folio_10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K

 

(Mark One)

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

For the fiscal year ended January 30, 2016 

 

or

 

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

For the period from  to

 

Commission File No. 001-31390

 

CHRISTOPHER & BANKS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

06 - 1195422

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

2400 Xenium Lane North, Plymouth, Minnesota

 

55441

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (763) 551-5000

 

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

 

 

 

 

Title of each class

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act:  None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

  YES   NO

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES    NO

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES    NO

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 

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

 

 

 

 

Large accelerated filer 

 

Accelerated filer  

 

 

 

Non-accelerated filer 

 

Smaller reporting company 

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES    NO

 

The aggregate market value of the Common Stock, par value $0.01 per share, held by non-affiliates of the registrant as of July 31, 2015,  was approximately $117.3 million based on the closing price of such stock as quoted on the New York Stock Exchange ($3.23) on such date.

 

The number of shares outstanding of the registrant’s Common Stock, par value $0.01 per share, was 37.1 million as of March 11, 2016 (excluding treasury shares of 9.8 million).

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held (the “Proxy Statement”) are incorporated by reference into Part III.

 

 

 


 

CHRISTOPHER & BANKS CORPORATION

2015 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

    

    

    

Page

 

 

 

 

 

 

 

 

 

PART I

 

 

 

Item 1. 

 

Business

 

2

 

Item 1A. 

 

Risk Factors

 

7

 

Item 1B. 

 

Unresolved Staff Comments

 

19

 

Item 2. 

 

Properties

 

19

 

Item 3. 

 

Legal Proceedings

 

21

 

Item 4. 

 

Mine Safety Disclosures

 

21

 

Item 4A. 

 

Executive Officers of the Registrant

 

21

 

 

 

 

 

 

 

 

 

PART II

 

 

 

Item 5. 

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

23

 

Item 6. 

 

Selected Financial Data

 

25

 

Item 7. 

 

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

 

26

 

Item 7A. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

41

 

Item 8. 

 

Financial Statements and Supplementary Data

 

41

 

Item 9. 

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

71

 

Item 9A. 

 

Controls and Procedures

 

71

 

Item 9B. 

 

Other Information

 

72

 

 

 

 

 

 

 

 

 

PART III

 

 

 

Item 10. 

 

Directors, Executive Officers and Corporate Governance

 

72

 

Item 11. 

 

Executive Compensation

 

72

 

Item 12. 

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

73

 

Item 13. 

 

Certain Relationships and Related Transactions, and Director Independence

 

73

 

Item 14. 

 

Principal Accounting Fees and Services

 

73

 

 

 

 

 

 

 

 

 

PART IV

 

 

 

Item 15. 

 

Exhibits, Financial Statement Schedules

 

74

 

 

 

Signatures

 

79

 

 

 

1


 

PART I

 

ITEM 1. BUSINESS

 

Overview

Christopher & Banks Corporation is a national specialty retailer featuring exclusively-designed, private-brand women’s apparel and accessories. We offer our customers an assortment of classic and versatile clothing for her everyday needs at a good value. Our merchandise is developed for women of all sizes, age 40 and older with an income level from  moderate to above average.

 

We operate an integrated, omni-channel business platform that is designed to provide customers a seamless retail experience with the ability to shop when and where they want, including retail stores, outlet stores, online and mobile. This allows our customers to browse, purchase, return, or exchange our merchandise through the channel that is optimal for her.

 

Unless otherwise noted, the use of the terms “the Company”, “we”, “us” and “our” in this Annual Report on Form 10-K refers to Christopher & Banks Corporation and its wholly owned subsidiaries, Christopher & Banks, Inc. and Christopher & Banks Company.

 

Our Brand

 

Christopher & Banks Corporation was incorporated in 1986 to acquire Braun’s Fashions, Inc., which had operated as a family-owned business since 1956. We became a publicly traded corporation in 1992 and, in July 2000, our stockholders approved a company name change from Braun’s Fashions Corporation to Christopher & Banks Corporation. Christopher & Banks caters to missy and petite sized customers. In 2000, we introduced our women’s plus sized collection under the name C.J. Banks.

 

We offer merchandise assortments that reflect a balance of novelty and basic core pieces, at affordable prices. We emphasize comfort and easy care in classic and relevant fashion. To differentiate ourselves from our competitors, our buyers, working in conjunction with our product development teams, strive to create a merchandise assortment of coordinated outfits, the majority of which are manufactured exclusively for us under our proprietary Christopher & Banks ® and C.J. Banks ® names.

 

Our Channels

 

Our Christopher and Banks (“CB”) stores offer merchandise assortments in women’s apparel and accessories for missy sizes 4 to 16 and petite sizes 4P to 16P.

 

Our C.J. Banks (“CJ”) stores offer merchandise assortments in similar women’s apparel and accessories for women’s sizes 14W to 26W.

 

Our Missy, Petite, Women (“MPW”) stores, outlet stores, and online or web store offer merchandise assortments from both Christopher and Banks and C.J. Banks in all three size ranges resulting in greater opportunity to service our customers and improve our store productivity.

 

Our Vision

 

Our vision is to be our customer’s trusted brand by delivering style and value every day. 

 

Our Mission

 

Our mission is to provide her with the style and versatility that reflects who she is, the lasting quality and affordable value that she expects, and the personalized attention that she deserves.

 

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Our Strategy

 

We strive to provide our customer with experiences that make her look and feel her best. 

 

Our strategy includes three key initiatives: 

 

·

Bring the “special” back to our specialty store

·

Increase brand awareness and drive engagement

·

Leverage our omni-channel capabilities

 

Bring the “Special” Back to Our Specialty Store

 

We are committed to ensuring we consistently meet our customers’ needs with differentiated styles that fit her lifestyle. We intend to increase the breadth of our fashion offering and ensure frequent newness to encourage repeat visits and increased spend.  We also will continue our focus on expanding on our new categories to augment her wardrobe needs. We will continue to localize our store assortments, tailoring our offerings by market type and customer size. 

 

Our focus remains on cultivating and delivering a true “specialty” shopping experience through exceptional customer service and inspirational merchandising presentations. We have a highly loyal customer base largely attributable to our shopping environment and our engaged, knowledgeable store associates. Our associates have long-term relationships with our customers and understand their preferences to assist them in selecting styles that makes them look and feel their best. We believe this genuine service focus is a competitive advantage and is key in our omni-channel approach.

 

As we continue to convert to the MPW store format, we have re-merchandised our product placement and visual elements to assist customers of all sizes more easily find the product they seek.

 

Increase Brand Awareness and Drive Engagement

 

We have a very loyal customer base that is highly engaged. As such, we will continue to leverage our direct and digital marketing channels to encourage our customer to shop more frequently and increase her spend with us. During the fiscal year, we also will be focused on increasing our brand awareness to acquire new customers.  We intend to invest incremental marketing spend to build the brand through refreshing our creative brand, look and feel, and by expanding our marketing mix during the latter part of the year. 

 

We continue to be focused on maximizing the benefits of our customer relationship management ("CRM") system database and Friendship Rewards Loyalty Program (“Friendship Rewards”) to strengthen our engagement with our customers. Friendship Rewards is a point-based program where members earn points based on purchases and other interactions with us. After reaching a certain level of accumulated points, members are rewarded with a certificate which may be applied towards purchases at our stores or on our web site. The program has helped us build our customer file in our database, allowing us to analyze purchasing behavior and to communicate more effectively with our customers. Early in fiscal 2016, we plan to launch a more personalized reward system that is differentiated by level of purchase activity and provides enhanced benefits as customers achieve the next reward level.

 

Leverage Our Omni-Channel Capabilities

 

During fiscal 2015, we made significant investments in support of developing our integrated, omni-channel strategy which is designed to provide customers a seamless retail experience together with the ability to shop when and where they want, including retail stores, outlet stores, online and mobile. Our omni-channel investments will enable us to address multiple customer touch points to drive spend and build our brand awareness. Our customers will be able to browse merchandise in one channel and consummate a transaction in a different channel.  At the same time, our customers have the option to return merchandise to a store or to our third-party distribution center, regardless of the original channel used for purchase.

 

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Our Merchandise

 

Our merchandise assortments include mostly exclusive designs of women’s apparel, generally consisting of casual clothing, everyday basics, wear-to-work, leisure / active wear, and sleepwear in missy, petite and women sizes. The Company also offers a selection of jewelry and accessories, including footwear to complement our customer’s wardrobe.

 

While each store offers a base merchandise assortment, store assortments vary to reflect individual store demands and local market preferences. We design our products and merchandise them in our stores and through our website in a coordinated manner intended to drive the number of units per transaction. On average, our customers purchase two to three items per transaction.

 

Our Operations

 

All of the Company operations are located in the United States. Merchandise selection, pricing and promotions, procurement and sourcing, marketing and advertising, and labor deployment across all channels are centrally managed at our corporate headquarters. In addition, functional support capabilities (e.g. human resources, finance, legal) are generally performed at our corporate location. We also have field operations that support our retail teams. Our retail stores have procedures for transaction processing, customer experience, merchandise display, inventory management, asset protection, and staff training.

 

Our Stores

 

As of January 30, 2016, we operated 518 stores in 45 states. The following table illustrates the change in store count and store format by fiscal year:

 

 

 

 

 

 

 

 

 

 

 

 

Store Count Rollforward

    

2015

    

2014

    

2013

    

2012

    

2011

Stores as beginning of year

 

518

 

560

 

608

 

686

 

775

Opened

 

42

 

23

 

8

 

7

 

31

Closed

 

(19)

 

(21)

 

(35)

 

(85)

 

(120)

Conversions

 

(23)

 

(44)

 

(21)

 

 —

 

 —

Stores at end of year

 

518

 

518

 

560

 

608

 

686

 

 

 

 

 

 

 

 

 

 

 

Stores by Format

    

2015

    

2014

    

2013

    

2012

    

2011

MPW

 

314

 

216

 

61

 

40

 

62

Outlet

 

77

 

44

 

31

 

25

 

23

Christopher and Banks

 

67

 

173

 

333

 

383

 

402

CJ Banks

 

60

 

85

 

135

 

160

 

199

Total Stores

 

518

 

518

 

560

 

608

 

686

 

We believe that the investments we have made in our stores, particularly the MPW and Outlet formats, represent a significant asset that we can leverage in our strategies to improve performance. When our foundational investments in an omni-channel platform are completed this fiscal year, we will have the ability to provide our customer with the ability to review inventory availability and shop when, where and how she wants.

 

We continue to be pleased with the overall performance of our MPW stores, which generate higher productivity per square foot, higher gross margin and higher operating margin than the predecessor CB or CJ store formats. We will continue the conversion of the majority of the remaining Christopher & Banks and CJ Banks stores to the MPW format over the next two years.

 

Our new store growth strategy will be focused primarily on outlets. These stores enable us to expand our customer reach to new geographies and heighten brand awareness. Our outlet stores contain a mixture of core merchandise, made-for-outlet merchandise and clearance merchandise. The made-for-outlet product carries a higher margin than the clearance items from our retail store base. We regularly review the appropriate ratio of made-for-outlet and clearance merchandise

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for our outlets and adjust that ratio as appropriate. We see an ongoing growth opportunity in our outlet business and believe we can successfully operate approximately 100 outlet locations.

 

Our Website

 

Our website at www.christopherandbanks.com provides customers the ability to browse our offerings, locate our stores, and order merchandise online. Our website is designed to be an extension of our brand and is key to our developing omni-channel strategy. The online merchandise assortment consists of a combination of exclusive styles as well as special sizes and lengths. We offer online customers the option to return items in our stores. For fiscal 2016, we will continue to focus on our omni-channel opportunity with the launch of a new web platform with enhanced functionality to improve our customer’s experience.

 

Competition

 

The women’s retail apparel business is highly competitive and includes regional, national and international department stores, specialty stores, boutique stores, catalog companies, and online retailers. Many of these competitors have greater name recognition and some of these competitors may have greater financial, marketing and other resources compared to us. We compete in the specialty retail space by offering unique, classic and versatile clothing that fits her everyday needs at a good value. We believe our visual merchandise presentation, attentive customer service and physical store locations supplement our compelling value proposition.

 

Global Sourcing and Product Sourcing

 

We utilize a broad base of manufacturers located throughout the world that we believe produce goods at the level of quality that our customers desire at a competitive price. For the most recently completed fiscal year, our ten largest suppliers accounted for approximately 70% of the merchandise we purchased, and we purchased 30% and 10% of our goods respectively from our two largest suppliers.

 

We purchase our merchandise using purchase orders and, therefore, are not subject to long-term production contracts with any of our vendors, manufacturers, or buying agents. We intend to continue our efforts to maximize our purchasing power by consolidating the number of key suppliers with consideration for the potential risk of limiting our manufacturing flexibility.

 

We may take ownership to product in the foreign country where the factory is located, at a designated point of entry into the United States, or at our distribution center depending on the specific terms of the sale. Most of our sourcing activities are performed by a single-shared sourcing and procurement function. We believe that this function, working in concert with our key supply chain partners, will deliver high quality apparel and accessories at a lower cost while providing the opportunity to minimize freight costs through consolidation. We believe that the decision to centralize our sourcing and procurement operations has helped us mitigate the impact of higher sourcing costs.

 

Typical lead times for delivery of our merchandise are 90 to 150 days from the date of order placement, however we have the ability to expedite the sourcing of merchandise in those cases where we see an opportunity to garner incremental sales on those items that have resonated with our customer. In addition we will purchase domestically when demand warrants.

 

We expect product costs, including the cost of cotton, to remain relatively constant in fiscal 2016.

 

Merchandise Distribution

 

We centrally distribute most of our products sold in our stores from our distribution center located in Plymouth, Minnesota. New merchandise is generally received each week day at our corporate distribution center. After arrival, merchandise is sorted and packaged for shipment to individual stores or is held for future store replenishment. Merchandise is generally pre-ticketed with price and related informational tags at the point of manufacture.

5


 

Merchandise is typically shipped to our stores via third-party delivery services multiple times per week, providing our stores with a steady flow of new inventory.

 

Merchandise sold through our eCommerce channel is delivered directly to the customer through a third-party service provider.

 

Information Technology

 

Our information technology strategy is intended to provide a platform for an integrated, omni-channel retail experience.  Our information systems are designed to enable us to obtain, analyze, and take action on information in a timely fashion.  We are committed to leveraging technology to maintain effective financial and operational controls.

 

We continue to make investments in capabilities that will allow us to better manage the flow of product.  Existing and anticipated system enhancements are intended to allow our teams to analyze store-level data to tailor the merchandise assortment to the demographics of the surrounding community. We expect these insights will lead to improved merchandise assortments thereby generating higher unit velocity and improved average unit retail, which should translate into higher merchandise margins.

 

We are committed to evolving change management and portfolio management processes and standards to improve the security of our data and our customers’ information as well as to maintain effective financial and operational controls. We have established an information security infrastructure and methodology which can adapt to the evolving needs of the business in an effort to ensure the appropriate safeguarding of assets and secure and reliable customer transactions.

 

Employees

 

As of January 30, 2016, we employed approximately 4,355 associates, approximately 31% of whom were full-time employees and the balance of whom were part-time employees. The number of part-time employees fluctuates during peak selling periods. Approximately 220 of our associates are employed at our corporate office and distribution center facility, with the majority of the associate population employed in our store field organization. We have no collective bargaining agreements covering any of our employees, have never experienced a work stoppage and are unaware of any efforts or plans to organize our employees. We consider relations with our employees to be good. 

 

Trademarks and Service Marks

 

We are the owner of certain registered and common law trademarks and service marks (collectively referred to as “Marks”).

 

Our wholly owned subsidiary, Christopher & Banks Company, is the owner of the federally registered Marks “christopher & banks ®,” which is our predominant private brand, and “cj banks ®,” our private brand for women sizes 14W to 26W.

 

In the opinion of management, our rights in the Marks are important to our business and are recognized in the women’s retail apparel industry. Accordingly, we intend to maintain our Marks and the related registrations and applications. U.S. trademark registrations are for a term of ten years and are renewable every ten years as long as the trademarks are used in the regular course of trade. We are not aware of any claims of infringement or other challenges to our rights to use any registered Marks in the United States.

 

Seasonality 

 

Our quarterly results may fluctuate significantly depending on a number of factors, including general economic conditions, consumer confidence, customer response to our seasonal merchandise mix, timing of new store openings, adverse weather conditions, and shifts in the timing of certain holidays and promotional events. 

 

6


 

Working Capital

 

We fund our business operations through a combination of cash and cash equivalents, short-term investments and cash flows generated from operations. In addition, our revolving credit facilities are available for additional working capital needs, for general corporate purposes and investment opportunities.

 

Effective inventory management is critical to our success.  We employ various methods to manage inventory levels including demand forecasting, optimal allocations, and various forms of inventory replenishment.  We seek to minimize markdowns through effective inventory management.

 

Available Information

 

Our investor relations website is located at www.christopherandbanks.com. Through this website, we make available free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as soon as reasonably practicable after we file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”).

 

Our Corporate Governance Guidelines, Code of Conduct, Ethical Principles, and of our Board of Directors committee charters are also available free of charge at our investor relations website.

 

ITEM 1A. RISK FACTORS

 

Our business is subject to a variety of risks.  Thus, an investment in our stock is also subject to risk. The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements that are contained in this Annual Report on Form 10-K (“Report”), as well as certain of our other filings with the SEC. Any of the following risks and uncertainties could materially adversely affect our business, financial condition, results of operations, cash flow, the trading price of our stock and/or the outcome of matters with respect to which forward-looking statements are made in this Report. The risk factors described below should not be construed as an exhaustive list of all the risks we face. There may be other risk factors not identified in this Report, that are either not presently known to us or that we currently believe to be immaterial, that could cause materially adverse effects.

 

All of our stores are located within the United States, making us highly susceptible to macroeconomic conditions and consumer confidence in the United States, and both of these factors may have a significant impact on consumer demand for our apparel and accessories. 

 

The demand for our products is influenced by national, regional and local economic factors, and how those factors in turn influence consumer spending levels.  Apparel retailing is a cyclical industry that is highly dependent upon the overall level of consumer spending. Purchases of specialty apparel and related goods tend to be highly correlated with levels of disposable income for consumers and overall consumer confidence.  Because apparel generally is a discretionary purchase, declines in consumer spending may have a more negative effect on apparel retailers than on other retailers.

 

Factors that could adversely affect the demand for our products include recessionary economic cycles, higher interest rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws, any or all of which could have an adverse impact on our sales, results of operations and cash flow. 

 

In addition, economic conditions could negatively impact the Company's retail landlords and their ability to maintain their shopping centers in a first-class condition and otherwise perform their obligations, which in turn could negatively impact our sales, results of operations and cash flow.

 

7


 

The geographic concentration of our stores makes us particularly susceptible to economic conditions in a small number of states.

 

A significant portion of our total sales is derived from stores located in ten states:  Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, New York, Pennsylvania and Wisconsin.  Therefore, we are particularly dependent on local economic conditions in these states. An economic downturn in any of these states that leads to decreased consumer spending could have a disproportionate negative impact on our sales, results of operations and cash flow.

 

The ability to attract customers to our stores that are located in regional malls and other shopping centers depends heavily on the success of the malls and the centers in which our stores are located, and any decrease in customer traffic to these malls and centers could cause our sales to be less than expected, which could adversely affect our results of operations and cash flow. 

 

The majority of our current stores are located in shopping malls and other retail centers. Sales at these stores are derived in considerable part from the volume of traffic generated in those malls or retail centers and surrounding areas. To take advantage of customer traffic and the shopping preferences of our customers, we need to maintain or acquire stores in desirable locations where competition for suitable store locations is strong. Our stores benefit from the ability of nearby tenants to generate consumer traffic near our stores, and the continuing popularity of the regional malls and outlet, lifestyle and power centers where our stores are located. Customer traffic and, in turn, our sales volume may be adversely affected by a wide variety of factors. A continued reduction in customer traffic could result in lower sales and leave us with excess inventory. In such circumstances, we may have to respond by increasing markdowns or initiating marketing promotions to reduce excess inventory, which could adversely impact our financial results and business.

 

Improving our store productivity will be largely dependent upon the performance of our missy, petite and women’s format (“MPW stores”) including our outlet stores, as well as in maintaining or increasing customer traffic in our stores and converting that traffic into sales. 

 

Improving the profitability of our existing stores and optimizing store productivity is critical to achieving sales growth and returning to profitability. 

 

Over the past several years, the Company has opened a number of outlet stores and either opened or converted existing stores into MPW stores such that approximately 75% of our stores (including outlets) at fiscal year-end were in the MPW format. We expect that the conversion of stores to the MPW format and the opening of additional outlet stores will continue but at a slower pace than the past two to three years.  The transition of the majority of our stores to the MPW format has resulted in certain operational challenges and tested our existing systems, which management continues to address.  If we are unable to improve the overall performance and store productivity of the MPW stores, our revenues, margins, liquidity and results of operations could be adversely affected.

 

We are subject to risks associated with leasing all of our store locations. 

 

We currently lease all of our store locations. Our leases range from month-to-month to approximately ten years in length. A number of our leases have early termination provisions that apply if we do not achieve specified sales levels after an initial term and, in some cases, allow us to pay rent based on a percent of sales if we fail to achieve certain specified sales levels. The leases for approximately 11% of our store base expire between February 1, 2016 and January 31, 2017, including those leases which are month to month.  We believe that, over the last few years, we have generally been able to negotiate favorable rental rates and extend leases due, in part, to the state of the economy and higher than usual vacancy rates. It is possible this trend may not continue and that we may not be able to renew our leases on as favorable terms, or in certain circumstances, at all. As a result, we may need to pay higher occupancy costs or close stores, which could adversely impact our financial performance, results of operations and ability to generate positive cash flow.

 

Our long-term growth plan is dependent upon our ability to successfully implement our strategic and tactical initiatives. 

 

The Company has a strategic growth plan that contemplates growth in sales per store and sales per square foot; improved selling, general and administrative expense leverage; and gross margin expansion intended to result in improved

8


 

operating income as a percentage of net sales over the long term. Our ability to achieve our strategic growth plan depends upon a variety of factors, including a number of factors that are beyond our control. If we are unable to successfully implement and execute the strategic and tactical initiatives underlying our growth plan, our results of operations could be adversely affected.

 

If we are unable to achieve and sustain an acceptable level of gross margin, it could have a material adverse impact on our business, profitability and liquidity. 

 

We experienced a decline in our overall gross margin in fiscal 2015, as compared to the prior fiscal year.  Our ability to reverse this trend and improve our gross margin is subject to a variety of challenges. The apparel industry is subject to significant pricing pressure caused by many factors. These factors may cause us to reduce our sales prices to consumers, which could cause our gross margin to decline further if we are unable to appropriately manage inventory levels and/or otherwise offset price reductions with comparable reductions in our operating costs or cost of goods. If our sales prices decline and we fail to sufficiently reduce our product costs or operating expenses, it will adversely impact our operating income. This could have a material adverse effect on our results of operations, liquidity and financial condition.

 

Our sales and results of operations could be adversely affected if we fail to retain or recruit key personnel as well as attract, develop and retain qualified employees. 

 

Our performance is highly dependent on attracting and retaining qualified employees, including our senior management team and other key employees. Our strategy of offering high quality services and assistance to our customers requires a highly trained and engaged workforce. The turnover rate in the retail industry is relatively high, and there is an ongoing need to recruit and train new employees. Factors that affect our ability to maintain sufficient numbers of qualified employees include employee morale, our reputation, unemployment rates, competition from other employers and our ability to offer appropriate compensation packages. In we are unable to recruit, train and assimilate a sufficient number of qualified sales associates that may impair our efficiency and effectiveness in serving our customers. In addition, a significant amount of turnover of senior management employees with specific knowledge relating to us, our operations and our industry may negatively impact our operations.

 

We operate in a highly competitive retail apparel industry. The size and resources of some of our competitors may allow them to compete more effectively than we can, which could reduce our revenues and gross margin. 

 

The women's specialty retail apparel business is highly competitive. We believe we compete primarily with department stores, specialty stores, discount stores, mass merchandisers, and online businesses that sell women's apparel. Many of our competitors are significantly larger with greater financial, distribution, marketing and other resources available to them, may offer a broader selection of merchandise than we do, and have greater brand recognition and comparatively lower costs of operations. They may be able to adapt to changes in customer preferences more quickly, devote greater resources to the marketing and sale of their products or adopt more aggressive pricing policies than we can. Given their greater financial resources and larger staff, our competitors may be better able to prioritize and manage large or complex projects, as well as respond more quickly to economic, operational, regulatory or organizational changes. Further, we do not typically advertise using television or radio media and thus do not reach customers through methods some of our competitors may use. In addition to competing for sales, we compete for favorable store locations, lease terms and qualified associates. Increased competition in any of these areas may result in higher costs, which could reduce our revenue and gross margins.

 

Failure to maintain our reputation and brand image or to successfully execute our marketing initiatives could have a negative impact on our business. 

 

Our ability to maintain our brand image and reputation is integral to our business as well as the implementation of strategies to expand it. Maintaining, promoting and growing our brand will depend largely on the success of our design, merchandising and marketing efforts and our ability to provide a consistent, high-quality customer experience. In addition, while our brand is mature, our success depends on our ability to retain existing customers and attract new customers to shop our brand, both in-store and online. Successful marketing efforts require the ability to reach customers through various methods of communication. A number of our marketing programs are planned well in advance of the

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date by which the related product is available for sale. Our inability to accurately predict our customers’ preferences, to utilize their desired mode of communication, or to ensure availability of advertised products could adversely affect our business and operating results. In addition, failure to achieve consistent, positive performance or the receipt of negative publicity could adversely impact our brand and the brand loyalty of our customers, which would adversely impact our business.

 

Our ability to anticipate or react to changing consumer preferences in a timely and accurate manner and offer a compelling product at an attractive price impacts our sales, gross margins and results of operations. 

 

Our success largely depends on our ability to consistently gauge and respond on a timely basis to fashion trends and provide a balanced assortment of merchandise that satisfies changing fashion tastes and customer demands for style, fit, quality and price, which preferences can vary considerably throughout the geographic areas in which we operate. Forecasting consumer demand for our merchandise and allocating the right amount and sizes of such merchandise to individual stores can be challenging. In addition, our merchandise assortment differs from season to season and, at any given time, our assortment may not resonate with our customers in terms of style, fit, quality or price. Generally, we begin the design process for apparel six to nine months before the merchandise is available to customers, and we typically begin to make purchase commitments several months in advance of deliveries to stores. These lead times can make it difficult for us to respond quickly to changes in the demand for our products or to adjust the cost of the product in response to customers' fashion or price preferences. Any missteps may affect merchandise desirability and gross margins, and result in excess inventory levels, which could impair our profitability.

 

If we miscalculate the market for our merchandise, our customers' tastes or purchasing habits or the demand for our products, we may have fewer sales at an acceptable mark-up over cost. As a result, we may be required to sell a significant amount of unsold inventory at below-average markups over cost, or below cost, which would have an adverse effect on our gross margin and results of operations. On the other hand, if we underestimate demand for our merchandise, we may experience inventory shortages, resulting in missed sales opportunities and lost revenues.

 

There are risks associated with our eCommerce business. 

 

We sell merchandise over the internet through our web site, www.christopherandbanks.com, which represents a growing percentage of our overall net sales. The successful operation of our eCommerce business depends on our ability to maintain the efficient and continuous operation of our eCommerce websites and our fulfillment operations, and to provide a shopping experience that will generate orders and return visits to our site. Our eCommerce operations are subject to numerous risks, including:

 

·

unanticipated operating problems;

·

rapid technological change;

·

the successful implementation of, and costs to implement, new systems and upgrades including our pending conversion to a new website platform;

·

reliance on third parties with respect to the operation of the website, order fulfillment and customer service and such third parties’ computer hardware and software;

·

diversion of sales from our stores;

·

liability for online content;

·

lack of compliance with, or violations of, applicable state or federal laws and regulations, including those relating to privacy and the resulting impact on consumer purchases;

·

increased or unfavorable governmental regulation of eCommerce (which may include regulation of privacy, data protection, eCommerce payment services, content, accessibility and other related topics);

·

credit card fraud;

·

system failures or disruptions and security breaches and the costs to address and remedy such failures, disruptions or breaches;

·

lack of sufficient levels of inventory of product or sizes to meet online demand; and

·

untimely delivery of our merchandise to our customers by third parties.

 

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If we fail to successfully address and respond to these risks, it could damage our brand and have a material adverse effect on our operating results, financial position and cash flows. There also can be no assurance that our eCommerce operations will meet our sales and profitability plans, and the failure to do so also could negatively impact our revenues and earnings. 

 

Costs of raw materials, commodities, transportation or labor may rise resulting in an increase in component and delivery costs, and overall product costs, all of which could erode margins and impact our profitability. 

 

The raw materials and labor used to manufacture our products and our transportation and contract manufacturing labor costs are subject to availability constraints and price volatility. The results of our business operations could suffer due to significant increases or volatility in the prices of certain commodities, including but not limited to cotton, polyester and other items used in the production of fabric and accessories, as well as fuel, oil and natural gas. Price increases of these items or other inflationary pressures may result in significant cost increases for our raw materials, product components and finished products, as well as increases in the cost of distributing merchandise to our retail locations. Consequently, higher product costs as a result of one or more of these factors could have a negative effect on our gross profits, as we may not be able to pass such costs on to our customers. 

 

Our reliance on foreign sources of production poses various risks. 

 

For the last fiscal year, we directly imported approximately 38% of our merchandise, and much of the merchandise we purchase domestically is made overseas. Substantially all of our directly imported merchandise is manufactured in Asia. 

 

Because a significant portion of our merchandise is produced overseas, we are subject to the various risks of doing business in foreign markets and importing merchandise from abroad, such as:

 

·

delays in the delivery of cargo;

·

imposition of, or increases in, duties, taxes or other charges on imports;

·

new legislation or regulations relating to increased tariffs, import quotas, embargoes, customs or other trade restrictions that may limit or prohibit merchandise that may be imported into the United States from countries or regions where we do business, increase the cost or reduce the supply of the merchandise we purchase or limit our ability to source products from countries that have the labor and expertise to manufacture our products cost effectively;

·

financial or political instability in any of the countries in which our merchandise is manufactured;

·

significant fluctuations in the value of the dollar against foreign currencies or restrictions on the transfer of funds, or additional trade restrictions imposed by the United States or foreign governments;

·

supply chain security initiatives undertaken by the United States or foreign governments that delay or impede the delivery of imports and normal flow of product;

·

delayed receipt or non-delivery of goods due to the failure of suppliers to comply with applicable import regulations;

·

delayed receipt or non-delivery of goods due to labor strikes or unexpected or significant port congestion at United States or foreign ports;

·

potential recalls or cancellations of orders for any merchandise that does not meet our quality standards;

·

inability to meet our production needs due to labor shortages;

·

natural disasters, extreme weather, political or military conflicts, terrorism, disease epidemics and public health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and embargoing  or increased scrutiny (and the resulting delays) of goods produced in affected areas; and

·

the United States may impose new initiatives that adversely affect the trading status of countries where our apparel is manufactured. These initiatives may include retaliatory duties or other trade sanctions that, if enacted, would increase the cost of products imported from countries where our suppliers manufacture merchandise or result in our seeking new suppliers in countries with which we have little or no experience.

 

Any of the foregoing factors, or a combination of them, could increase our costs or result in our inability to obtain sufficient quantities of merchandise, thereby negatively impacting sales, gross profit and operating income. 

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It is also possible that the inability of our suppliers to access credit may cause them to extend less favorable terms to us, which could adversely affect our cash flows, margins and financial condition. Additionally, delays by our vendors in supplying our inventory needs could cause us to incur more expensive transportation charges, which may adversely affect our margins. 

 

A significant portion of our merchandise is ordered through a small number of suppliers and our business could suffer if we needed to replace them. 

 

We do not own or operate any manufacturing facilities. Instead we depend on independent third parties to manufacture our merchandise. For the most recently completed fiscal year, our ten largest suppliers accounted for approximately 70% of the merchandise we purchased, and we purchased 30% and 10% of our goods respectively from our two largest suppliers.

 

We generally maintain non-exclusive relationships with the suppliers that manufacture our merchandise, and we compete with other companies for production facilities. As a result, we have no contractual assurances of continued supply or pricing, and any supplier, including our key suppliers, could discontinue selling to us at any time. Moreover, a key supplier may not be able to supply our inventory needs due to capacity constraints, financial instability or other factors beyond our control, or we could decide to stop using a supplier due to quality or other performance or cost issues. If we determined to cease doing business with one or more of our key suppliers or if a key supplier were unable to supply desired merchandise in sufficient quantities on acceptable terms, we could experience delays in the receipt of inventory until alternative supply arrangements were secured; such delays could result in lost sales and adversely affect our results of operations and cash flow.

 

If third parties with whom we do business do not adequately perform their functions, we might experience disruptions in our business, resulting in decreased profits, or losses, and damage to our reputation. 

 

We depend upon independent third parties, both domestic and foreign, for the manufacture of all of the goods that we sell. The inability of a manufacturer to ship orders in a timely manner or to meet our standards could have a material adverse impact on our business.

 

We also use third parties in various aspects of our business to support our operations. We have a contract with a single third party to manage significant portions of our eCommerce operations, including order fulfillment and customer service. We rely on third parties to inspect some of the factories where our products are made for compliance with our vendor code of conduct. From time-to-time we may rely on a third party for assistance with the implementation and/or management of certain aspects of our information technology infrastructure. We also rely on third parties to transport merchandise and deliver it to our distribution center, as well as to ship merchandise to our stores and to our third-party eCommerce fulfillment center.

 

Failure by any of these third parties to perform these functions effectively and properly, or any disruption in our business relationships with any of these third parties, could negatively impact our operations, profitability and reputation.

 

Our business and reputation could suffer if one or more of our suppliers fails to comply with applicable laws or to follow acceptable labor practices, or is accused of such non-compliance. 

 

Our success depends, in part, on the manufacturers of our goods to operate in compliance with applicable laws and regulations and to comply with our vendor code of conduct. Although each of our purchase orders requires adherence to accepted labor practices, applicable laws and compliance with our vendor code of conduct, we do not supervise or control our suppliers or the manufacturers that produce the merchandise we sell. We rely on the staff of third-party auditing services to periodically visit and inspect the operations of a number of our independent manufacturers to, among other things, assess compliance with our vendor code of conduct. Nonetheless, we cannot ensure that these manufacturers will conduct their businesses in compliance with these expectations.  Moreover, apparel companies can, in some cases, be held jointly liable for the wrongdoings of the manufacturers of their products.  In addition, we cannot control the public’s perceptions of such manufacturers or their practices, even if they are compliant with applicable law

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but are viewed in a negative light by the public.  Their failure to comply with our vendor code of conduct or otherwise avoid creating negative consumer perceptions about their manufacturing methods and environment, could damage our reputation, interrupt or disrupt shipment of products, result in a decrease in customer traffic to our stores or website and adversely affect our sales and net income.

 

Our business could suffer if parties with whom the Company does business become insolvent or otherwise become unable or unwilling to perform their obligations to the Company. 

 

We are party to contracts, transactions and business relationships with various third parties, including vendors, suppliers, service providers and lenders, pursuant to which such third parties have performance, payment and other obligations to us.  In some cases, the Company depends upon such third parties to provide essential products, services or other benefits in order to operate the Company’s business in the ordinary course.  Adverse economic, industry or market conditions could result in an increased risk to the Company associated with the potential financial distress or insolvency of such third parties. If any of these third parties were to become subject to bankruptcy, receivership or similar proceedings, our rights and benefits pursuant to these contracts, transactions and business relationships with such third parties could be terminated, modified in a manner adverse to us, or otherwise impaired. We cannot provide any assurance that we would be able to arrange alternate or replacement contracts, transactions or business relationships with other third parties on terms as favorable as our existing contracts, transactions or business relationships, if at all. Any inability on our part to do so could negatively affect our cash flows, financial condition and business.

 

There are risks relating to the transportation of our merchandise to our distribution center, to our eCommerce fulfillment center, to our stores, and to our eCommerce customers. 

 

We currently rely upon independent third-party transportation providers for substantially all of our merchandise shipments, including shipments to our distribution center, our stores, our eCommerce fulfillment center and our eCommerce customers. Our use of outside delivery services for shipments is subject to a variety of risks which may impact a shipper's ability to provide delivery services that adequately meet our shipping needs. If we change shipping companies, we could face logistical difficulties that could adversely impact deliveries and we would incur costs and expend resources in connection with such a change. Moreover, we may not be able to obtain terms as favorable as those received from the independent third-party transportation providers we currently use, which would increase our costs.

 

In addition, because the vast majority of our products are shipped by ocean from overseas, there are risks associated with a disruption in the operation of ports through which our products are shipped. If a disruption occurs, we are likely to experience delays in the receipt of products, and we or our suppliers may have to find alternative shipping methods, possibly at greater expense, increased lead times and increased costs of our goods, which could have a material adverse effect on our results of operations and cash flows. As a large part of our merchandise is produced in Asia, it is largely shipped to us through the ports on the West Coast. Any disruption in the operation of the West Coast ports could lead to the delayed receipt of merchandise and adjustments in our marketing promotions as a result. Any such delays could result in lost sales and lower gross margins due to the lack of seasonality of the product at time of receipt, and thus adversely affect our results of operations, gross profit and cash flows.

 

We depend on a single facility to conduct our operations and distribute our merchandise. Our business could suffer a material adverse effect if this facility were shut down or its operations severely disrupted. 

 

Our corporate headquarters and our only distribution facility are located in one facility in Plymouth, Minnesota. Our distribution facility supplies merchandise to our retail stores and our third party eCommerce fulfillment center. Any serious disruption to our distribution facility or a facility closure for any reason, could delay shipments to stores and our eCommerce fulfillment center and result in inventory shortages which could negatively impact our sales and results of operations. In addition, our main data center and all of our senior management, including critical resources dedicated to merchandising, operations, finance and administrative functions, are located at our corporate headquarters. In the event of a disaster or other calamity impacting our corporate facility, our management and staff would have to find and operate out of other suitable locations. We have little experience operating essential functions away from our main corporate offices and are uncertain what effect operating such satellite facilities might have on business, personnel and results of operations.

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Although we maintain business interruption and property insurance, we cannot be assured that our insurance coverage will be sufficient or that any insurance proceeds will be timely paid to us if our distribution center or corporate offices were shut down for any unplanned reason.

 

If our long-lived assets become impaired, we may need to record significant non-cash impairment charges. 

 

Periodically, we review our long-lived assets for impairment whenever economic events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Significant negative industry or general economic trends, disruptions to our business and unexpected significant changes or planned changes in our use of the assets (such as store relocations or closures) may result in impairment charges. Any such impairment charges, if significant, would adversely affect our financial position and results of operations.

 

Adverse and/or unseasonable weather conditions in the United States could have a disproportionate effect on our business, financial condition and results of operations. 

 

Adverse weather conditions in the areas in which our stores are located could have an adverse effect on our business, financial condition and results of operation. For example, inclement weather conditions can make it difficult for our customers to travel to our stores and/or result in temporary store closures or reduced hours of operation. Our business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could render a portion of our merchandise offerings incompatible with those unseasonable conditions in the affected areas. Such unseasonable weather conditions could have an adverse effect on our business, financial condition and results of operations.

 

Natural disasters, acts of war or other catastrophes could adversely affect our financial performance. 

 

The occurrence of one or more natural disasters, pandemic outbreaks, terrorist acts, disruptive global political events, or similar catastrophes could adversely affect our operations and financial performance. To the extent these events result in the closure of our distribution center, corporate headquarters, or a significant number of our stores, or impact one or more of our key third-party providers of services or goods, our operations and financial performance could be adversely affected. These events also could have indirect consequences, such as loss of property or other damage which may or may not be covered by insurance.

 

We are heavily dependent on our information technology systems and our ability to maintain and upgrade these systems from time-to-time and operate them in a secure manner. Any failure, interruption or compromise of these systems could have a material adverse effect on our business, results of operation and cash flows. 

 

The efficient operation of our business is heavily dependent on our information technology systems (“IT systems”). In particular, we rely on point-of-sale terminals, which provide information to our host analysis systems used to track sales and inventory, we rely on our eCommerce website through which we sell merchandise to our customers and we rely on a third party to process payroll for our employees. Although our data is backed up and securely stored off-site, our main data center is located at our headquarters in Plymouth, Minnesota. The data center and our operations are vulnerable to damage or interruption due to a variety of factors including:

 

·

fire, flood and other natural disasters;

·

generator loss, computer systems failures, technical malfunctions, inadequate systems capacity, Internet and telecommunications or data network failures, operator negligence, improper operation by or supervision of employees and similar events;

·

physical and electronic loss of data or security breaches; and

·

computer viruses or software bugs.

 

Any disruption in the operation of our IT systems, the loss of key employees knowledgeable about such systems or our failure to continue to effectively enhance such systems could interrupt our operations resulting in the temporary loss of or ability to access data or interfere with our ability to sell goods in-store, which could result in reduced sales and affect

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our operations and financial performance. In addition, any interruption in the operation of our Internet website could cause us to lose sales due to the temporary inability of customers to purchase merchandise through our website. 

 

From time-to-time, we improve and upgrade our IT systems and the functionality of our Internet website in an effort to ensure they meet our evolving business and security needs and are adequate to handle business growth. The cost of any such system upgrades or enhancements can be significant.  We are currently in the process of implementing our Customer First initiative which involves an upgrade to, and greater integration among, our customer relationship management system, our order management system and our brick-and mortar-stores, as well as the implementation of a new eCommerce platform. If we are unable to maintain and upgrade our operating systems or eCommerce website, or effectively integrate new and updated systems, software or changes to our operating systems or our eCommerce website in an efficient, timely and secure manner, our business, financial condition and results of operations could be materially and adversely affected. While we believe that we are diligent in selecting vendors, systems and third party providers to assist us in maintaining the integrity of our information technology systems, we realize that there are risks and that no assurance can be provided that future disruptions, service outages and failures or unauthorized intrusions will not occur. 

 

We are subject to cyber security risks and may incur additional expenses in order to mitigate such risks or in response to unauthorized access to our data. In addition, an incident in which we fail to protect our customers' information against a security breach could result in costly government enforcement actions and monetary damages against us from private litigation.  Such an incident could otherwise damage our reputation, harm our business and adversely impact our results of operations. 

 

The Company and our third-party service providers that manage portions of the Company’s data are subject to cyber security risk. The nature of our business involves the receipt and transmission, and in some cases storage by us or third parties on our behalf, of customers’ personal information, shopping preferences and credit and debit card information, in addition to employee information and the Company’s financial and strategic data. The protection of our customers’ data, as well as internal Company data is vitally important to the Company. The Company and its third-party service providers employ systems and/or websites that are intended to protect the storage and/or transmission of proprietary or confidential information by us and these third-party service providers. While the Company has implemented measures to prevent and detect security breaches and cyber incidents and to monitor its computer network, any failure of these measures and any failure of third parties that assist the Company in managing its data could adversely affect the Company's business, financial condition and results of operations.

 

Although the Company expects our third-party service providers to implement and use reasonable security measures to protect the proprietary and confidential information once it is received, we cannot control these service providers and cannot guarantee that a security breach will not occur in the future either at their location or within their systems. Because the techniques used to obtain unauthorized access to data, disable or degrade storage service, or sabotage systems change frequently and may be difficult to detect, we and the service providers we use may be unable to anticipate these techniques or implement adequate preventive measures. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties acting on our behalf, through fraud, trickery or other forms of deceiving our employees or those of our third-party providers. Despite our preventative efforts and those of our third-party service providers, we may be vulnerable to targeted or random security breaches, privacy or denial of service attacks, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events which could expose us and our third-party service providers to a risk of loss or misuse of proprietary and confidential information, litigation and potential liability. Cyber security attacks may be targeted at us, our third-party service providers, or our customers. Actual or anticipated attacks may cause us to incur significant additional expense, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Any cyber security or security breaches, including any breaches that result in theft, transfer or unauthorized disclosure of customer, employee or company information, or our lack of compliance with information security and privacy laws and regulations, may result in significant legal and financial exposure, including claims for unauthorized purchases with stolen credit card information, impersonation or other similar fraud claims, and considerable other additional expenses.  Some or all of these costs may not be adequately covered by our insurance, and could result in a loss of confidence in our security measures, any or all of which could have an adverse effect on our brand, business and reputation.

 

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Consumer awareness and sensitivity to privacy breaches and cyber security threats is prevalent. Any misappropriation of confidential or personally identifiable information gathered, stored or used by us or our service providers, be it intentional or accidental, could have a material impact on the operation of our business, including severely damaging our reputation and our relationships with our customers, employees and investors. Should customers lose confidence in our ability to protect their information, they may discontinue shopping in our stores or on our website.

 

Laws on privacy continue to evolve and further limits on how we collect or use customer information could adversely affect our business. 

 

We collect and store customer information primarily for marketing purposes.  The use or retention of certain information is subject to applicable privacy laws. These laws and the judicial interpretation of such laws are evolving on a frequent basis. If we fail to comply with these laws, we may be subject to fines or penalties, which could impact our business, financial condition and results of operations. In addition, any compromise of customer information could subject us to customer, third-party or government litigation and harm our reputation, which could adversely affect our business and financial condition. Any limitations imposed on the use of such customer information by federal, state or local governments, could have an adverse effect on our future marketing activities. Governmental focus on data security and/or privacy may lead to additional legislative action, and the increased emphasis on information security may lead customers to request that we take additional measures to enhance security. As a result, we may have to modify our business with the goal of further improving data security, which would result in increased expenses and operating complexity.

 

A failure to comply with the Payment Card Industry Data Security Standards could adversely affect our business, financial condition and results of operations. 

 

We are highly dependent on the use of credit and debit cards to complete sale transactions in our stores and through our eCommerce website, and because of such use are subject to the Payment Card Industry Data Security Standards (“PCI Standards”). If we or our business partners fail to comply with the PCI Standards or to adequately protect sensitive customer information, we may become subject to fines or limitations on our ability to accept credit or debit cards, which could adversely affect our sales, operating income, brand and reputation. Also, any changes we may be required to make to our private label credit card program in the future could adversely affect the promotional financing arrangements available to our credit card customers and therefore our operating results.

 

The sufficiency and availability of our sources of liquidity may be affected by a variety of factors. 

 

The sufficiency and availability of our sources of liquidity may be affected by a variety of factors, including, without limitation: (i) the level of our operating cash flows, which are impacted by consumer acceptance of our merchandise, general economic conditions and the level of consumer discretionary spending; and (ii) our ability to maintain borrowing availability and to comply with applicable covenants contained in our Credit Facility.

 

Our ability to return to profitability and to generate positive cash flows is dependent upon many factors, including favorable economic conditions and consumer confidence and our ability to successfully execute our financial plan and strategic and tactical initiatives. There can be no assurance that our cash flows from operations will be sufficient at all times to support our Company without additional financing or credit availability. An inability to generate sufficient cash flow could have important consequences. For example, it could:

 

·

increase our vulnerability to general adverse economic and industry conditions;

·

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

·

limit our ability to borrow money or to invest in our business operations;

·

make it more difficult for us to open new stores, improve existing stores or convert stores to the MPW format; and require us to incur significant additional indebtedness.

 

Should we be unable in the future to borrow under the Credit Facility, it is possible, depending on the cause of our inability to borrow, that we may not have sufficient cash resources for our operations. If that were to occur, our liquidity

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would be significantly impaired, which could have a material adverse effect on our business, financial condition and results of operations. 

 

Access to additional financing from the capital markets may be limited. 

 

While we have availability under our Credit Facility to bolster our liquidity, we may need additional capital to fund our operations, particularly if our cash flows from operating activities were to decrease or if the Credit Facility were unavailable. The sale of additional equity securities or convertible debt securities in order to improve our liquidity could result in additional dilution to our stockholders. If we borrow under our Credit Facility or incur other debt, our expenses will increase and we could be subject to additional restrictions that may limit our operating flexibility. Newly issued securities may have rights, preferences and privileges that are senior or otherwise superior to those of our common stock. There is no assurance that equity or debt financing will be available in amounts or on terms acceptable to us. Without sufficient liquidity, we will be more vulnerable to any future downturns in our business or the general economy. Future increases in interest rates or other tightening of the credit markets, or future turmoil in the financial markets, could make it more difficult for us to access funds, to refinance our indebtedness (if necessary), to enter into agreements for new indebtedness, or to obtain funding through the issuance of our securities. 

 

Our ability to maintain the value of our trademarks impacts our business and financial performance. 

 

We believe that our “christopher & banks”, “cj banks” and related trademarks are important to our success and we register a number of our trademarks in the United States in an effort to protect them. Even though we take actions to establish, register and protect our trademarks and other proprietary rights, we cannot be sure that we will be successful or that others will not imitate or infringe upon our intellectual property rights. In addition, we cannot assure that others will not seek to block the sale of our products as infringements of their trademark and proprietary rights. If we cannot adequately protect our existing and future trademarks or prevent infringement of them, our business and financial performance could suffer. 

 

We may be subject to adverse outcomes in current or future litigation matters or regulatory proceedings which could result in the unexpected expenditure of time and resources. 

 

From time-to-time, we may be involved in litigation, regulatory actions and other claims against our business. There are also other types of claims that could be asserted against us based on litigation that has been asserted against others, particularly in the retail industry. These matters typically arise in the ordinary course of business but, in some cases, could also raise complex factual and legal issues requiring significant management time and, if determined to be adverse to the Company, could subject the Company to material liabilities.

 

In recent years, there has been increasing activity by companies which have acquired intellectual property rights, but do not practice those rights (sometimes referred to as “patent trolls”), to engage in very broad licensing programs aimed at a large number of companies in a wide variety of businesses, or at retail companies specifically. These efforts typically involve proposing licenses in exchange for a payment of money and may also include the threat or actual initiation of litigation for that purpose. Any such litigation can be costly to defend, even if unsubstantiated or invalid. It is not possible to predict the impact, if any, of such claims on our business and operations.

 

An unfavorable outcome in any future litigation or regulatory proceedings could have a material adverse impact on our business, financial condition and results of operations and/or our reputation.  In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings can be expensive and require that we devote substantial resources and executive time to defend, thereby diverting management’s attention and resources that are needed to successfully run our business.

 

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Changes in accounting rules and regulations, or failures in our internal controls may cause us to inaccurately report our financial results or to fail to prevent fraud which could adversely affect our results of operations or market confidence in our reported financial information.    

 

Changes to and varying interpretations of existing accounting rules and regulations may occur in the future, as well as new accounting rules or regulations. Such changes could adversely affect our results of operations and financial position.

 

In addition, as required by Section 404 of the Sarbanes-Oxley Act of 2002, we maintain a documented system of internal controls which is reviewed and monitored by management, who meet regularly with our Audit Committee of the Board of Directors. We devote significant resources to document, test, monitor and improve our internal controls and will continue to do so; however, we cannot be certain that these measures will ensure that our controls are adequate in the future or that adequate controls will be effective in preventing fraud. As of January 31, 2015, the Company concluded that a material weakness existed in its internal control over financial reporting as described in Item 9A – Controls and Procedures of the Company’s Form 10-K Report for fiscal 2015.  Due to the material weakness, management performed additional analysis and procedures to ensure that our consolidated financial statements included in this Annual Report were presented fairly in conformity with generally accepted accounting principles and fairly present in all material respects our financial position, results of operations and cash flows for the periods presented. Any failures in the effectiveness of our internal controls or to comply with the requirements of the Sarbanes-Oxley Act could negatively impact our business, the price of our common stock and market confidence in our reported financial information.

 

Provisions in our charter documents and Delaware law may inhibit a takeover. We are entitled to certain other protective provisions under Delaware law. 

 

We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third-party to acquire control of the Company, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and by-laws contain provisions that may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable by, among other things:

 

·

prohibiting cumulative voting in the election of directors;

·

authorizing the Board to designate and issue “blank check” preferred stock;

·

limiting persons who can call special meetings of the Board of Directors or stockholders;

·

prohibiting stockholder action by written consent; and

·

establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted on by stockholders at a stockholders’ meeting

 

We may be subject to increased labor costs. 

 

Our retail store operations are subject to federal, state and local laws governing such matters as minimum wages, working conditions, vacation, sick leave and overtime pay. If federal, state or local minimum wage rates increase, we may need to increase not only the wages of any minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage. Similarly, if federal or state overtime regulations change, more of our employees may be entitled to overtime pay, which could also increase our labor costs.  Increasingly states and local municipalities are enacting laws governing working conditions particularly in the areas of sick leave and vacation.  Complying with these laws in limited geographic areas adds increased cost and complexity. If such minimum wage and other labor laws prevent us from offsetting increased labor costs by increases in prices, our profitability may decline.

 

Stock price volatility.

 

Our stock price, like that of other retail companies, is subject to significant volatility due to many factors, including, but not limited to: general economic conditions, stock and credit market conditions, quarter- to-quarter variations in our actual or anticipated financial results and investor sentiment. Further, if the analysts that regularly follow the Company’s performance lower their ratings or lower their projections for future growth and financial performance, the Company’s stock price could be adversely impacted. In addition, the stock market has experienced price and volume fluctuations that

18


 

have affected the market price of many retail and other stocks and that have often been unrelated or disproportionate to the operating performance of these companies.

 

Furthermore, we may provide public guidance on our expected financial results for future periods. Although we believe that this guidance provides investors and analysts with a better understanding of management's expectations for the future and is useful to our stockholders and potential stockholders, such guidance is comprised of forward-looking statements subject to the risks and uncertainties described in this Report and in our other public filings and public statements. Our actual results may not always be in line with or exceed the guidance we have provided. If our financial results for a particular period do not meet our guidance or the expectations of investment analysts or if we reduce our guidance for future periods, the market price of our common stock may decline.

 

Our business could be impacted as a result of actions by activist stockholders or others.

 

We may be subject, from time to time, to legal and business challenges in the operation of our Company due to proxy contests, shareholder proposals, media campaigns and other actions instituted by activist shareholders or others. Responding to such actions can be costly and time-consuming, disrupt our operations, may not align with our business strategies and could divert the attention of our Board of Directors and senior management from the pursuit of our current business strategies. Perceived uncertainties as to our future direction as a result of stockholder activism or potential changes to the composition of the Board of Directors may lead to the perception of a change in the direction of the business or other instability.  Such perceptions may also make it more difficult to attract and retain qualified and experienced senior management and Board members.  The uncertainties and potential disruptions resulting from stockholder actions may adversely affect our business, results of operations and stock price. 

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

There are no matters which are required to be reported under Item 1B.

 

ITEM 2. PROPERTIES

 

Store Locations

 

Our stores are located primarily in shopping malls and retail centers in smaller to mid-sized cities and suburban areas. Approximately 81% of our stores are located in enclosed malls that typically have numerous specialty stores and two or more general merchandise chains or department stores as anchor tenants. The remainder of our Christopher & Banks, C.J. Banks and MPW stores are located in power, strip and lifestyle shopping centers. We opened our first outlet stores in fiscal 2011 and operated stores in 77 outlet centers as of January 30, 2016.

 

At January 30, 2016 Christopher & Banks, C.J. Banks, MPW and outlet stores averaged approximately 3,300, 3,600, 3,800 and 4,000 square feet, respectively. Approximately 84% of the total aggregate store square footage is allocated to selling space.

 

19


 

At January 30, 2016, we operated 518 stores in 45 states as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Christopher &

    

 

    

 

    

 

    

 

 

State

 

Banks

 

C.J. Banks

 

MPW

 

Outlet

 

Total Stores

 

Alabama

 

 —

 

 —

 

1

 

1

 

2

 

Alaska

 

 —

 

 —

 

 —

 

 —

 

 —

 

Arizona

 

1

 

 —

 

4

 

3

 

8

 

Arkansas

 

 —

 

 —

 

2

 

1

 

3

 

California

 

 —

 

 —

 

6

 

 —

 

6

 

Colorado

 

4

 

3

 

9

 

1

 

17

 

Connecticut

 

 —

 

 —

 

3

 

1

 

4

 

Delaware

 

 —

 

 —

 

2

 

1

 

3

 

Florida

 

 —

 

 —

 

3

 

6

 

9

 

Georgia

 

 —

 

 —

 

1

 

5

 

6

 

Hawaii

 

 —

 

 —

 

 —

 

 —

 

 —

 

Idaho

 

1

 

1

 

6

 

 —

 

8

 

Illinois

 

4

 

3

 

19

 

2

 

28

 

Indiana

 

5

 

5

 

9

 

3

 

22

 

Iowa

 

4

 

3

 

16

 

1

 

24

 

Kansas

 

3

 

3

 

9

 

1

 

16

 

Kentucky

 

3

 

3

 

6

 

1

 

13

 

Louisiana

 

 —

 

 —

 

 —

 

 —

 

 —

 

Maine

 

1

 

1

 

2

 

1

 

5

 

Maryland

 

 —

 

 —

 

5

 

1

 

6

 

Massachusetts

 

 —

 

 —

 

1

 

 —

 

1

 

Michigan

 

2

 

2

 

21

 

4

 

29

 

Minnesota

 

4

 

4

 

22

 

4

 

34

 

Mississippi

 

 —

 

 —

 

 —

 

1

 

1

 

Missouri

 

4

 

4

 

9

 

3

 

20

 

Montana

 

 —

 

 —

 

6

 

 —

 

6

 

Nebraska

 

4

 

4

 

6

 

 —

 

14

 

Nevada

 

 —

 

 —

 

 —

 

 —

 

 —

 

New Hampshire

 

 —

 

 —

 

3

 

1

 

4

 

New Jersey

 

 —

 

 —

 

 —

 

1

 

1

 

New Mexico

 

1

 

 —

 

1

 

 —

 

2

 

New York

 

2

 

2

 

16

 

4

 

24

 

North Carolina

 

 —

 

 —

 

4

 

4

 

8

 

North Dakota

 

1

 

1

 

5

 

 —

 

7

 

Ohio

 

7

 

6

 

18

 

2

 

33

 

Oklahoma

 

 —

 

 —

 

5

 

1

 

6

 

Oregon

 

1

 

1

 

4

 

4

 

10

 

Pennsylvania

 

1

 

1

 

24

 

5

 

31

 

Rhode Island

 

 —

 

 —

 

 —

 

 —

 

 —

 

South Carolina

 

 —

 

 —

 

2

 

1

 

3

 

South Dakota

 

1

 

1

 

6

 

 —

 

8

 

Tennessee

 

1

 

1

 

10

 

3

 

15

 

Texas

 

1

 

 —

 

8

 

1

 

10

 

Utah

 

2

 

2

 

5

 

 —

 

9

 

Vermont

 

 —

 

 —

 

2

 

1

 

3

 

Virginia

 

1

 

1

 

6

 

1

 

9

 

Washington

 

1

 

1

 

10

 

3

 

15

 

West Virginia

 

2

 

2

 

5

 

 —

 

9

 

Wisconsin

 

5

 

5

 

10

 

4

 

24

 

Wyoming

 

 —

 

 —

 

2

 

 —

 

2

 

TOTAL

 

67

 

60

 

314

 

77

 

518

 

 

Store Leases

 

All of our store locations are leased. Lease terms typically include a rental period of 10 years and may contain a renewal option. Leases generally require payments of fixed minimum rent and/or contingent percentage rent, calculated based on a percent of sales in excess of a specified threshold, as well as other typical charges such as common area maintenance,

20


 

media/marketing funds, real estate taxes and insurance.  Most of our leases allow the Company to exercise a sales volume kick-out prior to the end of the lease if certain sales thresholds are not achieved.

 

The following table, which covers all of the stores operated by us at January 30, 2016, indicates the number of leases expiring during the periods indicated and the number of such leases with renewal options. The number of stores with leases expiring in the next fiscal year includes stores which currently are operating on month-to-month terms.

 

 

 

 

 

 

 

Fiscal Years

 

Number of Leases Expiring

 

Number with Renewal Options

 

2016

    

58

    

 —

 

2017

 

188

 

 —

 

2018

 

37

 

1

 

2019

 

52

 

 —

 

2020

 

30

 

2

 

2021 and thereafter

 

153

 

13

 

Total

 

518

 

16

 

 

For leases that expire in a given period, we plan to evaluate the projected future performance of each store location prior to lease expiration to determine if we will seek to negotiate a new lease for that particular location.

 

Corporate Office and Distribution Center Facility

 

Our 210,000 square foot corporate office and distribution center facility, located in Plymouth, Minnesota. We utilize the entire facility for our corporate office and distribution center requirements and receive and distribute all of our merchandise for all of our stores through this facility. Management believes our corporate office and distribution center facility space is sufficient to meet our requirements for the next fiscal year.

 

ITEM 3. LEGAL PROCEEDINGS

 

We are subject, from time to time, to various claims, lawsuits or actions that arise in the ordinary course of business. Although the amount of any liability that could arise with respect to any current proceedings cannot, in management’s opinion, be accurately predicted, any such liability is not expected to have a material adverse impact on our financial position, results of operations or liquidity.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

 

The following table sets forth certain information regarding our executive officers as of March 11, 2016:

 

 

 

 

 

 

Name

    

Age

    

Positions and Offices

LuAnn Via

 

62

 

President and Chief Executive Officer

Peter G. Michielutti

 

59

 

Executive Vice President, Chief Operating Officer and Chief Financial Officer

Monica L. Dahl

 

49

 

Senior Vice President, Marketing, Omni-Channel and Public Relations

Luke R. Komarek

 

62

 

Senior Vice President, General Counsel and Corporate Secretary

Michelle L. Rice

 

41

 

Senior Vice President, Store Operations

Cindy J. Stemper

 

58

 

Senior Vice President, Human Resources

Marc A. Ungerman

 

42

 

Vice President, Controller

 

LuAnn Via has served as President and Chief Executive Officer and a director since November 2012. Ms. Via has over 30 years of retail experience in a variety of channels, including extensive executive, merchandise and product development responsibilities. From July 2008 until October 2012, Ms. Via served as President and Chief Executive Officer of Payless ShoeSource, Inc., a subsidiary of Collective Brands, Inc. Ms. Via also has specialty retail women's

21


 

experience, having served at Charming Shoppes, Inc. as a Group Divisional President for both the Lane Bryant and Cacique brands from June 2007 to July 2008 and as President of Catherines Stores, Inc., a Charming Shoppes subsidiary, from January 2006 to June 2007. Ms. Via was at Sears Holding Company from 2003 to 2006 as a Vice President, General Merchandise Manager and, from 1998 to 2003, she was Senior Vice President, General Merchandise Manager of Product Development at Saks, Inc. She also has a variety of other executive, merchandising and product development experience, having previously worked at Federated Department Stores, The Shoebox/Shoe Gallery and Trade AM International, among others. Ms. Via currently serves on the board of STRATA Skin Sciences, the Committee of 200 Governing Board, and the ALSAC/St. Jude Professional Advisory Board.

 

Peter G. Michielutti has served as Executive Vice President, Chief Operating Officer and Chief Financial Officer since July 2014.  From April 2012, when he joined the Company, until August 2014, he was Senior Vice President, Chief Financial Officer.  Mr. Michielutti has more than 20 years of financial leadership experience with an extensive retail background. Prior to joining the Company, Mr. Michielutti was Senior Vice President and Chief Financial Officer at CSM Corporation, a commercial real estate company, from September 2009 through April 2012. He held the Chief Financial Officer position at Whitehall Jewelers from 2007 to 2009. In June 2008, Whitehall Jewelers filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. He was also the Chief Financial Officer and Chief Operating Officer at Wilsons Leather from 2001 to 2006 and the Chief Financial Officer and Chief Operating Officer at Fingerhut from 1995 to 1998, in addition to serving as a retail consultant at Prentice Capital from 2006 to 2007.

 

Monica L. Dahl has served as Senior Vice President, Marketing, Omni-Channel and Public Relations since November 2014.  She was elected the Company’s Senior Vice President, Marketing effective April 1, 2013. From November 2011 to April 2013, she served as Senior Vice President, Multi-Channel Marketing, Investor Relations and Business Strategy. From July 2010 through November 2011, Ms. Dahl served as Senior Vice President, eCommerce, Planning & Allocation, and Strategy. From August 2008 to July 2010, Ms. Dahl served as Senior Vice President, Planning & Allocation and eCommerce.  From December 2005 to July 2008, she was Executive Vice President and Chief Operating Officer. Ms. Dahl served as Vice President of Business Development from November 2004 to December 2005. Upon joining the Company in May 2004, Ms. Dahl was Director of Business Development. From January 1993 to April 2004, Ms. Dahl held various positions with Wilsons Leather, including Director of Sourcing; Divisional Merchandise Manager - Women's Apparel; Director of Merchandise Planning; and several positions in the Finance Department. Ms. Dahl was with Arthur Andersen LLP from December 1987 to December 1992.

 

Luke R. Komarek has served as Senior Vice President, General Counsel since May 2007. He was named Corporate Secretary in August 2007. Prior to joining the Company, Mr. Komarek served as General Counsel, Chief Compliance Officer and Secretary at PNA Holdings, an office imaging and parts supplier, from March 2004 to May 2007. Previously, Mr. Komarek served as Vice President of Legal Affairs and Compliance at Centerpulse Spine-Tech Inc. from February 2003 to March 2004. Mr. Komarek was employed by FSI International, Inc., a semiconductor equipment company, from 1995 to 2002, most recently serving as Vice President, General Counsel and Corporate Secretary.

 

Michelle L. Rice has served as Senior Vice President, Store Operations since January 2012. From February 2011 through January 2012 she was Vice President, Store Operations. From July 2010 until February 2011, Ms. Rice was Vice President, Stores and from August 2008, when she joined the Company, until July 2010 she was a Regional Vice President. Ms. Rice has approximately 20 years of retail industry experience. She was a Regional Sales Director at Fashion Bug, a division of Charming Shoppes, a fashion retailer of missy and plus size apparel, from November 2006 to August 2008 and was a District Operations Manager at TJX Corporation from 2003 to November 2006.

 

Cindy J. Stemper was elected the Company's Senior Vice President, Human Resources effective April 1, 2013. From September 2010 to April 2013, she served as the Company’s Vice President, Human Resources. Prior to joining the Company, Ms. Stemper worked at MoneyGram International for approximately 25 years in a variety of Human Resources roles, most recently as Executive Vice President, Human Resources and Corporate Services from 2005 to 2009.

 

Marc A. Ungerman has served as Vice President, Controller since November 2015. From June 2013 until November 2015, he was Assistant Controller at SUPERVALU INC. Prior to that, Mr. Ungerman was at Best Buy Co., Inc., where he

22


 

held a variety of financial positions from August 2005 to June 2013.  Prior to Best Buy, he held positions at Pentair, Inc., and Deloitte Touche LLP.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol “CBK”. The quarterly high and low closing stock sales price information for our common stock for fiscal 2015 and fiscal 2014 is included in the table below.

 

 

 

 

 

 

 

 

 

 

 

Market Price

 

Quarter Ended

    

High

    

Low

 

January 30, 2016

 

$

1.80

 

$

1.00

 

October 31, 2015

 

$

3.38

 

$

1.04

 

August 1, 2015

 

$

6.29

 

$

3.16

 

May 2, 2015

 

$

6.45

 

$

4.88

 

January 31, 2015

 

$

7.42

 

$

4.29

 

November 1, 2014

 

$

11.22

 

$

6.05

 

August 2, 2014

 

$

10.03

 

$

5.96

 

May 3, 2014

 

$

7.08

 

$

5.83

 

 

As of March 11, 2016, there were 138 holders of record of our common stock. The last reported sales price on the NYSE of our common stock on March 11, 2016 was $2.67.

 

There were no issuer purchases of our common stock for the quarter ended January 30, 2016.

 

23


 

Comparative Stock Performance

 

The graph below compares the cumulative total stockholder return on our common stock (“CBK”) from February 26, 2011 to January 30, 2016 to the cumulative total stockholder return of the S&P 500 Index and the S&P Apparel Retail Index. The comparisons assume $100 was invested on February 26, 2011 in our common stock, the S&P 500 Index and the S&P Apparel Retail Index and also assumes that any dividends are reinvested.

 

S:\Accounting\CONTROLLER TEAM\Fiscal 2015\10-K\FN Support\Comparative Stock Performance - FY 2015.jpg

 

24


 

ITEM 6. SELECTED FINANCIAL DATA

 

The following selected financial data has been derived from our audited consolidated financial statements and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Annual Report on Form 10-K and the consolidated financial statements and related notes appearing in Item 8 of this Annual Report on Form 10-K.  On January 6, 2012, our Board of Directors (the “Board”) amended and restated our By-Laws to provide that our fiscal year ends at the close of business on that Saturday in January or February which falls closest to the last day of January.  Prior to this change, our fiscal year ended at the close of business on that Saturday in February or March which fell closest to the last day of February.  In order to transition to the new fiscal calendar, our 2011 fiscal year was shortened from twelve months to eleven months.  As reported below, fiscal 2012 ended February 2, 2013, consisted of fifty-three weeks and fiscal 2011 ended January 28, 2012, consisted of forty-eight weeks. All other years presented consisted of fifty-two weeks.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year or Transition Period Ended

 

 

 

(in thousands, except per share amounts)

 

 

 

January 30,

 

January 31,

 

February 1,

 

February 2,

 

January 28,

 

 

 

2016

 

2015

 

2014

 

2013

 

2012

 

Income Statement Data:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

Net sales

 

$

383,828

 

$

418,584

 

$

435,754

 

$

430,302

 

$

412,796

 

Merchandise, buying and occupancy costs

 

 

254,350

 

 

270,790

 

 

284,723

 

 

303,680

 

 

311,925

 

Gross profit

 

 

129,478

 

 

147,794

 

 

151,031

 

 

126,622

 

 

100,871

 

Other Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

128,413

 

 

126,377

 

 

128,847

 

 

129,153

 

 

131,259

 

Depreciation and amortization

 

 

12,048

 

 

11,786

 

 

13,168

 

 

18,595

 

 

20,202

 

Impairment and restructuring expense (credit)

 

 

281

 

 

216

 

 

140

 

 

(5,161)

 

 

21,183

 

Total other operating expenses

 

 

140,742

 

 

138,379

 

 

142,155

 

 

142,587

 

 

172,644

 

Operating income (loss)

 

 

(11,264)

 

 

9,415

 

 

8,876

 

 

(15,965)

 

 

(71,773)

 

Other income (expense)

 

 

(115)

 

 

(191)

 

 

(191)

 

 

(14)

 

 

324

 

(Loss) income before income taxes

 

 

(11,379)

 

 

9,224

 

 

8,685

 

 

(15,979)

 

 

(71,449)

 

Income tax provision (benefit)

 

 

37,715

 

 

(37,902)

 

 

(5)

 

 

97

 

 

(387)

 

Net (loss) income

 

$

(49,094)

 

$

47,126

 

$

8,690

 

$

(16,076)

 

$

(71,062)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(1.33)

 

$

1.28

 

$

0.24

 

$

(0.45)

 

$

(2.00)

 

Basic shares outstanding

 

 

36,886

 

 

36,819

 

 

36,246

 

 

35,694

 

 

35,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted (loss) income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(1.33)

 

$

1.24

 

$

0.23

 

$

(0.45)

 

$

(2.00)

 

Diluted shares outstanding

 

 

36,886

 

 

37,753

 

 

37,144

 

 

35,694

 

 

35,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

 

$

 

$

 

$

 

$

 

$

0.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 

(in thousands, except selected operating data)

 

 

 

January 30,

 

January 31,

 

February 1,

 

February 2,

 

January 28,

 

 

 

2016

 

2015

 

2014

 

2013

 

2012

 

Balance Sheet Data:

    

 

 

    

 

    

    

 

    

    

 

    

    

 

    

 

Cash, cash equivalents and short-term investments

 

$

34,521

 

$

50,538

 

$

54,056

 

$

40,739

 

$

48,442

 

Merchandise inventory

 

 

42,481

 

 

45,318

 

 

44,877

 

 

42,704

 

 

39,455

 

Long-term investments

 

 

 —

 

 

4,752

 

 

3,143

 

 

 

 

13,284

 

Total assets

 

 

150,890

 

 

196,037

 

 

148,978

 

 

135,932

 

 

166,016

 

Total liabilities

 

 

62,482

 

 

60,148

 

 

62,041

 

 

60,466

 

 

76,654

 

Stockholders’ equity

 

 

88,408

 

 

135,889

 

 

86,937

 

 

75,466

 

 

89,362

 

Working capital

 

 

46,581

 

 

65,595

 

 

55,811

 

 

44,088

 

 

45,160

 

Selected Operating Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparable sales increase (decrease) during period (1) (2)

 

 

(8.3)

%

 

(2.0)

%

 

8.0

%

 

5.9

%

 

(5.2)

%

Stores at end of period

 

 

518

 

 

518

 

 

560

 

 

608

 

 

686

 

Net sales per gross square foot during period (3)

 

$

167

 

$

190

 

$

188

 

$

173

 

$

147

 


(1)

Comparable sales calculation includes merchandise sales for, stores operating for at least 13 full months, stores relocated within the same mall, and ecommerce sales. Comparable sales calculation excludes stores converted to the MPW format for 13 full months post conversion and stores remodels or relocations with square footage changes exceeding 25 percent for 13 full months post change.

 

25


 

(2)

The comparable sales increase (decrease) during the period excludes the benefit of eCommerce for fiscal year 2011.

 

(3)

The computation of net sales per gross square foot includes stores which were open for every month of the fiscal year. Relocated and expanded stores, if any, are included in the calculation.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. We refer to our fiscal years ended January 30, 2016, January 31, 2015, and February 1, 2014 in this MD&A as “fiscal 2015”, “fiscal 2014”, and “fiscal 2013”, respectively.

 

Executive Overview

 

We are a specialty retailer of women’s privately branded women’s apparel and accessories. We offer our customer an assortment of unique, classic and versatile clothing that fits her everyday needs at a good value.

 

We operate an integrated, omni-channel platform that provides our customer the ability to shop when and where she wants, including online or at retail stores and outlet stores. This approach allows our customers to browse, purchase, return, or exchange our merchandise through the channel that is optimal for her.

 

As of January 30, 2016, we operated 518 stores in 45 states, including 314 Missy, Petite, Women ("MPW") stores, 67 Christopher & Banks ("CB") stores, 60 C.J. Banks ("CJ") stores, and 77 outlet stores. Our CB brand offers unique fashions and accessories featuring exclusively designed assortments of women’s apparel in sizes 4 to 16 and in petite sizes 4P to 16P. Our C.J. Banks brand offers similar assortments of women’s apparel in sizes 14W to 26W. Our MPW concept and outlet stores offer an assortment of both Christopher & Banks and C.J. Banks apparel servicing the Missy, Petite and Women-sized customer in one location.

 

Business Strategy

 

In fiscal 2015, we took important measures to strengthen the foundation of our business, positioning us to deliver improved financial performance in fiscal 2016 and beyond including:

 

·

Accelerated the migration toward the MPW store format;

·

Leveraged our retail intelligence tool to gain additional visibility into our assortment level performance at the category, size and channel level;

·

Strengthened our promotional and event planning with integrated marketing across all customer touch points;

·

Executed initiatives to drive our eCommerce business;

·

Invested in technology solutions, including advancements in our omni-channel Customer First initiative; and

·

Completed a comprehensive business evaluation in partnership with an outside consultant that substantiated our longer-term strategic and financial objectives. 

 

Performance Measures

 

Management evaluates our financial results based on the following key measures of performance:

 

Comparable sales

 

Comparable sales is a measure that highlights the performance of our store channel and ecommerce channel sales by measuring the changes in sales over the comparable, prior-year period of equivalent length.

 

26


 

Our comparable sales calculation includes merchandise sales for:

 

·

Stores operating for at least 13 full months;

·

Stores relocated within the same mall; and

·

eCommerce sales.

 

Our comparable sales calculation excludes:

 

·

Stores converted to the MPW format for 13 full months post conversion; and

·

Stores remodels or relocations with square footage changes exceeding 25 percent for 13 full months post change.

 

We believe our eCommerce operations are interdependent with our brick-and-mortar store sales and, as such, we believe that reporting combined store and eCommerce comparable sales is a more appropriate presentation. Our customers are able to browse merchandise in one channel and consummate a transaction in a different channel. At the same time, our customers have the option to return merchandise to a store or our third-party distribution center, regardless of the original channel used for purchase.

 

As we continue to execute our MPW format conversions, we have made changes to the base store population that comprise comparable stores, as illustrated in the table below as of fiscal year end:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2015

 

Fiscal 2014

 

Stores by Format

    

Total Store Count

    

Comparable Sales Stores(1)

    

% of Comparable Sales Stores

    

Total Store Count

    

Comparable Sales Stores(1)

    

% of Comparable Sales Stores

 

MPW

 

314

 

182

 

58%

 

216

 

44

 

20%

 

Outlet

 

77

 

44

 

57%

 

44

 

31

 

70%

 

Christopher and Banks

 

67

 

67

 

100%

 

173

 

173

 

100%

 

CJ Banks

 

60

 

60

 

100%

 

85

 

85

 

100%

 

Total Stores

 

518

 

353

 

68%

 

518

 

333

 

64%

 


(1)

Comparable sales store counts as of January 30, 2016 and January 31, 2015, respectively.

 

Comparable sales measures vary across the retail industry. As a result, our comparable sales calculation is not necessarily comparable to similarly titled measures reported by other companies.

 

To supplement our comparable sales performance measure, we also monitor changes in net sales per store, net sales per gross square foot, gross profit per store, and gross margin per square foot for the entire store base.

 

Gross profit

 

Gross profit is equal to net sales minus merchandise, buying and occupancy costs.

 

Merchandise, buying and occupancy costs, exclusive of depreciation and amortization, measure whether we are appropriately optimizing the price of our merchandise and markdown utilization.

 

Merchandise, buying and occupancy costs include the cost of merchandise, markdowns, shrink, freight, buyer and distribution center salaries, buyer travel, rent and other occupancy-related costs, various merchandise design and development costs, miscellaneous merchandise expenses and other costs related to our distribution network.

 

Buying and occupancy costs related to stores mostly represent a fixed charge and, as a result, should not change significantly with changes in sales.

 

27


 

Operating income

 

Operating income measures our ability to effectively manage operating costs relative to changes in sales volume. The key components of operating income include comparable sales, merchandise, buying and occupancy costs, selling, general, and administrative expenses and depreciation and amortization expenses.

 

Cash flow and liquidity

 

We closely manage our liquidity and access to capital resources. Our liquidity requirements depend on key variables, including our financial results, the level of investment necessary to support our business strategies, capital expenditures, and working capital management. Capital expenditures are a component of our cash flow which, to a large extent, we can adjust in response to economic and other changes in our business.

 

Results of Operations

 

The following table presents selected consolidated financial data for each of the past three fiscal years: 

 

 

 

 

 

 

 

 

 

 

 

(dollars in thousands)

 

Fiscal 2015

 

Fiscal 2014

 

Fiscal 2013

Net sales

    

$

383,828

    

$

418,584

    

$

435,754

Merchandise, buying and occupancy costs

 

 

254,350

 

 

270,790

 

 

284,723

Gross profit

 

 

129,478

 

 

147,794

 

 

151,031

Other operating expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

128,413

 

 

126,377

 

 

128,847

Depreciation and amortization

 

 

12,048

 

 

11,786

 

 

13,168

Impairment of store assets

 

 

281

 

 

216

 

 

140

Total other operating expenses

 

 

140,742

 

 

138,379

 

 

142,155

Operating (loss) income

 

 

(11,264)

 

 

9,415

 

 

8,876

Other expense

 

 

(115)

 

 

(191)

 

 

(191)

(Loss) income before income taxes

 

 

(11,379)

 

 

9,224

 

 

8,685

Income tax provision (benefit)

 

 

37,715

 

 

(37,902)

 

 

(5)

Net (loss) income

 

$

(49,094)

 

$

47,126

 

$

8,690

 

 

 

 

 

 

 

 

 

 

Rate trends as a percentage of net sales

 

Fiscal 2015

 

Fiscal 2014

 

Fiscal 2013

Gross margin

    

 

33.7%

 

 

35.3%

 

 

34.7%

Selling, general, and administrative

 

 

33.5%

 

 

30.2%

 

 

29.6%

Depreciation and amortization

 

 

3.1%

 

 

2.8%

 

 

3.0%

Operating (loss) income

 

 

(2.9)%

 

 

2.2%

 

 

2.0%

 

Fiscal 2015 Summary

 

·

As of January 30, 2016, we have transitioned approximately 75% of our store base to the MPW format, including Outlet stores

·

Comparable sales decreased 8.3%; first half of year comparable sales decreased 12.0% compared to second half comparable sales decreased 4.9% demonstrating sequential improvement in sales trends

·

As a result of our recent operating losses and the uncertainty of future results, we recorded a $37.5 million valuation allowance on our deferred tax assets in the fourth quarter. In contrast, in fiscal 2014, we released the vast majority of our valuation allowance which resulted in a $41.3 million benefit to the income tax provision. Our fiscal 2015 results were significantly below expectations.

·

Net loss aggregated to $49.1 million, a $1.33 loss per share, compared to net earnings of $47.1 million, or diluted earnings per share of $1.24, for the prior year. The net loss in fiscal 2015 was primarily attributable to changes in the valuation allowance on our deferred tax assets, coupled with lower sales year-over-year

·

We generated $5.4 million in operating cash flow in fiscal 2015, compared to $19.0 million in fiscal 2014

28


 

·

As of January 30, 2016, we held $34.5 million of cash, cash equivalents, and investments, compared to $55.3 million at the end of fiscal 2014

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

Net sales (in thousands):

    

Fiscal 2015

    

Fiscal 2014

    

% Change

Net sales

 

$

383,828

 

$

418,584

 

 

(8.3)

%

 

The components of the 8.3% net sales decrease in fiscal 2015 compared to fiscal 2014 were as follows:

 

 

 

 

 

Sales driver change components

    

Fiscal 2015

Number of transactions

 

(5.9)

%

Units per transaction

 

(2.5)

%

Average unit retail

 

0.1

%

Total sales driver change decrease

 

(8.3)

%

 

 

 

 

 

Comparable sales

    

Fiscal 2015

Comparable sales

 

(8.3)

%

 

To supplement our comparable sales measure, we also monitor changes in other store sales metrics as illustrated in the table below:

 

 

 

 

 

Store metrics

    

Fiscal 2015

Net sales per store % change

 

(8.7)

%

Net sales per square foot % change

 

(12.1)

%

 

Sales transactions decreased in fiscal 2015 compared to fiscal 2014 due to the aggregate effects of general market weakness in women’s apparel, a broad decline in mall traffic, lack of depth in key merchandise categories, and unseasonable weather in certain regions. Average store count in fiscal 2015 was 526 stores compared to an average store count of 547 stores in fiscal 2014, a 3.8% decrease.