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Edited Transcript of Claire's Stores Inc earnings conference call or presentation 13-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Claire's Stores Inc Earnings Call

PEMBROKE PINES Apr 13, 2017 (Thomson StreetEvents) -- Edited Transcript of Claire's Stores Inc earnings conference call or presentation Thursday, April 13, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ronald Marshall

Claire's Stores Inc. - CEO and Director

* Scott Huckins

Claire's Stores Inc. - CFO and EVP

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Conference Call Participants

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* Adam Bruce Plissner

Crédit Suisse AG, Research Division - MD, Co-Head of the Leveraged Finance Sector Strategy Group, and High Yield Analyst

* Charles Lutz

* Jenna Loren Giannelli

Citigroup Inc, Research Division - Director and High Yield Credit Retail Analyst

* Mark Hamilton

* Matthew Vodola

* Steven Anthony Ruggiero

R.W. Pressprich & Co. Inc., Research Division - Head of Research, MD, and Security Analyst

* Walter Hale Holden

Barclays PLC, Research Division - MD

* William Michael Reuter

BofA Merrill Lynch, Research Division - MD

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Presentation

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Operator [1]

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Good morning, and welcome to Claire's Stores Fiscal 2016 Fourth Quarter Conference Call. On the call today is Ron Marshall, Chief Executive Officer; and Scott Huckins, Executive Vice President and Chief Financial Officer.

Yesterday, Claire's issued its fourth quarter earnings press release. A copy can be found on the company's corporate website, www.clairestores.com. This call is being recorded and a replay will be available until May 14, 2017, by dialing (888) 562-2897 and entering a password of 31617. This call is also being simultaneously webcast and archived. It can be accessed on the company's website, again, at www.clairestores.com.

I would now like to turn the call over to Scott Huckins, Executive Vice President and Chief Financial Officer.

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [2]

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Thank you, Kim. Good morning, everyone, and thank you for joining the Claire's Stores conference call reviewing the company's unaudited 2016 fourth quarter results.

The following discussion may contain forward-looking statements based on management's current expectations. For information on factors that could cause our actual results to differ materially from these expectations as well as a reconciliation of adjusted EBITDA to net loss, please refer to our press release issued yesterday and our most recent Form 10-Q and Form 10-K posted on our website. We assume no obligation to update or revise our forward-looking statements.

On today's call, Ron will provide a brief overview of our fourth quarter performance and update you on our immediate priorities. I will then take you through the financial data in more detail. We will then open the call to answer any questions that you may have.

And with that, I will turn the call over to Ron.

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [3]

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Thank you, Scott, and good morning. In Q4, overall same-store sales run rate increased 60 basis points over Q3. We saw an increase in Europe of 380 basis points, partially offset by a decrease in North America by 150 basis points. Our consolidated net sales for the fourth quarter were $382.5 million, a decrease of 5% versus the same quarter last year. Sales would have decreased 2.7% excluding the unfavorable effect of foreign currency exchange rates.

On a consolidated basis, same-store sales in Q4 were minus 1% with North America down 2.3% and Europe up 1.3%. Claire's North America outperformed Icing.

Q1 quarter-to-date to April 11, same-store sales have increased in the low single-digit range. The European business has outperformed North America. Note that we aren't through the comparable holiday period, with Easter falling at fiscal April this year versus fiscal March last year. The Easter shift should be favorable in April 2017 versus April 2016.

In North America, jewelry penetration was 45.5% compared to 44.9% last year. And in Europe, jewelry penetration was 33.1% in Q4 compared to 32.6% last year.

On the last call, we reviewed 5 core priorities that we pursued in 2016 and will pursue further into 2017. As a reminder, they are creating enhanced liquidity, relentlessly driving improved execution, refocusing on Europe, fully developing the alternative channels and stabilizing the Icing business. I will review our progress made to date on certain of these priorities. In order to help create enhanced liquidity, we replaced our HSBC $50 million revolving credit facility with a $50 million secured term loan that will mature in January 2019. We have retired the remaining $25.8 million in principal of the 10.5% senior subordinated notes that would have matured June 1, 2017. To help drive execution, we are improving SKU curation, reducing our SKU count by 18% in North America and 13% in Europe, which enables us to focus on trend-right products, helping us to be more relevant to our growth. We have leveraged digital marketing to fully engage with our customers through key influencer partnerships, promoting our product feature in all of our channels. For example, we collaborate with JoJo Siwa, Jenna Ortega, Francesca Capaldi, Lauren Orlando, Nadia and Ruby Rose Turner, Emma Cupcake and Estelle Fitz. In Europe, our efforts that helped -- have helped get stock levels to an appropriate position and sales are responding. Beyond improving overall stock levels, we are focusing on maintaining appropriate stock levels in tree earrings and ensuring the correct mix of hair goods.

In alternative channels, the concessions business continues to grow and we're working to improve concession processes to maximize the opportunity for this business and to focus on building stronger relationships with our larger partners to grow our footprint. We continue to partner with successful franchise operators around the world as well as large operations in the Middle East and Japan. We have sizable partners in India, Thailand, Russia and South Africa.

To enhance the Icing business, as the Claire's girl grows up, she's still looking for fun and exciting products that resonate with her. The new Icing addresses her fashion needs through a new assortment launching at the end of Q1 that is 51% unique to Icing versus Claire's compared to 34% last year. We expect the Icing assortment to be 75% unique by the start of Q3. We are introducing a new, refocused core assortment in bags, fashion accessories, small leather goods and home decor to drive each business.

Jewelry growth will be driven by chokers, sterling and the revival of a fifth earring tree. The new Icing also addresses major events in our life from turning 21 to bachelorette parties, to even planning her own wedding. Party accessories will include a branded bridal bar, making an impactive and cohesive statement on the wall. Icing is partnering with It's On Us, a civic nation project that is committed to protecting women from sexual assault, which connects Icing to a meaningful cause.

And with that, I'd like to turn the call back over to Scott to review the financials in more detail.

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [4]

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Thank you, Ron. I will now take you through our fourth quarter financial review.

Fourth quarter sales decreased 5% to $382.5 million compared to sales of $402.6 million in the same period last year. Net sales would have decreased 2.7% on a constant currency basis. The decrease was attributable to the effect of store closures, a decrease in same-store sales and unfavorable foreign currency translation effect on our non-U. S. net sales and decreased shipments to franchisees, partially offset by new concession store sales and new store sales.

Our consolidated same-store sales for the fourth quarter declined 1%, which consisted of a 7.4% decrease in average transactions per store, partially offset by an 8.8% increase in average transaction value. In North America, same-store sales decreased 2.3%, characterized by a 10.8% decrease in average transactions per store, partially offset by an 11.4% increase in average transaction value.

In Europe, same-store sales increased 1.3%, consisting of a 6.7% increase in average transaction value, partially offset by a 2.9% decrease in the average number of transactions per store. One of the factors in the drop in transactions year-over-year is the change in promotions we ran. In 2015, our promotions resulted in a higher number of transactions at a lower average transaction value. This year's promotions resulted in fewer transactions at a higher average transaction value. As a reminder, these 2 metrics do not completely align with our same-store sales results because they are calculated on an average store basis rather than a same-store basis.

During the fourth quarter, we closed 61 stores, 48 in North America and 13 in Europe, and in the fourth quarter with 2,710 company-owned stores globally compared to 2,867 stores last year. Those store counts exclude the number of concession stores, which now total 933, of which 601 are in Europe and 332 are in North America. In addition, we had 603 stores operated by franchisees at the end of Q4.

Our gross profit percentage increased 140 basis points to 51.1% versus the same period last year. This increase in gross profit percentage consisted of 150 basis point increase in merchandise margin, partially offset by a 10 basis point increase in occupancy costs. The increase in merchandise margin percentage primarily resulted from higher trade discounts, lower markdowns and lower freight costs, partially offset by sales mix. The increase in occupancy costs as a percentage of net sales was primarily driven by the deleveraging effect of a decrease in same-store sales.

Selling, general and administrative expenses decreased $0.8 million or 0.6% compared to the fiscal 2015 fourth quarter. As a percentage of net sales, selling, general and administrative expenses increased 140 basis points. Selling, general and administrative expenses would have increased $2.4 million, excluding a favorable $3.2 million foreign currency translation effect. Excluding the foreign currency translation benefit, the increase was primarily due to increased concession store commission expense and professional fees, partially offset by lower compensation and related expenses.

Adjusted EBITDA in the fiscal 2016 fourth quarter was $76.9 million compared to $80.6 million last year. Adjusted EBITDA would have been $77.7 million excluding a foreign currency translation effect in the fourth quarter of 2016.

Turning to the balance sheet. Our global cash balance was $55.8 million at the end of the fourth quarter, and we had $64.1 million of borrowing capacity available under our credit facilities. The fiscal 2016 fourth quarter cash balance increase of $15.3 million consisted of positive impacts of $76.9 million of adjusted EBITDA, $50 million of proceeds from the issuance of a secured term loan, and $34.3 million from seasonal working capital, partially offset by $120.5 million from net repayments under the former credit facilities, reductions for $12 million of cash interest payments, $7 million from a note repurchase, $3.9 million of capital expenditures and $2.5 million for tax payments and other items.

Total inventory on an FX adjusted basis decreased to $20 million compared to fourth quarter last year. Average inventory per store is down approximately 15.8% compared to last year. This was influenced by very strong January sales volume, the SKU count reduction effort and more efficient working capital management.

That concludes my prepared comments. We will now be happy to take any questions that you may have. Operator, back to you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Adam Plissner from Crédit Suisse.

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Adam Bruce Plissner, Crédit Suisse AG, Research Division - MD, Co-Head of the Leveraged Finance Sector Strategy Group, and High Yield Analyst [2]

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I wanted to start with the alternative channel. When you think about the concessions, can you tell us in Q4 what the number of concessions were that were included in the comp or beginning to see the impact of the concessions year-over-year comps affecting that?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [3]

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Yes, let us pull through right now. Do you have another question while we're pulling this for you?

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Adam Bruce Plissner, Crédit Suisse AG, Research Division - MD, Co-Head of the Leveraged Finance Sector Strategy Group, and High Yield Analyst [4]

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Yes, yes. Maybe in terms of just sort of the go-forward plan in 2017 in terms of the alternative channel. How do you see sort of the pace of the concession rollout continuing?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [5]

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We're -- right now, with our partners determining exactly which stores that are coming online and when they're coming on. It's my expectation that we'll probably open another 200 or so, probably evenly split between North America and Europe.

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Adam Bruce Plissner, Crédit Suisse AG, Research Division - MD, Co-Head of the Leveraged Finance Sector Strategy Group, and High Yield Analyst [6]

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Okay. Does that tend to be with new partners? Or is it just further penetration with the existing partners?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [7]

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In this case, it's further penetration with the existing partners.

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Adam Bruce Plissner, Crédit Suisse AG, Research Division - MD, Co-Head of the Leveraged Finance Sector Strategy Group, and High Yield Analyst [8]

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I see. And when you're talking about just overall, not sure how much you want to talk about 2017, specifically in terms of a plan, but maybe just high level when you're starting out with just a general industry over -- when you think about mall traffic trends, is there a particular headwind that you sort of factor in at the start to the year?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [9]

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Well, certainly, mall traffic trends have not been our friend historically, and we don't anticipate going forward either. We believe that the plans that we have in place allow us to drive sales through conversion and through increased units per transaction. So clearly, we don't believe we're being victimized.

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Adam Bruce Plissner, Crédit Suisse AG, Research Division - MD, Co-Head of the Leveraged Finance Sector Strategy Group, and High Yield Analyst [10]

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Okay. I mean, is there a sense though in comparison to some of the headwinds that you've been dealing with? Is this something that -- your base plan, is it for it to continue at sort of the low single-digit pace in terms of a headwind that you have to offset? Or is there any sort of quantifiable way for you to measure that?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [11]

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No, it's not appropriate for us to really speculate on that right now.

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Adam Bruce Plissner, Crédit Suisse AG, Research Division - MD, Co-Head of the Leveraged Finance Sector Strategy Group, and High Yield Analyst [12]

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Okay. When you think about some of the recent European outperformance, and I know you mentioned some changes in promotional strategy, is there a difference in the way you're applying changes in promotional strategy between North America and Europe? And is there any sense that there's a bigger opportunity between inventory management and promotional strategies in Europe, and that's why we're seeing some of the outperformance there?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [13]

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Well, because of -- when we look at Europe, we plan our promotional strategies on a country-by-country basis based upon individual preferences in those markets, and to be quite frank with you, with what we think is going to be effective in Italy, for example, versus France. I think probably -- I think the 2 drivers that we have looked forward to in Europe relative to North America is we found ourselves in a really difficult inventory position last first quarter. We've remedied that, and I think we're in a much stronger position of -- from a go-forward basis. And additionally, as we were consolidating our merchandising organization into a global team, to be quite frank with you, we took our eye off the ball in Europe. And I would tell you that our assortment today in Europe, again, on a country-by-country basis is much more attuned to regional shopping preferences than they were a year ago. So I think we have reasons to feel very good about what's going to happen in Europe going forward.

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Adam Bruce Plissner, Crédit Suisse AG, Research Division - MD, Co-Head of the Leveraged Finance Sector Strategy Group, and High Yield Analyst [14]

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Helpful. And then just last thing, I know that you'd started out with some year-to-date comp performance for December that was pretty negative and you were hopeful that the back half of the end of December and into January would improve, and it obviously did. Is there anything in particular that you can point to other than just sort of timing issues that you feel resonated in the last part of the quarter that you hope will carry through going forward?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [15]

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Well, I -- clearly, most of that was driven by the calendar. This was a very, very late-breaking Christmas that actually extended into January. I think our merchandising and planning teams did a wonderful job in making sure that we had product in the stores to be able to deal with so much volume in a very compressed time frame.

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Adam Bruce Plissner, Crédit Suisse AG, Research Division - MD, Co-Head of the Leveraged Finance Sector Strategy Group, and High Yield Analyst [16]

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Okay. And then -- and some of the current quarter-to-date performance that you attributed, that's also as well to timing, as you mentioned, the Easter holiday shift. So far does that more read through other than calendar there?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [17]

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No, it's calendar. The holiday shift this year will extend all the way into week 12. So it will really be -- at the very end of the quarter before we have a real read on what the quarter's going to look like for us. Although to this point, we are positive low single digits.

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Operator [18]

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The next question comes from the line of Carla Casella from JPMorgan.

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Unidentified Analyst, [19]

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This is [ Mae ] on for Carla Casella. Just concerning your cash balances, how much of it is in U.S. versus Europe?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [20]

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If you looked at the year-end cash balance of $55 million, approximately 85% of that would be in Europe.

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Unidentified Analyst, [21]

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Got it. And can you also help us breakout how many of the concessions today are in U.S. versus Europe?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [22]

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Sure. Yes, 600 -- there's 933 in total at year-end, 601 are in Europe and 332 in North America.

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [23]

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And responding to Adam's question earlier, last year -- excuse me, the previous year in the fourth quarter, we had 431 European concessions and 242 North American. So the comparable number in the preceding year was 673.

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Unidentified Analyst, [24]

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My last question is, do you have any co-tenancy clauses in malls or J.C. Penneys, Sears or Macy's have closed? And have you taken action in any of those cases?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [25]

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Yes. I would say we do on a very limited basis have co-tenancy protection. Unfortunately, we're not able to get that as much as we'd like. But those few instances where we do have it, we do, in fact, act on it.

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Operator [26]

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The next question comes from the line of Mr. William Reuter from Bank of America Merrill Lynch.

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William Michael Reuter, BofA Merrill Lynch, Research Division - MD [27]

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Have you guys laid out what you guys expect in terms of store closures in 2017 in terms of the full-priced stores or I guess the nonconcession stores?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [28]

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We have not laid out that as far as 2017, Bill.

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William Michael Reuter, BofA Merrill Lynch, Research Division - MD [29]

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Okay. Is there anything you can describe to us either about the way in which you are approaching the year? I guess, any commentary at all or I guess maybe update us on what percentage of your stores are profitable?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [30]

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I think consistent with our data in the third quarter, if you looked at our owned store portfolio, roughly 10% would be EBITDA negative, but on a very marginal basis, meaning they're not severely EBITDA negative.

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William Michael Reuter, BofA Merrill Lynch, Research Division - MD [31]

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Okay. And then inventory, it looks like it was pretty carefully controlled at the end of the quarter. I guess, where are you guys in those initiatives to reduce inventory levels? Should we expect it for the remainder of the year? We'll still see lower year-over-year levels. Or do you think you need to make some investments to drive comps?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [32]

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I think we're at a point right now where I wouldn't expect any significant further reductions in inventory as we continue to invest in our Icing business. I think that's probably money well spent for us.

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William Michael Reuter, BofA Merrill Lynch, Research Division - MD [33]

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Okay. And then just lastly for me. You talked about Icing, which is still kind of lagging the performance of the Claire's Stores, but also there were some comments in your prepared remarks about changing the positioning a little bit there. I wasn't sure actually how much of this is partnerships versus actually a change in terms of the product mix. You talked about bachelor parties, weddings. How much of this has actually changed in terms of the products you're selling?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [34]

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It's a tremendous change. As we looked at our business a year ago, 9 months ago, we really had to prioritize what we were going to bite off first and chew. And clearly, working through our Europe operations and getting those back between the lines was the appropriate first priority. Icing is among our top priorities in 2017. And then I encourage you, on April 28, to visit your local Icing store. It's a complete redo. It really is. I mean, in the past, when you went into an Icing store, you just had to sense they we're trying to find a product to fill the shelves. Today, Icing represents a perspective and a viewpoint that we really do believe that resonates with young women from 18 to 30. Over half the product now is solely designed for Icing. By the time we get into the fall season, we expect that to be at least 75%. We are partnering with causes that resonate with our young women. And I just -- it's very, very cool. It's very cool, and we're very excited, and I can't wait for April 28 to come.

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Operator [35]

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The next question comes from the line of Jenna Giannelli from Citigroup.

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Jenna Loren Giannelli, Citigroup Inc, Research Division - Director and High Yield Credit Retail Analyst [36]

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Last quarter, you guys talked a lot about your discussions with your; landlords about potential rent concession then an ability to reduce those. How are those conversations going? And are you seeing any traction thus far in the progress?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [37]

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Yes, we had some success in that effort throughout the fourth quarter as we had alluded to. I think while we've been successful in garnering some degree of concession from them, that's a group that's -- I think it's obviously the same to the earlier questions, pressure on mall traffic and there's probably a decent line of tenants seeking relief. So I think you've got to kind of balance the effectiveness on that basis. But yes, we've seen some progress.

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [38]

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Yes. And obviously, this is not a singular event. This is an ongoing discussion and dialogue that we're having with all of our landlord partners.

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Jenna Loren Giannelli, Citigroup Inc, Research Division - Director and High Yield Credit Retail Analyst [39]

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Okay, great. And then just a follow-up on the comp in Europe. I mean, the pickup was pretty significant versus what we saw for the beginning part of 2016. So is there anything, I guess, more specific that you can point to about what drove this strength and then what gives you confidence that that will continue throughout the year? Any particular products that are in-stock positions? I know you've mentioned promotions, examples of those promotions. Is there something more specific that gives you that confidence that that cadence will continue throughout the year?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [40]

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Well, as I said before, part of the issue that we had in the beginning of 2016 was an inventory imbalance inside our company. And readjusting that and making sure that we have adequate inventories in Europe is going to be an important part of the recovery plan in 2017. But for the most part, a lot of it is just basic fundamental blocking and tackling, understanding trend product, making that on-trend product, whether they're chokers as we did earlier in the year, whether they're bows designed by a young women named JoJo Siwa. So it's identifying what those products are and then making big bets on them. In the past, Claire's wouldn't do that. We've sort of spread our receipts dollars around fairly equally, and many times we'd miss opportunities. That's not happening today.

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Jenna Loren Giannelli, Citigroup Inc, Research Division - Director and High Yield Credit Retail Analyst [41]

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Okay. And then just one more. On the gross margin, that 2% was, I think, pretty impressive versus little -- that maybe a lot of analysts were modeling out there. So was that -- would you think of that as kind of more one time for this quarter? Or are some of those benefits have lower markdowns and trade discounts to continue? And then was it similarly concentrated in both North America and Europe? Or was it skewed toward any one particular region?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [42]

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As we look at the turnaround plan for our company, we need to make every line work for us. We need to make sure that despite whatever headwinds we may have from mall traffic, as I said before through UPT and through conversion, that we're driving our top line. We need to continue to improve our margins, and I expect that we will see incremental improvements across time as well as being very judicious on the expense line.

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Jenna Loren Giannelli, Citigroup Inc, Research Division - Director and High Yield Credit Retail Analyst [43]

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Okay. And it was fairly balanced between North America and Europe? Both saw margin improvement?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [44]

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Yes. There were no lumps. It was fairly evenly distributed.

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Operator [45]

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The next question comes from the line of Hale Holden from Barclays.

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Walter Hale Holden, Barclays PLC, Research Division - MD [46]

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I just had a couple of quick ones. In reference to Bill's question where you're sort of around inventory and the investment in Icing, would it be possible for you to quantify what the potential working capital use might be this year as you do that?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [47]

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I think as we think about the full year, I would expect working capital to be roughly flat. I don't see, as Ron was commenting earlier, a significant trajectory change.

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Walter Hale Holden, Barclays PLC, Research Division - MD [48]

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Great. And then any sense you can sort of quantify or give us soft numbers around what Claire's North America comps will be if you stripped out the decline from Icing that you saw in the quarter?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [49]

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No, I'm sorry. We can't do that right now.

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Walter Hale Holden, Barclays PLC, Research Division - MD [50]

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Okay. I'll try the same question a different way. Any chance you can tell us what the concession comps were versus the base?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [51]

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Even though you approach it a different way, I'm going to give you the same answer. No, it's not appropriate for us to do that right now.

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Walter Hale Holden, Barclays PLC, Research Division - MD [52]

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No problem.

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [53]

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(inaudible)

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Walter Hale Holden, Barclays PLC, Research Division - MD [54]

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No, that's fair. And the last question I had was, when you think about the -- I was just more curious, when you think about the increase in average unit, is that reflective mostly because of the promotion change of strategy? Or is it because you've had SKU reductions? Or is it because you've migrated to slightly different product sets that are more expensive?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [55]

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Most of it is being driven by our promotional strategy, which is, by design, to increase basket size.

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Walter Hale Holden, Barclays PLC, Research Division - MD [56]

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And you're comfortable that that'll continue through this year largely?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [57]

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We will continue to be essentially as promotional this year as we were last year, and we found that our multi-buy promotions have, as I said, really driven basket size for us. So I would expect to see those going forward as appropriate.

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Walter Hale Holden, Barclays PLC, Research Division - MD [58]

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I appreciate it. The 7 social media influencers that you listed in the script, I recognize not one. So apparently I have some work to do. I appreciate the time.

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [59]

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Well, with all due respect, Hale, I find that encouraging.

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Walter Hale Holden, Barclays PLC, Research Division - MD [60]

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Yes, I know, it should be. Obviously, it's more a reflection on me than you guys. I was feeling bad about myself, not about your choice of influencers.

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [61]

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Thanks.

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Operator [62]

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The next question comes from the line of Steven Ruggiero from R.W. Pressprich.

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Steven Anthony Ruggiero, R.W. Pressprich & Co. Inc., Research Division - Head of Research, MD, and Security Analyst [63]

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I may have missed this number, but the change in average number of transactions per store in North America and also the change in average transaction value in the fourth quarter in North America?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [64]

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Let's see. In North America, we had a 10.8% decrease in average transactions per store and that was partially offset by an 11.4% increase in average transaction value.

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Steven Anthony Ruggiero, R.W. Pressprich & Co. Inc., Research Division - Head of Research, MD, and Security Analyst [65]

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Okay. And do you have plans or have you recently altered your sourcing -- any of your sourcing to speed sourcing to your stores that you can share with us?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [66]

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No, we haven't. I will tell you though that we're really focusing on our supply chain. That's the next real process improvement that we have available to us in terms of allowing us to make decisions on goods closer to the season, but there was nothing last year that I would call out specifically.

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Steven Anthony Ruggiero, R.W. Pressprich & Co. Inc., Research Division - Head of Research, MD, and Security Analyst [67]

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Okay. So prospectively, look for positives likely from that, I would assume, based on those comments.

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [68]

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Yes. And it's unclear right now if we're going to see those improvements in 2017 or if they're going to be 2018. We're really right down into the guts of this thing right now, and I'll have better visibility in 4 or 5 months on what's going to play out this year versus next year. But we think that it's a target-rich environment for us.

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Steven Anthony Ruggiero, R.W. Pressprich & Co. Inc., Research Division - Head of Research, MD, and Security Analyst [69]

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Okay. And final question, for modeling purposes, should we assume that 1/5 of your stores are -- come due, their leases come due each year in both Europe and North America? Is that a safe assumption?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [70]

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I'd say that's roughly right from a modeling perspective.

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [71]

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Yes. But the -- when the 10-K is released in the next couple of the days, I'd go to the footnote that shows lease expirations and I think that will give you a more granular view of what to model.

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Operator [72]

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(Operator Instructions) The next question comes from the line of Mr. Mark Hamilton from Venor.

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Mark Hamilton, [73]

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A couple of quick ones for you. Just following up on Jenna's question about rent. Could you help us just think about the magnitude of that? I know you said you'd give an update on your rent savings initiative, just to (inaudible) the rent number you have, how should we think about trying to quantify that or think about the magnitude?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [74]

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I think we're sensitive about disclosing a highly specific number given what we're up to. So I'm going to refrain from giving you something really sharp on it. But I think you could say, if you thought about it in percentage terms, it would be a single-digit number expressed as a percentage of rent.

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Mark Hamilton, [75]

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Single digit as a percentage of the current existing rent?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [76]

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Correct.

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Mark Hamilton, [77]

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And then obviously a very strong quarter on the gross margin line. When you think about -- you mentioned continued improvement going forward, is that just kind of on a year-over-year basis as you lap some of the, I guess, merchandising struggles last year? Or do you think kind of that's more sequentially going forward? I'm just trying to get a sense of the magnitude of margin improvement going forward.

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [78]

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No, it's on a year-over-year basis.

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Mark Hamilton, [79]

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Okay. So you would expect to see kind of continued improvement year-over-year on a margin basis?

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [80]

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Incremental improvement going forward, that's correct.

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Mark Hamilton, [81]

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Okay. And then one last quick one. You mentioned $7 million of a note repurchase. What was that?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [82]

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That was a part of the retirement of the 10.5% sub notes.

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Mark Hamilton, [83]

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So you bought those in the open market and then just called the rest back?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [84]

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Correct.

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Operator [85]

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The next question comes from the line of Matt Vodola from Brigade Capital.

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Matthew Vodola, [86]

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Just a quick follow-up to that question on the note retirement. Where does that leave the balance from the 10.5%?

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Scott Huckins, Claire's Stores Inc. - CFO and EVP [87]

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0.

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Operator [88]

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The next question comes from the line of Charles Lutz from Davidson Kempner.

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Charles Lutz, [89]

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You guys can take me out of the queue, I just had the same question on the $7 million.

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Operator [90]

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And that concludes our question-and-answer session. I'd now like to turn the call back over to Ron Marshall for any closing comments.

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Ronald Marshall, Claire's Stores Inc. - CEO and Director [91]

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Okay. All right. Well, thank you very much for joining the call, and we look forward to joining you on our Q1 conference call. Have a good holiday and a good weekend.

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Operator [92]

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Thank you. And that concludes today's conference. Thank you all for participating. You may now disconnect.