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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

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


For the Quarterly Period Ended October 30, 2004

OR

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


For the transition period from __to __

Commission file number 001-08899

Claires Stores, Inc.



Florida
    
    59-0940416(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)


3 S.W. 129th Avenue, Pembroke Pines, Florida
    
    33027(Address of principal executive offices)
    
    (Zip Code)


Registrants telephone number, including area code: (954) 433-3900

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 x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).

Yes x No o

The number of shares of the registrants Common Stock and Class A Common Stock outstanding as
of November 26, 2004 was 93,844,549 and 5,129,783, respectively.



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CLAIRES STORES, INC. AND SUBSIDIARIES
INDEX

PAGE NO.PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsUnaudited Condensed Consolidated Balance Sheets at October 30, 2004 and January 31, 2004
    
    
    3Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended October 30, 2004 and November 1, 2003
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 30, 2004 and November 1, 2003
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    8Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4.
    
    Controls and Procedures
    
    
    16PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    17Item 6.
    
    Exhibits
    
    
    17SIGNATURE PAGE
    
    
    
    18CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) and 15d-14(a)CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) and 15d-14(a)CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) and 15d-14(a)CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906


2



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PART I. FINANCIAL INFORMATION




Item 1. Financial Statements

CLAIRES STORES, INC. AND SUBSIDIARIES




UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


Oct. 30, 2004
    
    Jan. 31, 2004(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    229,260
    
    
    $
    224,630Inventories
    
    
    144,215
    
    
    
    92,498Prepaid expenses and other current assets
    
    
    54,256
    
    
    
    42,895Total current assets
    
    
    427,731
    
    
    
    360,023Property and equipment:Land and building
    
    
    18,151
    
    
    
    18,151Furniture, fixtures and equipment
    
    
    239,226
    
    
    
    225,425Leasehold improvements
    
    
    206,759
    
    
    
    186,760464,136
    
    
    
    430,336Less accumulated depreciation and amortization
    
    
    (261,455
    )
    
    
    (244,484
    )202,681
    
    
    
    185,852Intangible assets, net
    
    
    50,744
    
    
    
    43,896Other assets
    
    
    14,312
    
    
    
    16,351Goodwill
    
    
    200,456
    
    
    
    199,802265,512
    
    
    
    260,049Total Assets
    
    $
    895,924
    
    
    $
    805,924LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    60,312
    
    
    $
    37,754Income taxes payable
    
    
    9,929
    
    
    
    29,148Accrued expenses
    
    
    82,871
    
    
    
    76,424Total current liabilities
    
    
    153,112
    
    
    
    143,326Long-term liabilities:Deferred tax liability
    
    
    18,611
    
    
    
    12,148Deferred rent expense
    
    
    17,730
    
    
    
    18,00036,341
    
    
    
    30,148Commitments and contingencies
    
    
    -
    
    
    
    -Stockholders equity:Preferred stock par value $1.00 per share; authorized
1,000,000 shares, issued and outstanding 0 shares
    
    
    -
    
    
    
    -Class A common stock par value $.05 per share;
authorized 40,000,000 shares, issued and outstanding 5,133,949
shares and 5,221,660 shares, respectively
    
    
    257
    
    
    
    261Common stock par value $.05 per share; authorized
300,000,000 shares, issued and outstanding 93,840,383
shares and 93,693,448 shares, respectively
    
    
    4,692
    
    
    
    4,685Additional paid-in capital
    
    
    50,044
    
    
    
    49,392Accumulated other comprehensive income, net of tax
    
    
    26,106
    
    
    
    20,109Retained earnings
    
    
    625,372
    
    
    
    558,003706,471
    
    
    
    632,450Total Liabilities and Stockholders Equity
    
    $
    895,924
    
    
    $
    805,924


See accompanying notes to unaudited condensed consolidated financial statements.

3



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CLAIRES STORES, INC. AND SUBSIDIARIES




UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME


Three Months Ended
    
    Nine Months EndedOct. 30,
    
    Nov. 1,
    
    Oct. 30,
    
    Nov. 1,2004
    
    2003
    
    2004
    
    2003(In thousands, except per share amounts)Net sales
    
    $
    296,702
    
    
    $
    264,146
    
    
    $
    883,516
    
    
    $
    768,851Cost of sales, occupancy and buying expenses
    
    
    139,232
    
    
    
    124,934
    
    
    
    406,675
    
    
    
    367,158Gross profit
    
    
    157,470
    
    
    
    139,212
    
    
    
    476,841
    
    
    
    401,693Other expenses (income)Selling, general and administrative
    
    
    105,738
    
    
    
    93,851
    
    
    
    313,364
    
    
    
    278,444Depreciation and amortization
    
    
    11,439
    
    
    
    10,208
    
    
    
    33,042
    
    
    
    30,453Interest expense
    
    
    85
    
    
    
    591
    
    
    
    147
    
    
    
    2,008Interest and other income
    
    
    (1,301
    )
    
    
    (1,210
    )
    
    
    (3,779
    )
    
    
    (3,055
    )115,961
    
    
    
    103,440
    
    
    
    342,774
    
    
    
    307,850Income before income taxes
    
    
    41,509
    
    
    
    35,772
    
    
    
    134,067
    
    
    
    93,843Income taxes
    
    
    14,351
    
    
    
    10,519
    
    
    
    46,468
    
    
    
    30,844Net income
    
    
    27,158
    
    
    
    25,253
    
    
    
    87,599
    
    
    
    62,999Foreign currency translation adjustments
    
    
    8,946
    
    
    
    6,332
    
    
    
    5,997
    
    
    
    7,698Comprehensive income
    
    $
    36,104
    
    
    $
    31,585
    
    
    $
    93,596
    
    
    $
    70,697Net income per share:Basic
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    0.89
    
    
    $
    0.64Diluted
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    0.88
    
    
    $
    0.64Weighted average number of shares outstanding:Basic
    
    
    98,935
    
    
    
    97,900
    
    
    
    98,923
    
    
    
    97,800Diluted
    
    
    99,384
    
    
    
    98,442
    
    
    
    99,306
    
    
    
    98,278


See accompanying notes to unaudited condensed consolidated financial statements.

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CLAIRES STORES, INC. AND SUBSIDIARIES




UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


Nine Months EndedOct. 30, 2004
    
    Nov. 1, 2003(In thousands)Cash flows from operating activities:Net income
    
    $
    87,599
    
    
    $
    62,999Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    33,042
    
    
    
    30,453Amortization of intangible assets
    
    
    837
    
    
    
    899Loss on retirement of property and equipment
    
    
    2,579
    
    
    
    1,736Gain on sale of intangible assets
    
    
    (170
    )
    
    
    (399
    )(Increase) decrease in -
Inventories
    
    
    (50,834
    )
    
    
    (30,920
    )Prepaid expenses and other assets
    
    
    (8,882
    )
    
    
    (3,669
    )Increase (decrease) in -
Trade accounts payable
    
    
    22,239
    
    
    
    14,791Income taxes payable
    
    
    (19,069
    )
    
    
    (6,573
    )Accrued expenses
    
    
    5,665
    
    
    
    7,222Deferred income taxes
    
    
    6,402
    
    
    
    679Deferred rent expense
    
    
    (365
    )
    
    
    546Net cash provided by operating activities
    
    
    79,043
    
    
    
    77,764Cash flows from investing activities:Acquisition of property and equipment
    
    
    (50,367
    )
    
    
    (37,412
    )Acquisition of intangible assets
    
    
    (6,338
    )
    
    
    (7,000
    )Net cash used in investing activities
    
    
    (56,705
    )
    
    
    (44,412
    )Cash flows from financing activities:Principal payments on term loan
    
    
    -
    
    
    
    (10,932
    )Proceeds from stock options exercised
    
    
    655
    
    
    
    2,057Dividends paid
    
    
    (20,229
    )
    
    
    (7,607
    )Net cash used in financing activities
    
    
    (19,574
    )
    
    
    (16,482
    )Effect of foreign currency exchange rate changes on cash
and cash equivalents
    
    
    1,866
    
    
    
    1,014Net increase in cash and cash equivalents
    
    
    4,630
    
    
    
    17,884Cash and cash equivalents at beginning of period
    
    
    224,630
    
    
    
    195,482Cash and cash equivalents at end of period
    
    $
    229,260
    
    
    $
    213,366


See accompanying notes to unaudited condensed consolidated financial statements.

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CLAIRES STORES, INC. AND SUBSIDIARIES




NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




|1. |  | Basis of Presentation and Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q, and do not include all of the information and
footnotes required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. These statements
should be read in conjunction with the consolidated financial statements and notes thereto
included in the Annual Report on Form 10-K for the year ended January 31, 2004 filed with the
Securities and Exchange Commission, including Note 1 to the consolidated financial statements
included therein which discusses principles of consolidation and a summary of our significant
accounting policies. These statements have been prepared in accordance with accounting
principles generally accepted in the United States of America, which require management to make
certain estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. The most significant
estimates include valuation of inventories, valuation of goodwill and intangible assets,
provisions for income taxes, contingencies and litigation. Actual results could differ from
these estimates. Due to the seasonal nature of the Companys business, the results of
operations for interim periods of the year are not necessarily indicative of the results of
operations on an annualized basis. Certain prior period amounts have been reclassified to
conform to the current period presentation. Additionally, all references in the Companys
financial statements to number of shares, per share amounts, stock option data and market prices
of the Companys Common stock have been restated to give effect to the 2-for-1 stock split of
the Companys Common stock and Class A common stock in the form of a 100% stock dividend in
December 2003.
|  
|2. |  | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Basic net income per share is based on the weighted average number of shares of Class A common
stock and Common stock outstanding during the period presented, while diluted net income per
share includes the dilutive effect of stock options. All outstanding options for the three
month periods ended October 30, 2004 and November 1, 2003 were included in the computation of
diluted earnings per share for the quarter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Options to purchase 148,522 shares of common stock were outstanding for the nine months ended
November 1, 2003, but were not included in the computation of diluted earnings per share because
their effect would be anti-dilutive. All outstanding options for the nine months ended October
30, 2004 were included in the computation of diluted earnings per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|3. |  | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Statement of Financial Accounting Standards (SFAS) 123, Accounting for Stock Based
Compensation, as amended by SFAS 148, Accounting for Stock Based Compensation-Transition and
Disclosure, allows entities to choose between a fair value based method of accounting for
employee stock options or similar equity instruments and the intrinsic value based method of
accounting prescribed by Accounting Principles Board (APB) Opinion 25, Accounting for Stock
Issued to Employees. Entities electing to account for employee stock options or similar equity
instruments under APB 25 must make pro forma disclosures of net income and earnings per share as
if the fair value method of accounting had been applied. The Company has elected to apply the
provisions of APB 25 in the preparation of its unaudited condensed consolidated financial
statements and provide pro forma disclosure of net income and earnings per share as required
under SFAS 123 and SFAS 148 (dollars in thousands, except per share data).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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Three Months Ended
    
    Nine Months EndedOct 30,
    
    Nov. 1,
    
    Oct. 30,
    
    Nov. 1,2004
    
    2003
    
    2004
    
    2003Net income, as reported
    
    $
    27,158
    
    
    $
    25,253
    
    
    $
    87,599
    
    
    $
    62,999Stock-based employee compensation
expense not included in reported net
income, net of tax
    
    
    (527
    )
    
    
    (366
    )
    
    
    (1,554
    )
    
    
    (719
    )Stock-based employee compensation
expense included in reported net
income, net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Net income  pro forma
    
    $
    26,631
    
    
    $
    24,887
    
    
    $
    86,045
    
    
    $
    62,280Basic net income per share  as reported
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    0.89
    
    
    $
    0.64Basic net income per share  pro forma
    
    $
    0.27
    
    
    $
    0.25
    
    
    $
    0.87
    
    
    $
    0.64Diluted net income per share  as reported
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    0.88
    
    
    $
    0.64Diluted net income per share  pro forma
    
    $
    0.27
    
    
    $
    0.25
    
    
    $
    0.87
    
    
    $
    0.63




|4. |  | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In December 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest Entities (FIN 46R), which replaced FIN
46. FIN 46R addresses how a business enterprise should evaluate whether it has a controlling
interest in an entity through means other than voting rights. This interpretation requires a
variable interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entitys activities or is entitled to
receive a majority of the entitys residual returns or both. The interpretation also requires
disclosures about variable interest entities that the Company is not required to consolidate but
in which it has a significant variable interest. The Company has determined that it has no
interests that qualify as variable interest entities.
|  
|5. |  | Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | The Company is organized based on the geographic markets in which it operates. Under this
structure, the Company currently has two reportable segments: North America and International.
Net sales for the periods presented were as follows (dollars in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Three Months Ended
    
    Nine Months EndedOct. 30,
    
    Nov. 1,
    
    Oct. 30,
    
    Nov. 1,2004
    
    2003
    
    2004
    
    2003North America
    
    $
    207,753
    
    
    $
    190,513
    
    
    $
    630,212
    
    
    $
    556,227International
    
    
    88,949
    
    
    
    73,633
    
    
    
    253,304
    
    
    
    212,624Total
    
    $
    296,702
    
    
    $
    264,146
    
    
    $
    883,516
    
    
    $
    768,851


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| |  | Income before income taxes for the periods presented was as follows (dollars in thousands):
| |  | -------------------------------------------------------------------------------------------

Three Months Ended
    
    Nine Months EndedOct. 30,
    
    Nov. 1,
    
    Oct. 30,
    
    Nov. 1,2004
    
    2003
    
    2004
    
    2003North America
    
    $
    28,981
    
    
    $
    27,907
    
    
    $
    106,476
    
    
    $
    76,095International
    
    
    12,528
    
    
    
    7,865
    
    
    
    27,591
    
    
    
    17,748Total
    
    $
    41,509
    
    
    $
    35,772
    
    
    $
    134,067
    
    
    $
    93,843




|6. |  | Statements of Cash Flows                                                                                                                                                                                                                                         
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Payments of income taxes were $59.0 million and $36.3 million for the nine
months ended October 30, 2004 and November 1, 2003, respectively. Payments of
interest were $145,000 and $2.1 million for the nine months ended October 30,
2004 and November 1, 2003.






|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
Condition and Results of Operations.

Managements Discussion and Analysis is designed to provide the reader of the financial statements
with a narrative on our results of operations, financial position and liquidity, risk management
activities, significant accounting policies and critical estimates. Managements Discussion and
Analysis is presented in the following sections: Overview, Critical Accounting Policies and
Estimates, Results of Operations and Analysis of Consolidated Financial Condition. It is useful to
read Managements Discussion and Analysis in conjunction with the unaudited condensed consolidated
financial statements and related notes thereto contained elsewhere in this document.

Annually, our fiscal years end on the Saturday closest to January 31. As a result, both our
current and prior fiscal years consist of four 13-week quarters. We refer to the prior fiscal year
ended January 31, 2004 as Fiscal 2004, and the current fiscal year ending January 29, 2005 as
Fiscal 2005. All references to earnings per share relate to diluted earnings per share from net
income.

We include a store in the calculation of comparable store sales once it has been in operation sixty
weeks after its initial opening. If a store is closed during a fiscal period, the stores sales
will be included in the computation of comparable store sales for that fiscal month, quarter and
year to date period only for the days in which it was operating as compared to those same days in
the comparable period. Relocated, remodeled and expanded square footage stores are classified the
same as the original store and are not considered new stores upon relocation, remodeling or
completion of their expansion.

Overview

We are a leading specialty retailer of value-priced fashion accessories and jewelry for pre-teens
and teenagers as well as young adults. We are organized based on our geographic markets, which
include our North American operations and our International operations. As of October 30, 2004, we
operated a total of 2,844 stores in all 50 states of the United States, Puerto Rico, Canada, the
Virgin Islands, the United Kingdom, Switzerland, Austria, Germany, (the latter three collectively
referred to as S.A.G.), France and Ireland. The stores are operated mainly under the trade names
Claires Boutiques, Claires Accessories, Icing by Claires, Afterthoughts and The Icing.
We are in the process of transitioning our Afterthoughts stores to Icing by Claires stores to
capitalize on the Claires brand name. We also operate 145 stores in Japan through a 50:50 joint
venture with AEON Co. Ltd. (Claires Nippon). We account for the results of operations of
Claires Nippon under the equity method whose results are included within Interest and other
income in our Statement of Operations within our North American division. In addition, we license
53 stores in the Middle East under a licensing and merchandising agreement with Al Shaya Co. Ltd.
and 3 stores in South Africa under similar agreements with the House of Busby Limited. We account
for the goods we sell under the merchandising agreements within Gross profit in our North
American division and the license fees we charge within Interest and other income within our
International division in our Statement of Operations.

8



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We have two store concepts: Claires Accessories, which caters to fashion-conscious girls and teens
in the 7 to 17 age range, and Icing by Claires, which caters to fashion-conscious teens and young
women in the 17 to 27 age range. Our merchandise typically ranges in price between $2 and $20,
with the average product priced at approximately $4. Our stores share a similar format and our
different store concepts and trade-names allow us to have multiple store locations in a single
mall. Although we face competition from a number of small specialty store chains and others
selling fashion accessories, we believe that our stores comprise one of the largest chains of
specialty retail stores in the world devoted to the sale of value-priced fashion accessories for
pre-teen, teenage and young adult females.

Fundamentally, our business model is to offer the customer a compelling price/value relationship
and a wide array of products to choose from. We seek to deliver a high level of profitability and
cash flow by:



| |  |  | maximizing the effectiveness of our retail product pricing through promotional activity                                                                                
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | minimizing our product costs through economies of scale as the worlds leading
mall-based retailer of value-priced jewelry and accessories                             
|
| |  |  | reinvesting operating cash flows into opening new stores, remodeling existing stores and
infrastructure in order to create future revenues and build brand name loyalty

While our financial results have grown steadily and record sales performance was achieved during
the first nine months of Fiscal 2005, the retail environment remains very competitive.
Managements plan for future growth is dependent on:



| |  |  | our ability to successfully identify merchandise appealing to our customers and manage
our inventory levels                                   
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | displaying our merchandise at convenient, accessible locations staffed with personnel
that provide courteous and professional customer service
|
| |  |  | sourcing our merchandise to achieve a positive value/price relationship                                                                       
|
| |  |  | increasing sales at existing store locations                                                                                                  
|
| |  |  | expanding our sales, especially in our International segment, through additional store locations                                              

Our ability to achieve these objectives will be dependent on various factors, including those
outlined in Cautionary Note Regarding Forward-Looking Statements and Risk Factors.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. Preparation of these statements
requires management to make judgments and estimates. Some accounting policies have a significant
impact on amounts reported in these financial statements. A summary of significant accounting
policies and a description of accounting policies that are considered critical may be found in our
Fiscal 2004 Annual Report on Form 10-K, filed on April 15, 2004, in the Notes to the Consolidated
Financial Statements, Note 1, and the Critical Accounting Policies and Estimates section therein.

9



---



##### Table of Contents



Results of Operations

Consolidated Operations

A summary of our consolidated results of operations is as follows (dollars in thousands, except per
share data):

Three Months Ended
    
    Nine Months EndedOct. 30, 2004
    
    Nov. 1, 2003
    
    Oct. 30, 2004
    
    Nov. 1, 2003Net sales
    
    $
    296,702
    
    
    $
    264,146
    
    
    $
    883,516
    
    
    $
    768,851Net income
    
    $
    27,158
    
    
    $
    25,253
    
    
    $
    87,599
    
    
    $
    62,999Number of stores at the end of the period(1)
    
    
    2,844
    
    
    
    2,849
    
    
    
    2,844
    
    
    
    2,849Net income per diluted share
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    0.88
    
    
    $
    0.64Comparable store sales
    
    
    9.0
    %
    
    
    8.0
    %
    
    
    10.0
    %
    
    
    7.0
    %Gross profit percentage
    
    
    53.1
    %
    
    
    52.7
    %
    
    
    54.0
    %
    
    
    52.2
    %Selling, general and administrative expenses
as a percentage of net sales
    
    
    35.6
    %
    
    
    35.5
    %
    
    
    35.5
    %
    
    
    36.2
    %




---

|(1) |  | Number of stores excludes Claires Nippon
|--- |  | -----------------------------------------

Net sales for the three months ended October 30, 2004 increased by $32.6 million, or 12.3%
from the three months ended November 1, 2003. Net sales for the nine months ended October 30, 2004
increased by $114.7 million, or 14.9% over the comparable period ended November 1, 2003. The
increase in Net sales was primarily attributable to comparable store sales increases and the effect
of changes in foreign exchange rates when translating our foreign operations at higher exchange
rates. The comparable store sales increases of 9.0% and 10.0% for the three and nine months ended
October 30, 2004, respectively, contributed to approximately $21.6 million and $74.6 million in
increased Net sales for same periods, respectively. The effect of the weak US dollar attributed to
approximately $8.1 million and $25.1 million of the increase during the three and nine months ended
October 30, 2004, respectively.

The positive comparable sales experienced in our North American division has continued and were
across most merchandise categories, most notably in the jewelry related areas. We believe we
experienced this trend by successfully meeting our customers demands for current fashion trends in
jewelry and by maintaining superior customer service in our stores. The positive comparable store
sales within our International division that began during the second quarter of Fiscal 2005
continued and improved during the third quarter of Fiscal 2005. The return to and continuation of
positive comparable sales in our International stores was stimulated by specific initiatives we
employed at the end of Fiscal 2004, including adjusting the merchandise mix to more closely follow
that of North American stores, sharing best practices employed in our North American division for
merchandise selection, store operations and attentive customer service.

Gross profit percentages increased by 40 basis points during the three months ended October 30,
2004 as compared to the three months ended November 1, 2003, and 180 basis points during the nine
months ended October 30, 2004 as compared to the nine months ended November 1, 2003. For the three
and nine month periods, 90 and 110 basis points of these increases, respectively, were primarily
due to comparable store sales increasing at a rate faster than the increase in our occupancy
related costs, creating positive leverage on those costs. For the three and nine months ended
October 30, 2004, merchandise margins decreased by 50 basis points and increased by 70 basis
points, respectively.

10



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##### Table of Contents



The following table compares our percentage of sales of each product category for each of the
periods presented:

Three Months Ended
    
    Nine Months EndedOct. 30, 2004
    
    Nov. 1, 2003
    
    Oct. 30, 2004
    
    Nov. 1, 2003Jewelry
    
    
    56.4
    %
    
    
    53.6
    %
    
    
    58.0
    %
    
    
    54.3
    %Accessories
    
    
    43.6
    %
    
    
    46.4
    %
    
    
    42.0
    %
    
    
    45.7
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %


In calculating gross profit and gross profit percentages, we exclude the costs related to our
distribution center. These costs are included instead in Selling, general and administrative
expenses. Other retail companies may include these costs in cost of sales, so our gross profit
percentages may not be comparable to those retailers.

Selling, general and administrative expenses increased by $11.9 million for the three months ended
October 30, 2004 as compared to the three months ended November 1, 2003, and $34.9 million for the
nine months ended October 30, 2004 as compared to the nine months ended November 1, 2003. The
effect of the weak US dollar attributed to approximately $3.0 million and $9.4 million of the
increase during the three and nine months ended October 30, 2004. The remaining increase was
primarily attributable to increases in store payroll. Additional hours worked in our North
American stores were necessary to maintain service levels and manage inventory. As a percentage of
Net sales, Selling, general and administrative expenses increased by 10 basis points and decreased
by 70 basis points for the three and nine months ended October 30, 2004.

Our effective income tax rate during the three months and nine months of Fiscal 2005 was 34.6% and
34.7%, respectively, as compared to 29.4% and 32.9% during the comparable periods of Fiscal 2004.
During the three months ended July 31, 2004, we recorded net benefits to the provision for income
taxes totaling approximately $400,000 attributable to concluded tax examinations that were settled
more favorably than anticipated. Included in income taxes for the three and nine months ended
November 1, 2003 was a tax benefit of approximately $2.0 million, or $0.02 per diluted share
related to concluded tax examinations that were settled more favorably than anticipated. We
estimate that our effective income tax rate for the remainder of Fiscal 2005 will be approximately
34.9%. Our effective income tax rate in future periods will depend on several variables, including
the mix of earnings between North America and International operations and our overall level of
earnings. This is primarily due to the fact that our combined effective income tax rate for
International operations is generally lower than our effective income tax rate for North America
operations.Our effective income tax rate could also be affected by the resolution of tax
contingencies for amounts different from our current estimates.

Net income increased by approximately $1.9 million during the three months ended October 30, 2004
as compared to the three months ended November 1, 2003 and $24.6 million during the nine months
ended October 1, 2004 as compared to the nine months ended November 1, 2003. These increases were
made possible primarily by the increase in comparable store sales and positive leverage on
operating expenses.

Segment Operations

We are organized into two business segments  North America and International. Following is a
discussion of results of operations by business segment.

11



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##### Table of Contents



North America Division

Key statistics and results of operations for our North American division are as follows (dollars in
thousands):

Three Months Ended
    
    Nine Months EndedOct. 30, 2004
    
    Nov. 1, 2003
    
    Oct. 30, 2004
    
    Nov. 1, 2003Net sales
    
    $
    207,753
    
    
    $
    190,513
    
    
    $
    630,212
    
    
    $
    556,227Number of stores at the end of the period(1)
    
    
    2,128
    
    
    
    2,159
    
    
    
    2,128
    
    
    
    2,159Comparable store sales
    
    
    10.0
    %
    
    
    12.0
    %
    
    
    13.0
    %
    
    
    10.0
    %Gross profit percentage
    
    
    52.1
    %
    
    
    53.0
    %
    
    
    54.3
    %
    
    
    52.9
    %




---

|(1) |  | Number of stores excludes Claires
Nippon
|--- |  | -----------------------------------------

Net sales in North America during the three months ended October 30, 2004 increased by $17.2
million, or 9.0%, from the three months ended November 1, 2003. Net sales for the nine months
ended October 30, 2004 increased by $74.0 million, or 13.3%, over the comparable period ended
November 1, 2003. The increase in Net sales for the three and nine month periods was primarily
attributable to comparable store sales increases of 10.0% and 13.0%, respectively, primarily as a
result of an increase in the average number of transactions per store during both periods.

The positive comparable sales experienced in North America were across most merchandise categories,
most notably in the jewelry related areas. We believe we experienced this trend by successfully
meeting our customers demands for current fashion trends in jewelry and by maintaining superior
customer service in our stores. In addition, best practices in merchandise buying, planning and
allocation from Claires have been shared with the Icing by Claires and Afterthoughts stores,
which we believe have contributed significantly to the comparable store sales increases experienced
during the third quarter and first nine months of Fiscal 2005.

Gross profit percentages decreased by 90 basis points and increased by 140 basis points during the
three and nine months ended October 30, 2004 as compared to the three and nine months ended
November 1, 2003, respectively. The decrease during the three months ended October 30, 2004 was
primarily caused by a higher level of merchandise markdowns, partially offset by positive leverage
on occupancy costs. The increase during the nine months ended October 30, 2004 was primarily
attributable to positive leverage on occupancy costs.

The following table compares our percentage of sales of each product category for each of the
periods presented:

Three Months Ended
    
    Nine Months EndedOct. 30, 2004
    
    Nov. 1, 2003
    
    Oct. 30, 2004
    
    Nov. 1, 2003Jewelry
    
    
    63.6
    %
    
    
    60.6
    %
    
    
    65.1
    %
    
    
    61.3
    %Accessories
    
    
    36.4
    %
    
    
    39.4
    %
    
    
    34.9
    %
    
    
    38.7
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %


12



---



##### Table of Contents



International Division

Key statistics and results of operations for our International division are as follows (dollars in
thousands):

Three Months Ended
    
    Nine Months EndedOct. 30, 2004
    
    Nov. 1, 2003
    
    Oct. 30, 2004
    
    Nov. 1, 2003Net sales
    
    $
    88,949
    
    
    $
    73,633
    
    
    $
    253,304
    
    
    $
    212,624Number of stores at the end of the period
    
    
    716
    
    
    
    690
    
    
    
    716
    
    
    
    690Comparable store sales
    
    
    6.0
    %
    
    
    (1.0
    %)
    
    
    2.0
    %
    
    
    0.0
    %Gross profit percentage
    
    
    55.4
    %
    
    
    51.8
    %
    
    
    53.2
    %
    
    
    50.5
    %


Our objective is to increase sales in the International division primarily through store
growth and comparable store sales increases. We also continue to explore adding operations in
countries in which we do not currently operate.

Net sales in our International division during the three months ended October 30, 2004 increased by
$15.3 million, or 20.8%, from the three months ended November 1, 2003. Net sales for the nine
months ended October 30, 2004 increased by $40.7 million, or 19.1% over the comparable period ended
November 1, 2003. The increase in Net sales for the three months ended October 30, 2004 was
primarily attributable to the effects of the weak US dollar when translating our foreign operations
at higher exchange rates of approximately $8.1 million and by comparable store sales increases of
6.0%, or approximately $4.2 million during the period. The increase in net sales for the nine
months ended October 30, 2004 was primarily attributable to approximately $25.1 million benefit of
higher exchange rates and comparable store sales of 2.0%, or $4.0 million, during the period. The
comparable store increases for the three and nine month periods were achieved primarily through an
increase in the average number of units per transaction.

We actively employed strategic initiatives within our International division over the past few
quarters in an attempt to reverse the negative comparable store sales trend in our International
division. These initiatives included sharing best practices for merchandise selection, store
operations and attentive customer service. In addition, we are investing in operational systems
infrastructure in order to facilitate the greater level of complexity and precision now required of
the business.

Gross profit percentages improved by 360 basis points and 270 basis points for the three and nine
months ended October 30, 2004. This was accomplished by receiving a benefit in cost of goods sold
of approximately $1.1 million and $3.1 million during the three and nine month periods,
respectively, primarily due to the relative weakness of the US dollar. In addition, the shift to a
higher percentage of sales of jewelry had a positive impact on merchandise margins during both
periods.

The higher concentration of sales in jewelry as compared to accessories experienced during the
three and nine months ended October 30, 2004 and November 1, 2003 has had the result of improved
gross profit percentages due to the higher initial markup realized on jewelry. The following table
compares our percentage of sales of each product category for each of the periods presented:

Three Months Ended
    
    Nine Months EndedOct. 30, 2004
    
    Nov. 1, 2003
    
    Oct. 30, 2004
    
    Nov. 1, 2003Jewelry
    
    
    39.7
    %
    
    
    35.4
    %
    
    
    40.2
    %
    
    
    36.0
    %Accessories
    
    
    60.3
    %
    
    
    64.6
    %
    
    
    59.8
    %
    
    
    64.0
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %


13



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##### Table of Contents



Analysis of Consolidated Financial Condition

A summary of cash flows from operating, investing and financing activities is outlined in the table
below (dollars in thousands):

Nine Months EndedOct. 30, 2004
    
    Nov. 1, 2003Operating activities
    
    $
    79,043
    
    
    $
    77,764Investing activities
    
    $
    (56,705
    )
    
    $
    (44,412
    )Financing activities
    
    $
    (19,574
    )
    
    $
    (16,482
    )


We have consistently satisfied operating liquidity needs and planned capital expenditure
programs through our internally generated cash flows. At October 30, 2004, we had approximately
$229.3 million in cash and cash equivalents, an increase of $4.6 million from January 31, 2004. We
ended the third quarter of Fiscal 2005 with no borrowed debt outstanding. The net increase in cash
and cash equivalents was due to cash generated from operations, offset by capital expenditures and
the payment of dividends.

Our major source of cash from operations is store sales, nearly all of which are generated on a
cash or credit card basis. Our primary outflow of cash from operations is the purchase of
inventory, net of accounts payable, operational costs, the payment of current taxes, capital
expenditures and the payment of dividends. Cash flows provided by operating activities in the
first nine months of Fiscal 2005 reflect higher net income as compared to the first nine months of
Fiscal 2004, offset by a greater investment in inventories and the increases in dividend payments.
The increase in inventory is primarily attributable to our decision to bring in holiday season
inventory earlier than in the prior year and at levels we believe are sufficient to meet expected
future demand.

Our working capital at October 30, 2004 was $274.6 million compared to $216.7 million at January
31, 2004.

Our $50.4 million of capital expenditures were made primarily to remodel existing stores and to
open new stores. We generally experience a noticeable increase in sales in locations where a store
has been recently remodeled. We also invested approximately $6.3 million in intangible assets
within our International division representing acquired lease rights on new store locations in
certain countries. We expect to fund between $55.0 million and $65.0 million of capital
expenditures and $5.0 million to $10.0 million of purchased lease rights in Fiscal 2005 in an
effort to continue to expand and remodel our store base.

We paid dividends of $20.2 million during the nine months ended October 30, 2004, an increase of
approximately $12.6 million from the nine months ended November 1, 2003. Dividends were increased
during the first, second and third quarter of Fiscal 2005. We currently expect to pay at least
$28.9 million in dividends in Fiscal 2005.

Liquidity and Capital Resources

We entered into a new credit facility in March 2004. This credit facility is a revolving line of
credit of up to $60.0 million, is secured by inventory in the United States and expires on March
31, 2009. The borrowings under this facility are limited based on certain calculations of
availability, based primarily on the amount of inventory and cash on hand in the United States. At
October 30, 2004, the entire amount of $60.0 million would have been available for borrowing by us,
subject to reduction for $2.6 million of outstanding letters of credit. The credit facility is
cancelable by us without penalty and borrowings would bear interest at a margin of 75 basis points
over the London Interbank Borrowing Rate (LIBOR) on October 30, 2004. The credit facility also
contains other restrictive covenants which limit, among other things, our ability to make dividend
distributions.

14



---



##### Table of Contents



Our non-US subsidiaries have credit facilities totaling approximately $838,000 with banks. The
facilities are used for working capital requirements, letters of credit and various guarantees.
These credit facilities have been arranged in accordance with customary lending practices in their
respective countries of operation. At October 30, 2004, there were no borrowings under these
credit facilities.

Management believes that our present ability to borrow is greater than our established credit
lines. However, if market conditions change and sales were to dramatically decline or we could not
control operating costs or other expenses, our cash flows and liquidity could be reduced, and we
could experience an increase in borrowing costs, or even a reduction in or elimination of our
access to debt and/or equity markets.

Cautionary Note Regarding Forward-Looking Statements and Risk Factors

We and our representatives may from time to time make written or verbal forward-looking statements,
including statements contained in this and other filings with the Securities and Exchange
Commission and in our press releases and reports to shareholders. All statements which address
operating performance, events or developments that we expect or anticipate will occur in the
future, including statements relating to our future financial performance, business strategy,
planned capital expenditures and new store openings for Fiscal 2005, are forward-looking
statements. The forward-looking statements are and will be based on managements then current
views and assumptions regarding future events and operating performance and we assume no obligation
to update any forward-looking statement. Forward-looking statements involve known or unknown
risks, uncertainties and other factors, including changes in estimates and judgments discussed
under Critical Accounting Policies and Estimates which may cause our actual results, performance
or achievements, or industry results to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking statements. Some of these
risks, uncertainties and other factors are as follows: changes in consumer preferences and consumer
spending; competition; general economic, political and social conditions, such as war, political
unrest and terrorism or natural disasters; currency fluctuations and exchange rate adjustments;
changes in laws, including employment laws relating to overtime pay, tax laws and import laws;
uncertainties generally associated with the specialty retailing business; and disruptions in our
supply of inventory. In addition, the Company typically earns a disproportionate share of its
operating income in the fourth quarter due to seasonal buying patterns, which are difficult to
forecast with certainty. Additional discussion of these and other risks and uncertainties is
contained elsewhere in this Item 2, in Item 3, Quantitative and Qualitative Disclosures About
Market Risk and in the Companys Form 10-K for Fiscal 2004 under Cautionary Note Regarding
Forward-Looking Statements and Risk Factors.






|        |                                                           
|------- | ----------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency

We are exposed to market risk from foreign currency exchange rate fluctuations on the US dollar
value of foreign currency denominated transactions and our investment in foreign subsidiaries. We
manage this exposure to market risk through our regular operating and financing activities, and
foreign currency options. Exposure to market risk for changes in foreign exchange rates relates
primarily to foreign operations buying, selling and financing in currencies other than local
currencies and to the carrying value of net investments in foreign subsidiaries. We manage our
exposure to foreign exchange rate risk related to our foreign operations buying, selling and
financing in currencies other than local currencies by using foreign currency options from time to
time to manage foreign currency transactional exposure. At October 30, 2004, we had entered into
foreign currency options with remaining notional amounts of $7.1 million, which are accounted for
as cash-flow hedges. We do not hedge the translation exposure related to our net investment in
foreign subsidiaries, since we generally have no near term intent to repatriate funds from such
subsidiaries. During the three and nine months ended October 30, 2004, included in Comprehensive
income and Stockholders equity is $9.0 million and $6.0 million, respectively, reflecting the
unrealized gain on foreign currency translation. Based on our average net currency positions in
Fiscal 2004, the potential gain or loss due to a 10% adverse change on foreign currency exchange
rates could be significant to our operations.

15



---



##### Table of Contents



Certain of our subsidiaries make significant US dollar purchases from Asian suppliers, particularly
in China. There continues to be speculation that China may elect to adjust the exchange rate of
the Chinese Yuan against the US dollar. Currently, the Chinese Yuan has a fixed exchange rate
against the US dollar. If China adjusts the exchange rate or allows the value to float, based on
the current weak US dollar, we could experience increases in our cost of merchandise imported from
China.

The results of operations of foreign subsidiaries, when translated into US dollars, reflect the
average rates of exchange for the periods presented. As a result, similar results in local
currency can vary significantly upon translation into US dollars if exchange rates fluctuate
significantly from one period to the next.

Interest Rates

Our exposure to market risk for changes in interest rates is limited to our cash, cash equivalents
and debt. Based on our average invested cash balances during the first nine months of Fiscal 2005,
a 10% increase in the average effective interest rate in the remainder of Fiscal 2005 would not
have a material impact on our annual interest income or interest expense.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Based on their evaluation as of the end of the period covered by this report, our co-Chief
Executive Officers and our Chief Financial Officer have concluded that our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, are
effective to ensure that the information required to be disclosed by us in reports that we file
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms and that such information is accumulated
and communicated to our management, including our co-Chief Executive Officers and Chief Financial
Officer as appropriate to allow timely decisions regarding required disclosure.

In addition, there were no changes during the quarter in our internal controls over financial
reporting that have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.

16



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##### Table of Contents






PART II. OTHER INFORMATION




Item 1. Legal Proceedings

We are, from time to time, involved in routine litigation incidental to the conduct of our
business, including litigation instituted by persons injured upon premises under our control,
litigation regarding the merchandise that we sell, including product and safety concerns regarding
components in our merchandise, litigation with respect to various employment matters, including
litigation with present and former employees, and litigation to protect our trademark rights.
Although litigation is routine and incidental to the conduct of our business, like any business of
our size and employing a significant number of employees, such litigation can result in large
monetary awards when judges, juries or other finders of facts do not agree with managements
evaluation of possible liability or outcome of litigation. On November 7, 2003, the Official
Committee of Unsecured Creditors of Lux Corporation, d/b/a Mr. Rags, filed a complaint against us
in the United States Bankruptcy Court for the Central District of California. The complaint
alleges that certain payments made to us in connection with the sale of the stock of Lux
Corporation in May 2002 should be repaid to the bankruptcy estate because the payments are
avoidable, as such term is used under general bankruptcy laws. On December 8, 2003, we filed a
Motion to Dismiss with the Bankruptcy Court, which was denied on February 24, 2004. We filed an
answer to the complaint on March 15, 2004. Both sides are proceeding with discovery in the case.
We believe the claims are without merit and intend to defend the litigation vigorously. We believe
that current pending litigation will not have a material adverse effect on our financial position,
earnings or cash flows.




Item 6. Exhibits

31.1
    
    Certification of Co-Chief Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a).31.2
    
    Certification of Co-Chief Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a).31.3
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) and 15d-14(a).32.1
    
    Certification of Co-Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.2
    
    Certification of Co-Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.3
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.


Items 2, 3, 4 and 5 are not applicable and have been omitted.

17



---



##### Table of Contents






SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.

|                 |                                                                                     |  |  | 
|---------------- | ----------------------------------------------------------------------------------- |  |  | 
|                 | CLAIRES STORES, INC.
(Registrant)                                                  | 
|December 9, 2004 | /s/ Marla L. Schaefer                                                               | 
|                 | Marla L. Schaefer                                                                   | 
|                 | Co-Chairman of the Board of Directors
(principal co-executive officer and
director) | 
|                

|                 |                                                                                     |  |  | 
|---------------- | ----------------------------------------------------------------------------------- |  |  | 
|                 |                                                                                     | 
|December 9, 2004 | /s/ E. Bonnie Schaefer                                                              | 
|                 | E. Bonnie Schaefer                                                                  | 
|                 | Co-Chairman of the Board of Directors
(principal co-executive officer and
director) | 
|                

|                 |                                                                                                                                      |  |  | 
|---------------- | ------------------------------------------------------------------------------------------------------------------------------------ |  |  | 
|                 |                                                                                                                                      | 
|December 9, 2004 | /s/ Ira D. Kaplan                                                                                                                    | 
|                 |                                                                                                                                      | 
|                 | Ira D. Kaplan, Senior Vice President,
Chief Financial Officer and Director
(principal financial and accounting
officer and director) | 

18



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##### Table of Contents



| |  |  |  | 
| |  |  |  | 

INDEX TO EXHIBITS

EXHIBIT NO.
    
    DESCRIPTION31.1
    
    Certification of Co-Chief Executive Officer pursuant to Rule 13a-14(a) and
15d-14(a).31.2
    
    Certification of Co-Chief Executive Officer pursuant to Rule 13a-14(a) and
15d-14(a).31.3
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
15d-14(a).32.1
    
    Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.3
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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