##### Table of Contents



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 April 30, 2011
 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 Nos. 1-8899 and 333-148108
 Claires Stores, Inc.
  Florida
    
    59-0940416(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 2400 West Central Road, 
Hoffman Estates, Illinois
    
    60192(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (847) 765-1100
 x o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer x
    
    Smaller reporting company o(Do not check if a smaller
reporting company)
 o x




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##### 



CLAIRES STORES, INC. AND SUBSIDIARIES
INDEX
 PAGE NO.PART I.
    
    FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Unaudited Condensed Consolidated Balance Sheets as of April 30,
2011 and January 29, 2011
    
    
    3Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Three Months Ended April 30,
2011 and May 1, 2010
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for
the Three Months Ended April 30, 2011 and May 1, 2010
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures Controls and Procedures
    
    
    30PART II.
    
    OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 6. Exhibits
    
    
    31SIGNATURE PAGE
    
    
    32EX-31.1EX-31.2EX-32.1EX-32.2
   
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##### Table of Contents



PART I. FINANCIAL INFORMATION
CLAIRES STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 April 30, 2011
    
    
    January 29, 2011(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents and restricted cash of $25,966 and
$23,864, respectively
    
    $
    246,134
    
    
    $
    279,766Inventories
    
    
    133,237
    
    
    
    136,148Prepaid expenses
    
    
    34,938
    
    
    
    21,449Other current assets
    
    
    22,748
    
    
    
    24,658Total current assets
    
    
    437,057
    
    
    
    462,021Property and equipment:Furniture, fixtures and equipment
    
    
    196,977
    
    
    
    186,514Leasehold improvements
    
    
    264,152
    
    
    
    248,030461,129
    
    
    
    434,544Less accumulated depreciation and amortization
    
    
    (252,646
    )
    
    
    (233,511
    )208,483
    
    
    
    201,033Leased property under capital lease:Land and building
    
    
    18,055
    
    
    
    18,055Less accumulated depreciation and amortization
    
    
    (1,128
    )
    
    
    (903
    )16,927
    
    
    
    17,152Goodwill
    
    
    1,550,056
    
    
    
    1,550,056Intangible assets, net of accumulated amortization of $42,962 and
$38,747, respectively
    
    
    562,031
    
    
    
    557,466Deferred financing costs, net of accumulated amortization of
$47,905 and $41,659, respectively
    
    
    40,341
    
    
    
    36,434Other assets
    
    
    46,817
    
    
    
    42,2872,199,245
    
    
    
    2,186,243Total assets
    
    $
    2,861,712
    
    
    $
    2,866,449LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Short-term debt and current portion of long-term debt
    
    $
    62,796
    
    
    $
    76,154Trade accounts payable
    
    
    60,377
    
    
    
    54,355Income taxes payable
    
    
    8,436
    
    
    
    11,744Accrued interest payable
    
    
    29,232
    
    
    
    16,783Accrued expenses and other current liabilities
    
    
    88,557
    
    
    
    107,115Total current liabilities
    
    
    249,398
    
    
    
    266,151Long-term debt
    
    
    2,444,779
    
    
    
    2,236,842Revolving credit facility
    
    
    
    
    
    
    194,000Obligation under capital lease
    
    
    17,290
    
    
    
    17,290Deferred tax liability
    
    
    121,479
    
    
    
    121,776Deferred rent expense
    
    
    27,471
    
    
    
    26,637Unfavorable lease obligations and other long-term liabilities
    
    
    28,003
    
    
    
    30,2682,639,022
    
    
    
    2,626,813Commitments and contingenciesStockholders deficit:Common stock par value $0.001 per share; authorized 1,000 shares;
issued and outstanding 100 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    622,073
    
    
    
    621,099Accumulated other comprehensive income, net of tax
    
    
    19,846
    
    
    
    1,416Accumulated deficit
    
    
    (668,627
    )
    
    
    (649,030
    )(26,708
    )
    
    
    (26,515
    )Total liabilities and stockholders deficit
    
    $
    2,861,712
    
    
    $
    2,866,449
  3




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CLAIRES STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedApril 30, 2011
    
    
    May 1, 2010Net sales
    
    $
    346,446
    
    
    $
    322,077Cost of sales, occupancy and buying expenses
    
    
    171,359
    
    
    
    158,751Gross profit
    
    
    175,087
    
    
    
    163,326Other expenses:Selling, general and administrative
    
    
    126,722
    
    
    
    118,019Depreciation and amortization
    
    
    17,054
    
    
    
    16,366Severance and transaction-related costs
    
    
    343
    
    
    
    102Other expense, net
    
    
    5,311
    
    
    
    1,230149,430
    
    
    
    135,717Operating income
    
    
    25,657
    
    
    
    27,609Gain on early debt extinguishment
    
    
    249
    
    
    
    4,487Interest expense, net
    
    
    46,235
    
    
    
    42,763Loss before income tax (benefit) expense
    
    
    (20,329
    )
    
    
    (10,667
    )Income tax (benefit) expense
    
    
    (732
    )
    
    
    1,633Net loss
    
    $
    (19,597
    )
    
    $
    (12,300
    )Net loss
    
    $
    (19,597
    )
    
    $
    (12,300
    )Foreign currency translation and interest rate
swap adjustments, net of tax
    
    
    18,431
    
    
    
    (2,522
    )Comprehensive loss
    
    $
    (1,166
    )
    
    $
    (14,822
    )
  4




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CLAIRES STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedApril 30, 2011
    
    
    May 1, 2010Cash flows from operating activities:Net loss
    
    $
    (19,597
    )
    
    $
    (12,300
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    17,054
    
    
    
    16,366Amortization of lease rights and other assets
    
    
    785
    
    
    
    1,028Amortization of debt issuance costs
    
    
    5,899
    
    
    
    2,535Payment of in kind interest expense
    
    
    9,035
    
    
    
    9,651Foreign currency exchange net loss on Euro Loan
    
    
    3,292
    
    
    
    Net unfavorable accretion of lease obligations
    
    
    (275
    )
    
    
    (476
    )Loss on sale/retirement of property and equipment, net
    
    
    48
    
    
    
    236Gain on early debt extinguishment
    
    
    (249
    )
    
    
    (4,487
    )Stock compensation expense
    
    
    974
    
    
    
    1,220(Increase) decrease in:Inventories
    
    
    6,683
    
    
    
    (792
    )Prepaid expenses
    
    
    (11,840
    )
    
    
    1,439Other assets
    
    
    (709
    )
    
    
    6,052Increase (decrease) in:Trade accounts payable
    
    
    3,693
    
    
    
    3,799Income taxes payable
    
    
    (3,847
    )
    
    
    (2,329
    )Accrued interest payable
    
    
    12,396
    
    
    
    12,727Accrued expenses and other liabilities
    
    
    (21,884
    )
    
    
    (25
    )Deferred income taxes
    
    
    (1,029
    )
    
    
    474Deferred rent expense
    
    
    214
    
    
    
    787Net cash provided by operating activities
    
    
    643
    
    
    
    35,905Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (15,792
    )
    
    
    (8,218
    )Acquisition of intangible assets/lease rights
    
    
    (1,347
    )
    
    
    (189
    )Proceeds from sale of property
    
    
    
    
    
    
    16,765Changes in restricted cash
    
    
    (300
    )
    
    
    Net cash (used in) provided by investing activities
    
    
    (17,439
    )
    
    
    8,358Cash flows from financing activities:Payments of Credit facility
    
    
    (438,940
    )
    
    
    (3,625
    )Proceeds from Note
    
    
    450,000
    
    
    
    Repurchases of Notes
    
    
    (24,014
    )
    
    
    (16,849
    )Payment of debt issuance costs
    
    
    (10,152
    )
    
    
    Principal payments of capital leases
    
    
    
    
    
    
    (765
    )Net cash used in financing activities
    
    
    (23,106
    )
    
    
    (21,239
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    4,168
    
    
    
    (1,721
    )Net (decrease) increase in cash and cash equivalents
    
    
    (35,734
    )
    
    
    21,303Cash and cash equivalents, at beginning of period
    
    
    255,902
    
    
    
    198,708Cash and cash equivalents, at end of period
    
    
    220,168
    
    
    
    220,011Restricted cash, at end of period
    
    
    25,966
    
    
    
    Cash and cash equivalents and restricted cash, at end of period
    
    $
    246,134
    
    
    $
    220,011Supplemental disclosure of cash flow information:Income taxes paid
    
    $
    4,223
    
    
    $
    2,721Interest paid
    
    
    18,912
    
    
    
    17,838Non-cash investing and financing activities:Property acquired under capital lease
    
    
    
    
    
    
    18,055
  5




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CLAIRES STORES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
     2. Recent Accounting Pronouncements
 Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRSs) .
 6




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3. Fair Value Measurements
 Fair Value Measurement Disclosures
 Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
  Fair Value Measurements at April 30, 2011 UsingQuoted Prices inActive Markets for
    
    
    Significant
    
    
    SignificantIdentical Assets
    
    
    Other Observable
    
    
    Unobservable(Liabilities)
    
    
    Inputs
    
    
    InputsCarrying Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest rate swap
    
    $
    (1,462
    )
    
    $
    
    
    
    $
    (1,462
    )
    
    $
    
 Fair Value Measurements at January 29, 2011 UsingQuoted Prices inActive Markets for
    
    
    Significant
    
    
    SignificantIdentical Assets
    
    
    Other Observable
    
    
    Unobservable(Liabilities)
    
    
    Inputs
    
    
    InputsCarrying Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest rate swaps
    
    $
    (1,165
    )
    
    $
    
    
    
    $
    (1,165
    )
    
    $
    
  Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis
  7




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Financial Instruments Not Measured at Fair Value
   4. Debt
  April 30, 2011
    
    
    January 29, 2011Short-term debt and current portion of long-term debt:Note payable to bank due 2012
    
    $
    62,796
    
    
    $
    57,703Current portion of long-term debt
    
    
    
    
    
    
    18,451Total short-term debt and current portion of long-term debt
    
    $
    62,796
    
    
    $
    76,154Long-term debt:Senior secured term loan facility due 2014
    
    $
    1,154,310
    
    
    $
    1,399,250Senior notes due 2015
    
    
    226,000
    
    
    
    236,000Senior toggle notes due 2015
    
    
    354,857
    
    
    
    360,431Senior subordinated notes due 2017
    
    
    259,612
    
    
    
    259,612Senior secured second lien notes due 2019
    
    
    450,000
    
    
    
    2,444,779
    
    
    
    2,255,293Less: current portion of long-term debt
    
    
    
    
    
    
    (18,451
    )Long-term debt
    
    $
    2,444,779
    
    
    $
    2,236,842Senior secured revolving credit facility due 2013
    
    $
    
    
    
    $
    194,000Obligations under capital leases
    
    $
    17,290
    
    
    $
    17,290
  Short-term Debt
   
 
 8




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Senior Secured Second Lien Notes
  Note Repurchases
  Three Months Ended April 30, 2011Principal
    
    
    Repurchase
    
    
    RecognizedNotes Repurchased
    
    Amount
    
    
    Price
    
    
    Gain (Loss) (1)Senior Notes
    
    $
    10,000
    
    
    $
    9,930
    
    
    $
    (98
    )Senior Toggle Notes
    
    
    14,155
    
    
    
    14,084
    
    
    
    347$
    24,155
    
    
    $
    24,014
    
    
    $
    249
 
 (1)
    
    Net of deferred issuance cost write-offs of $168 for the Senior Notes and $179 for the Senior
Toggle Notes, and accrued interest write-off of $455 for the Senior Toggle Notes. Three Months Ended May 1, 2010Principal
    
    
    Repurchase
    
    
    RecognizedNotes Repurchased
    
    Amount
    
    
    Price
    
    
    Gain (1)Senior Toggle Notes
    
    $
    6,000
    
    
    $
    4,985
    
    
    $
    1,087Senior Subordinated Notes
    
    
    15,625
    
    
    
    11,864
    
    
    
    3,400$
    21,625
    
    
    $
    16,849
    
    
    $
    4,487
 
 (1)
    
    Net of deferred issuance cost write-offs of $104 and $361 for the Senior Toggle Notes and
Senior Subordinated Notes, respectively, and accrued interest write-off of $176 for the Senior
Toggle Notes. Covenants
  
    
    incur additional indebtedness;
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
    
    pay dividends or distributions on our capital stock, repurchase or retire our capital
stock and redeem, repurchase or defease any subordinated indebtedness;
    
    make certain investments;
    
    create or incur certain liens;
    
    create restrictions on the payment of dividends or other distributions to us from our
subsidiaries;
    
    transfer or sell assets;
    
    engage in certain transactions with our affiliates; and
    
    merge or consolidate with other companies or transfer all or substantially all of our
assets.
  5. Derivatives and Hedging Activities
     10




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Location of Gain orAmount of Gain or (Loss)
    
    (Loss) Reclassified
    
    Amount of Gain or (Loss)Derivatives in Cash
    
    Recognized in OCI on
    
    from Accumulated
    
    Reclassified from AccumulatedFlow Hedging
    
    Derivative
    
    OCI into Income
    
    OCI into IncomeRelationships
    
    (Effective Portion)
    
    (Effective Portion)
    
    (Effective Portion) (1)Three months ended
    
    
    
    Three months endedApril 30,
    
    May 1,
    
    
    
    April 30,
    
    May 1,2011
    
    2010
    
    
    
    2011
    
    2010Interest rate swaps
    
    $
    (297
    )
    
    $
    5,159
    
    
    Interest expense, net
    
    $
    (465
    )
    
    $
    (5,332
    )
 
 (1)
    
    Represents reclassification of amounts from accumulated other comprehensive income (loss) to earnings as interest
expense is recognized on the senior secured term loan facility. No ineffectiveness is associated with these interest
rate cash flow hedges.  11




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6. Commitments and Contingencies
   7. Stock Options and Stock-Based Compensation
  Weighted-Weighted-
    
    AverageAverage
    
    RemainingNumber of
    
    Exercise
    
    ContractualShares
    
    Price
    
    Term (Years)Outstanding at January 29, 2011
    
    
    6,860,014
    
    
    $
    10.00Options granted
    
    
    111,500
    
    
    $
    10.00Options exercised
    
    Options forfeited or expired
    
    
    (34,343
    )
    
    $
    10.00Outstanding at April 30, 2011
    
    
    6,937,171
    
    
    $
    10.00
    
    
    
    4.2Options vested and expected to vest at April 30, 2011
    
    
    6,334,811
    
    
    $
    10.00
    
    
    
    4.1Exercisable at April 30, 2011
    
    
    2,264,868
    
    
    $
    10.00
    
    
    
    3.6
   8. Income Taxes
    12




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9. Related Party Transactions
   10. Segment Information
  13




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Three Months
    
    
    Three MonthsEnded
    
    
    EndedApril 30, 2011
    
    
    May 1, 2010Net sales:North America
    
    $
    224,188
    
    
    $
    212,599Europe
    
    
    122,258
    
    
    
    109,478Total net sales
    
    
    346,446
    
    
    
    322,077Depreciation and amortization:North America
    
    
    10,405
    
    
    
    10,507Europe
    
    
    6,649
    
    
    
    5,859Total depreciation and amortization
    
    
    17,054
    
    
    
    16,366Operating income (loss) for reportable segments:North America
    
    
    30,624
    
    
    
    24,403Europe
    
    
    (4,624
    )
    
    
    3,308Total operating income for reportable segments
    
    
    26,000
    
    
    
    27,711Severance and transaction-related costs
    
    
    343
    
    
    
    102Net consolidated operating income
    
    
    25,657
    
    
    
    27,609Gain on early debt extinguishment
    
    
    249
    
    
    
    4,487Interest expense, net
    
    
    46,235
    
    
    
    42,763Net consolidated loss before income tax expense
    
    $
    (20,329
    )
    
    $
    (10,667
    )
   11. Supplemental Financial Information
   14




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Condensed Consolidating Balance SheetApril 30, 2011(in thousands)Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents and restricted cash (1)
    
    $
    160,941
    
    
    $
    (8,002
    )
    
    $
    93,195
    
    
    $
    
    
    
    $
    246,134Inventories
    
    
    
    
    
    
    79,423
    
    
    
    53,814
    
    
    
    
    
    
    
    133,237Prepaid expenses
    
    
    434
    
    
    
    15,171
    
    
    
    19,333
    
    
    
    
    
    
    
    34,938Other current assets
    
    
    11
    
    
    
    16,096
    
    
    
    6,641
    
    
    
    
    
    
    
    22,748Total current assets
    
    
    161,386
    
    
    
    102,688
    
    
    
    172,983
    
    
    
    
    
    
    
    437,057Property and equipment:Furniture, fixtures and equipment
    
    
    3,446
    
    
    
    121,260
    
    
    
    72,271
    
    
    
    
    
    
    
    196,977Leasehold improvements
    
    
    1,071
    
    
    
    143,577
    
    
    
    119,504
    
    
    
    
    
    
    
    264,1524,517
    
    
    
    264,837
    
    
    
    191,775
    
    
    
    
    
    
    
    461,129Less accumulated depreciation and amortization
    
    
    (2,368
    )
    
    
    (155,707
    )
    
    
    (94,571
    )
    
    
    
    
    
    
    (252,646
    )2,149
    
    
    
    109,130
    
    
    
    97,204
    
    
    
    
    
    
    
    208,483Leased property under capital lease:Land and building
    
    
    
    
    
    
    18,055
    
    
    
    
    
    
    
    
    
    
    
    18,055Less accumulated depreciation and amortization
    
    
    
    
    
    
    (1,128
    )
    
    
    
    
    
    
    
    
    
    
    (1,128
    )
    
    
    
    16,927
    
    
    
    
    
    
    
    
    
    
    
    16,927Intercompany receivables
    
    
    
    
    
    
    411,558
    
    
    
    
    
    
    
    (411,558
    )
    
    
    Investment in subsidiaries
    
    
    2,297,149
    
    
    
    (66,467
    )
    
    
    
    
    
    
    (2,230,682
    )
    
    
    Goodwill
    
    
    
    
    
    
    1,235,651
    
    
    
    314,405
    
    
    
    
    
    
    
    1,550,056Intangible assets, net
    
    
    286,000
    
    
    
    8,404
    
    
    
    267,627
    
    
    
    
    
    
    
    562,031Deferred financing costs, net
    
    
    39,960
    
    
    
    
    
    
    
    381
    
    
    
    
    
    
    
    40,341Other assets
    
    
    130
    
    
    
    4,133
    
    
    
    42,554
    
    
    
    
    
    
    
    46,8172,623,239
    
    
    
    1,593,279
    
    
    
    624,967
    
    
    
    (2,642,240
    )
    
    
    2,199,245Total assets
    
    $
    2,786,774
    
    
    $
    1,822,024
    
    
    $
    895,154
    
    
    $
    (2,642,240
    )
    
    $
    2,861,712LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Short-term debt
    
    $
    
    
    
    $
    
    
    
    $
    62,796
    
    
    $
    
    
    
    $
    62,796Trade accounts payable
    
    
    993
    
    
    
    22,771
    
    
    
    36,613
    
    
    
    
    
    
    
    60,377Income taxes payable
    
    
    
    
    
    
    (357
    )
    
    
    8,793
    
    
    
    
    
    
    
    8,436Accrued interest payable
    
    
    29,167
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    29,232Accrued expenses and other current liabilities
    
    
    10,101
    
    
    
    35,426
    
    
    
    43,030
    
    
    
    
    
    
    
    88,557Total current liabilities
    
    
    40,261
    
    
    
    57,840
    
    
    
    151,297
    
    
    
    
    
    
    
    249,398Intercompany payables
    
    
    328,442
    
    
    
    
    
    
    
    83,116
    
    
    
    (411,558
    )
    
    
    Long-term debt
    
    
    2,444,779
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,444,779Revolving credit facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligation under capital lease
    
    
    
    
    
    
    17,290
    
    
    
    
    
    
    
    
    
    
    
    17,290Deferred tax liability
    
    
    
    
    
    
    106,064
    
    
    
    15,415
    
    
    
    
    
    
    
    121,479Deferred rent expense
    
    
    
    
    
    
    17,246
    
    
    
    10,225
    
    
    
    
    
    
    
    27,471Unfavorable lease obligations and other long-term
liabilities
    
    
    
    
    
    
    26,750
    
    
    
    1,253
    
    
    
    
    
    
    
    28,0032,773,221
    
    
    
    167,350
    
    
    
    110,009
    
    
    
    (411,558
    )
    
    
    2,639,022Stockholders equity (deficit):Common stock
    
    
    
    
    
    
    367
    
    
    
    2
    
    
    
    (369
    )
    
    
    Additional paid in capital
    
    
    622,073
    
    
    
    1,435,909
    
    
    
    815,866
    
    
    
    (2,251,775
    )
    
    
    622,073Accumulated other comprehensive income (loss),
net of tax
    
    
    19,846
    
    
    
    5,411
    
    
    
    7,883
    
    
    
    (13,294
    )
    
    
    19,846Retained earnings (accumulated deficit)
    
    
    (668,627
    )
    
    
    155,147
    
    
    
    (189,903
    )
    
    
    34,756
    
    
    
    (668,627
    )(26,708
    )
    
    
    1,596,834
    
    
    
    633,848
    
    
    
    (2,230,682
    )
    
    
    (26,708
    )Total liabilities and stockholders equity (deficit)
    
    $
    2,786,774
    
    
    $
    1,822,024
    
    
    $
    895,154
    
    
    $
    (2,642,240
    )
    
    $
    2,861,712
 
 (1)
    
    Cash and cash equivalents includes restricted cash of $3,750 for Issuer and $22,216 for
Non-Guarantors 15




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##### Table of Contents



Condensed Consolidating Balance SheetJanuary 29, 2011(in thousands)Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents and restricted cash (1)
    
    $
    179,529
    
    
    $
    3,587
    
    
    $
    96,650
    
    
    $
    
    
    
    $
    279,766Inventories
    
    
    
    
    
    
    84,868
    
    
    
    51,280
    
    
    
    
    
    
    
    136,148Prepaid expenses
    
    
    851
    
    
    
    1,680
    
    
    
    18,918
    
    
    
    
    
    
    
    21,449Other current assets
    
    
    
    
    
    
    16,547
    
    
    
    8,111
    
    
    
    
    
    
    
    24,658Total current assets
    
    
    180,380
    
    
    
    106,682
    
    
    
    174,959
    
    
    
    
    
    
    
    462,021Property and equipment:Furniture, fixtures and equipment
    
    
    3,276
    
    
    
    119,228
    
    
    
    64,010
    
    
    
    
    
    
    
    186,514Leasehold improvements
    
    
    1,052
    
    
    
    143,072
    
    
    
    103,906
    
    
    
    
    
    
    
    248,0304,328
    
    
    
    262,300
    
    
    
    167,916
    
    
    
    
    
    
    
    434,544Less accumulated depreciation and amortization
    
    
    (2,205
    )
    
    
    (147,857
    )
    
    
    (83,449
    )
    
    
    
    
    
    
    (233,511
    )2,123
    
    
    
    114,443
    
    
    
    84,467
    
    
    
    
    
    
    
    201,033Leased property under capital lease:Land and building
    
    
    
    
    
    
    18,055
    
    
    
    
    
    
    
    
    
    
    
    18,055Less accumulated depreciation and amortization
    
    
    
    
    
    
    (903
    )
    
    
    
    
    
    
    
    
    
    
    (903
    )
    
    
    
    17,152
    
    
    
    
    
    
    
    
    
    
    
    17,152Intercompany receivables
    
    
    
    
    
    
    366,929
    
    
    
    
    
    
    
    (366,929
    )
    
    
    Investment in subsidiaries
    
    
    2,303,333
    
    
    
    (63,535
    )
    
    
    
    
    
    
    (2,239,798
    )
    
    
    Goodwill
    
    
    
    
    
    
    1,235,651
    
    
    
    314,405
    
    
    
    
    
    
    
    1,550,056Intangible assets, net
    
    
    286,000
    
    
    
    9,294
    
    
    
    262,172
    
    
    
    
    
    
    
    557,466Deferred financing costs, net
    
    
    35,973
    
    
    
    
    
    
    
    461
    
    
    
    
    
    
    
    36,434Other assets
    
    
    130
    
    
    
    3,842
    
    
    
    38,315
    
    
    
    
    
    
    
    42,2872,625,436
    
    
    
    1,552,181
    
    
    
    615,353
    
    
    
    (2,606,727
    )
    
    
    2,186,243Total assets
    
    $
    2,807,939
    
    
    $
    1,790,458
    
    
    $
    874,779
    
    
    $
    (2,606,727
    )
    
    $
    2,866,449LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Short-term debt and current portion of long-term
debt
    
    $
    18,451
    
    
    $
    
    
    
    $
    57,703
    
    
    $
    
    
    
    $
    76,154Trade accounts payable
    
    
    1,199
    
    
    
    24,545
    
    
    
    28,611
    
    
    
    
    
    
    
    54,355Income taxes payable
    
    
    
    
    
    
    644
    
    
    
    11,100
    
    
    
    
    
    
    
    11,744Accrued interest payable
    
    
    16,696
    
    
    
    
    
    
    
    87
    
    
    
    
    
    
    
    16,783Accrued expenses and other current liabilities
    
    
    20,630
    
    
    
    37,910
    
    
    
    48,575
    
    
    
    
    
    
    
    107,115Total current liabilities
    
    
    56,976
    
    
    
    63,099
    
    
    
    146,076
    
    
    
    
    
    
    
    266,151Intercompany payables
    
    
    346,636
    
    
    
    
    
    
    
    20,293
    
    
    
    (366,929
    )
    
    
    Long-term debt
    
    
    2,236,842
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,236,842Revolving credit facility
    
    
    194,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194,000Obligation under capital lease
    
    
    
    
    
    
    17,290
    
    
    
    
    
    
    
    
    
    
    
    17,290Deferred tax liability
    
    
    
    
    
    
    106,797
    
    
    
    14,979
    
    
    
    
    
    
    
    121,776Deferred rent expense
    
    
    
    
    
    
    17,230
    
    
    
    9,407
    
    
    
    
    
    
    
    26,637Unfavorable lease obligations and other long-term
liabilities
    
    
    
    
    
    
    28,889
    
    
    
    1,379
    
    
    
    
    
    
    
    30,2682,777,478
    
    
    
    170,206
    
    
    
    46,058
    
    
    
    (366,929
    )
    
    
    2,626,813Stockholders equity (deficit):Common stock
    
    
    
    
    
    
    367
    
    
    
    2
    
    
    
    (369
    )
    
    
    Additional paid in capital
    
    
    621,099
    
    
    
    1,435,909
    
    
    
    815,866
    
    
    
    (2,251,775
    )
    
    
    621,099Accumulated other comprehensive income (loss),
net of tax
    
    
    1,416
    
    
    
    3,663
    
    
    
    (7,080
    )
    
    
    3,417
    
    
    
    1,416Retained earnings (accumulated deficit)
    
    
    (649,030
    )
    
    
    117,214
    
    
    
    (126,143
    )
    
    
    8,929
    
    
    
    (649,030
    )(26,515
    )
    
    
    1,557,153
    
    
    
    682,645
    
    
    
    (2,239,798
    )
    
    
    (26,515
    )Total liabilities and stockholders equity (deficit)
    
    $
    2,807,939
    
    
    $
    1,790,458
    
    
    $
    874,779
    
    
    $
    (2,606,727
    )
    
    $
    2,866,449
 
 (1)
    
    Cash and cash equivalents includes restricted cash of $3,450 for Issuer and $20,414 for
Non-Guarantors 16




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##### Table of Contents



Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)For The Three Months Ended April 30, 2011(in thousands)Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    209,024
    
    
    $
    137,422
    
    
    $
    
    
    
    $
    346,446Cost of sales, occupancy and buying expenses
    
    
    1,595
    
    
    
    98,449
    
    
    
    71,315
    
    
    
    
    
    
    
    171,359Gross profit
    
    
    (1,595
    )
    
    
    110,575
    
    
    
    66,107
    
    
    
    
    
    
    
    175,087Other expenses:Selling, general and administrative
    
    
    8,188
    
    
    
    62,392
    
    
    
    56,142
    
    
    
    
    
    
    
    126,722Depreciation and amortization
    
    
    181
    
    
    
    9,478
    
    
    
    7,395
    
    
    
    
    
    
    
    17,054Severance and transaction-related costs
    
    
    133
    
    
    
    
    
    
    
    210
    
    
    
    
    
    
    
    343Other (income) expense
    
    
    (3,648
    )
    
    
    436
    
    
    
    8,523
    
    
    
    
    
    
    
    5,3114,854
    
    
    
    72,306
    
    
    
    72,270
    
    
    
    
    
    
    
    149,430Operating income (loss)
    
    
    (6,449
    )
    
    
    38,269
    
    
    
    (6,163
    )
    
    
    
    
    
    
    25,657Gain on early debt extinguishment
    
    
    249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    249Interest expense, net
    
    
    44,230
    
    
    
    531
    
    
    
    1,474
    
    
    
    
    
    
    
    46,235Income (loss) before income taxes
    
    
    (50,430
    )
    
    
    37,738
    
    
    
    (7,637
    )
    
    
    
    
    
    
    (20,329
    )Income tax expense (benefit)
    
    
    
    
    
    
    (1,112
    )
    
    
    380
    
    
    
    
    
    
    
    (732
    )Income (loss) from continuing operations
    
    
    (50,430
    )
    
    
    38,850
    
    
    
    (8,017
    )
    
    
    
    
    
    
    (19,597
    )Equity in earnings of subsidiaries
    
    
    30,833
    
    
    
    (917
    )
    
    
    
    
    
    
    (29,916
    )
    
    
    Net income (loss)
    
    
    (19,597
    )
    
    
    37,933
    
    
    
    (8,017
    )
    
    
    (29,916
    )
    
    
    (19,597
    )Foreign currency translation and interest rate swap
adjustments, net of tax
    
    
    18,431
    
    
    
    1,748
    
    
    
    14,962
    
    
    
    (16,710
    )
    
    
    18,431Comprehensive income (loss)
    
    $
    (1,166
    )
    
    $
    39,681
    
    
    $
    6,945
    
    
    $
    (46,626
    )
    
    $
    (1,166
    )
 Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)For The Three Months Ended May 1, 2010(in thousands)Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    198,592
    
    
    $
    123,485
    
    
    $
    
    
    
    $
    322,077Cost of sales, occupancy and buying expenses
    
    
    1,275
    
    
    
    95,987
    
    
    
    61,489
    
    
    
    
    
    
    
    158,751Gross profit
    
    
    (1,275
    )
    
    
    102,605
    
    
    
    61,996
    
    
    
    
    
    
    
    163,326Other expenses (income):Selling, general and administrative
    
    
    8,432
    
    
    
    61,423
    
    
    
    48,164
    
    
    
    
    
    
    
    118,019Depreciation and amortization
    
    
    132
    
    
    
    9,638
    
    
    
    6,596
    
    
    
    
    
    
    
    16,366Severance and transaction-related costs
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102Other (income) expense
    
    
    (5,875
    )
    
    
    2,254
    
    
    
    4,851
    
    
    
    
    
    
    
    1,2302,791
    
    
    
    73,315
    
    
    
    59,611
    
    
    
    
    
    
    
    135,717Operating income (loss)
    
    
    (4,066
    )
    
    
    29,290
    
    
    
    2,385
    
    
    
    
    
    
    
    27,609Gain on early debt extinguishment
    
    
    4,487
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,487Interest expense, net
    
    
    42,745
    
    
    
    7
    
    
    
    11
    
    
    
    
    
    
    
    42,763Income (loss) before income taxes
    
    
    (42,324
    )
    
    
    29,283
    
    
    
    2,374
    
    
    
    
    
    
    
    (10,667
    )Income tax expense
    
    
    23
    
    
    
    616
    
    
    
    994
    
    
    
    
    
    
    
    1,633Income (loss) from continuing operations
    
    
    (42,347
    )
    
    
    28,667
    
    
    
    1,380
    
    
    
    
    
    
    
    (12,300
    )Equity in earnings of subsidiaries
    
    
    30,047
    
    
    
    (47
    )
    
    
    
    
    
    
    (30,000
    )
    
    
    Net income (loss)
    
    
    (12,300
    )
    
    
    28,620
    
    
    
    1,380
    
    
    
    (30,000
    )
    
    
    (12,300
    )Foreign currency translation and interest rate swap
adjustments, net of tax
    
    
    (2,522
    )
    
    
    9,432
    
    
    
    (9,251
    )
    
    
    (181
    )
    
    
    (2,522
    )Comprehensive income (loss)
    
    $
    (14,822
    )
    
    $
    38,052
    
    
    $
    (7,871
    )
    
    $
    (30,181
    )
    
    $
    (14,822
    )
 17




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##### Table of Contents



Condensed Consolidating Statement of Cash FlowsThree Months Ended April 30, 2011(in thousands)Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (19,597
    )
    
    $
    37,933
    
    
    $
    (8,017
    )
    
    $
    (29,916
    )
    
    $
    (19,597
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (30,833
    )
    
    
    917
    
    
    
    
    
    
    
    29,916
    
    
    
    Depreciation and amortization
    
    
    181
    
    
    
    9,478
    
    
    
    7,395
    
    
    
    
    
    
    
    17,054Amortization of lease rights and other assets
    
    
    
    
    
    
    
    
    
    
    785
    
    
    
    
    
    
    
    785Amortization of debt issuance costs
    
    
    5,751
    
    
    
    
    
    
    
    148
    
    
    
    
    
    
    
    5,899Payment of in kind interest expense
    
    
    9,035
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,035Foreign currency exchange net loss on Euro Loan
    
    
    
    
    
    
    
    
    
    
    3,292
    
    
    
    
    
    
    
    3,292Net accretion of favorable (unfavorable) lease
obligations
    
    
    
    
    
    
    (430
    )
    
    
    155
    
    
    
    
    
    
    
    (275
    )Loss on sale/retirement of property and equipment, net
    
    
    
    
    
    
    32
    
    
    
    16
    
    
    
    
    
    
    
    48Gain on early debt extinguishment
    
    
    (249
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (249
    )Stock compensation expense
    
    
    785
    
    
    
    
    
    
    
    189
    
    
    
    
    
    
    
    974(Increase) decrease in:Inventories
    
    
    
    
    
    
    5,445
    
    
    
    1,238
    
    
    
    
    
    
    
    6,683Prepaid expenses
    
    
    417
    
    
    
    (13,491
    )
    
    
    1,234
    
    
    
    
    
    
    
    (11,840
    )Other assets
    
    
    (11
    )
    
    
    (575
    )
    
    
    (123
    )
    
    
    
    
    
    
    (709
    )Increase (decrease) in:Trade accounts payable
    
    
    (207
    )
    
    
    (1,121
    )
    
    
    5,021
    
    
    
    
    
    
    
    3,693Income taxes payable
    
    
    
    
    
    
    (1,001
    )
    
    
    (2,846
    )
    
    
    
    
    
    
    (3,847
    )Accrued interest payable
    
    
    12,470
    
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    12,396Accrued expenses and other liabilities
    
    
    (10,825
    )
    
    
    (2,483
    )
    
    
    (8,576
    )
    
    
    
    
    
    
    (21,884
    )Deferred income taxes
    
    
    
    
    
    
    (1,116
    )
    
    
    87
    
    
    
    
    
    
    
    (1,029
    )Deferred rent expense
    
    
    
    
    
    
    16
    
    
    
    198
    
    
    
    
    
    
    
    214Net cash provided by (used in) operating activities
    
    
    (33,083
    )
    
    
    33,604
    
    
    
    122
    
    
    
    
    
    
    
    643Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (208
    )
    
    
    (4,598
    )
    
    
    (10,986
    )
    
    
    
    
    
    
    (15,792
    )Acquisition of intangible assets/lease rights
    
    
    
    
    
    
    (7
    )
    
    
    (1,340
    )
    
    
    
    
    
    
    (1,347
    )Changes in restricted cash
    
    
    (300
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300
    )Net cash used in investing activities
    
    
    (508
    )
    
    
    (4,605
    )
    
    
    (12,326
    )
    
    
    
    
    
    
    (17,439
    )Cash flows from financing activities:Payments of Credit facility
    
    
    (438,940
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (438,940
    )Proceeds from Note
    
    
    450,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450,000Repurchases of Notes
    
    
    (24,014
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,014
    )Payment of debt issuance costs
    
    
    (10,085
    )
    
    
    
    
    
    
    (67
    )
    
    
    
    
    
    
    (10,152
    )Intercompany activity, net
    
    
    37,742
    
    
    
    (44,629
    )
    
    
    6,887
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    14,703
    
    
    
    (44,629
    )
    
    
    6,820
    
    
    
    
    
    
    
    (23,106
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    4,041
    
    
    
    127
    
    
    
    
    
    
    
    4,168Net increase (decrease) in cash and cash equivalents
    
    
    (18,888
    )
    
    
    (11,589
    )
    
    
    (5,257
    )
    
    
    
    
    
    
    (35,734
    )Cash and cash equivalents, at beginning of period
    
    
    176,079
    
    
    
    3,587
    
    
    
    76,236
    
    
    
    
    
    
    
    255,902Cash and cash equivalents, at end of period
    
    
    157,191
    
    
    
    (8,002
    )
    
    
    70,979
    
    
    
    
    
    
    
    220,168Restricted cash, at end of period
    
    
    3,750
    
    
    
    
    
    
    
    22,216
    
    
    
    
    
    
    
    25,966Cash and cash equivalents and restricted cash, at end of period
    
    $
    160,941
    
    
    $
    (8,002
    )
    
    $
    93,195
    
    
    $
    
    
    
    $
    246,134
 18




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##### Table of Contents



Condensed Consolidating Statement of Cash FlowsThree Months Ended May 1, 2010(in thousands)Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (12,300
    )
    
    $
    28,620
    
    
    $
    1,380
    
    
    $
    (30,000
    )
    
    $
    (12,300
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (30,047
    )
    
    
    47
    
    
    
    
    
    
    
    30,000
    
    
    
    Depreciation and amortization
    
    
    132
    
    
    
    9,638
    
    
    
    6,596
    
    
    
    
    
    
    
    16,366Amortization of lease rights and other assets
    
    
    
    
    
    
    13
    
    
    
    1,015
    
    
    
    
    
    
    
    1,028Amortization of debt issuance costs
    
    
    2,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,535Payment of in kind interest expense
    
    
    9,651
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,651Net accretion of favorable (unfavorable) lease
obligations
    
    
    
    
    
    
    (571
    )
    
    
    95
    
    
    
    
    
    
    
    (476
    )Loss on sale/retirement of property and equipment, net
    
    
    
    
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    236Gain on early debt extinguishment
    
    
    (4,487
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,487
    )Stock compensation expense
    
    
    917
    
    
    
    
    
    
    
    303
    
    
    
    
    
    
    
    1,220(Increase) decrease in:Inventories
    
    
    
    
    
    
    2,610
    
    
    
    (3,402
    )
    
    
    
    
    
    
    (792
    )Prepaid expenses
    
    
    (96
    )
    
    
    137
    
    
    
    1,398
    
    
    
    
    
    
    
    1,439Other assets
    
    
    1,197
    
    
    
    4,684
    
    
    
    171
    
    
    
    
    
    
    
    6,052Increase (decrease) in:Trade accounts payable
    
    
    (373
    )
    
    
    1,081
    
    
    
    3,091
    
    
    
    
    
    
    
    3,799Income taxes payable
    
    
    
    
    
    
    96
    
    
    
    (2,425
    )
    
    
    
    
    
    
    (2,329
    )Accrued interest payable
    
    
    12,727
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,727Accrued expenses and other liabilities
    
    
    (2,535
    )
    
    
    43
    
    
    
    2,467
    
    
    
    
    
    
    
    (25
    )Deferred income taxes
    
    
    
    
    
    
    504
    
    
    
    (30
    )
    
    
    
    
    
    
    474Deferred rent expense
    
    
    (107
    )
    
    
    694
    
    
    
    200
    
    
    
    
    
    
    
    787Net cash provided by (used in) operating activities
    
    
    (22,786
    )
    
    
    47,832
    
    
    
    10,859
    
    
    
    
    
    
    
    35,905Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (26
    )
    
    
    (3,052
    )
    
    
    (5,140
    )
    
    
    
    
    
    
    (8,218
    )Acquisition of intangible assets/lease rights
    
    
    
    
    
    
    (58
    )
    
    
    (131
    )
    
    
    
    
    
    
    (189
    )Proceeds from sale of property
    
    
    
    
    
    
    16,765
    
    
    
    
    
    
    
    
    
    
    
    16,765Net cash provided by (used in) investing activities
    
    
    (26
    )
    
    
    13,655
    
    
    
    (5,271
    )
    
    
    
    
    
    
    8,358Cash flows from financing activities:Payments of Credit facility
    
    
    (3,625
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,625
    )Repurchases of Notes
    
    
    (16,849
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,849
    )Principal payments of capital leases
    
    
    
    
    
    
    (765
    )
    
    
    
    
    
    
    
    
    
    
    (765
    )Intercompany activity, net
    
    
    78,855
    
    
    
    (60,818
    )
    
    
    (18,037
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    58,381
    
    
    
    (61,583
    )
    
    
    (18,037
    )
    
    
    
    
    
    
    (21,239
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    2,214
    
    
    
    (3,935
    )
    
    
    
    
    
    
    (1,721
    )Net increase (decrease) in cash and cash equivalents
    
    
    35,569
    
    
    
    2,118
    
    
    
    (16,384
    )
    
    
    
    
    
    
    21,303Cash and cash equivalents, at beginning of period
    
    
    109,138
    
    
    
    (10,604
    )
    
    
    100,174
    
    
    
    
    
    
    
    198,708Cash and cash equivalents, at end of period
    
    
    144,707
    
    
    
    (8,486
    )
    
    
    83,790
    
    
    
    
    
    
    
    220,011Restricted cash, at end of period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash and cash equivalents and restricted cash, at end of period
    
    $
    144,707
    
    
    $
    (8,486
    )
    
    $
    83,790
    
    
    $
    
    
    
    $
    220,011
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   19




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##### Table of Contents



Business Overview
 ® ®
       
    
    Accessories  includes fashion accessories for year-round use, including legwear,
headwear, attitude glasses, scarves, armwear and belts, and seasonal use, including
sunglasses, hats, fall footwear, sandals, scarves, gloves, boots, slippers and earmuffs;
and other accessories, including hairgoods, handbags, and small leather goods, as well as
cosmetics
    
    Jewelry  includes earrings, necklaces, bracelets, body jewelry and rings, as well as
ear piercing
  20




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##### Table of Contents



Current Market Conditions
  Consolidated Results of Operations
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedApril 30, 2011
    
    
    May 1, 2010Net sales
    
    $
    346,446
    
    
    $
    322,077Increase in same store sales
    
    
    3.2
    %
    
    
    7.6
    %Gross profit percentage
    
    
    50.5
    %
    
    
    50.7
    %Selling, general and administrative expenses as a percentage of net sales
    
    
    36.6
    %
    
    
    36.6
    %Depreciation and amortization as a percentage of net sales
    
    
    4.9
    %
    
    
    5.1
    %Operating income
    
    $
    25,657
    
    
    $
    27,609Gain on early debt extinguishment
    
    $
    249
    
    
    $
    4,487Net loss
    
    $
    (19,597
    )
    
    $
    (12,300
    )Number of stores at the end of the period (1)
    
    
    3,000
    
    
    
    2,955
 
 (1)
    
    Number of stores excludes stores operated under franchise and licensing agreements. Net sales
    Percentage of TotalThree Months
    
    
    Three MonthsEnded
    
    
    EndedProduct Category
    
    April 30, 2011
    
    
    May 1, 2010Accessories
    
    
    52.4
    
    
    
    52.1Jewelry
    
    
    47.6
    
    
    
    47.9100.0
    
    
    
    100.0
 21




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##### Table of Contents



Gross profit
   Selling, general and administrative expenses
  Depreciation and amortization expense
  Gain on early debt extinguishment
  Three Months Ended April 30, 2011RecognizedPrincipal
    
    
    Repurchase
    
    
    GainNotes Repurchased
    
    Amount
    
    
    Price
    
    
    (Loss) (1)Senior Notes
    
    $
    10,000
    
    
    $
    9,930
    
    
    $
    (98
    )Senior Toggle Notes
    
    
    14,155
    
    
    
    14,084
    
    
    
    347$
    24,155
    
    
    $
    24,014
    
    
    $
    249
 (1)
    
    Net of deferred issuance cost write-offs of $168 for the Senior Notes and $179 for the Senior
Toggle Notes, and accrued interest write-off of $455 for the Senior Toggle Notes.
 Three Months Ended May 1, 2010Principal
    
    
    Repurchase
    
    
    RecognizedNotes Repurchased
    
    Amount
    
    
    Price
    
    
    Gain (1)Senior Toggle Notes
    
    $
    6,000
    
    
    $
    4,985
    
    
    $
    1,087Senior Subordinated Notes
    
    
    15,625
    
    
    
    11,864
    
    
    
    3,400$
    21,625
    
    
    $
    16,849
    
    
    $
    4,487
 
 (1)
    
    Net of deferred issuance cost write-offs of $104 and $361 for the Senior Toggle Notes and
Senior Subordinated Notes, respectively, and accrued interest write-off of $176 for the Senior
Toggle Notes. 22




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##### Table of Contents



Other expense (income), net
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedApril 30, 2011
    
    
    May 1, 2010Foreign currency exchange loss, net
    
    $
    5,949
    
    
    $
    785Equity loss
    
    
     ̄
    
    
    
    1,116Royalty income
    
    
    (389
    )
    
    
    (191
    )Other income
    
    
    (249
    )
    
    
    (480
    )$
    5,311
    
    
    $
    1,230
  Interest expense, net
  Income taxes
  Segment Operations
  North America
  Three Months
    
    Three MonthsEnded
    
    EndedApril 30, 2011
    
    May 1, 2010Net sales
    
    $
    224,188
    
    
    $
    212,599Increase in same store sales
    
    
    4.8
    %
    
    
    8.9
    %Gross profit percentage
    
    
    52.5
    %
    
    
    51.7
    %Number of stores at the end of the period (1)
    
    
    1,960
    
    
    
    1,990
 
 (1)
    
    Number of stores excludes stores operated under franchise and licensing agreements. 23




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##### Table of Contents



Percentage of TotalThree Months
    
    Three MonthsEnded
    
    EndedProduct Category
    
    April 30, 2011
    
    May 1, 2010Accessories
    
    
    46.7
    
    
    
    47.3Jewelry
    
    
    53.3
    
    
    
    52.7100.0
    
    
    
    100.0
 Europe
  Three Months
    
    Three MonthsEnded
    
    EndedApril 30, 2011
    
    May 1, 2010Net sales
    
    $
    122,258
    
    
    $
    109,478Increase in same store sales
    
    
    0.1
    %
    
    
    5.0
    %Gross profit percentage
    
    
    47.0
    %
    
    
    48.8
    %Number of stores at the end of the period (1)
    
    
    1,040
    
    
    
    965
 
 (1)
    
    Number of stores excludes stores operated under franchise and licensing agreements.    24




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##### Table of Contents



Percentage of TotalThree Months
    
    Three MonthsEnded
    
    EndedProduct Category
    
    April 30, 2011
    
    May 1, 2010Accessories
    
    
    62.5
    
    
    
    61.3Jewelry
    
    
    37.5
    
    
    
    38.7100.0
    
    
    
    100.0
 Liquidity and Capital Resources
  Three Months
    
    Three MonthsEnded
    
    EndedApril 30, 2011
    
    May 1, 2010Operating activities
    
    $
    643
    
    
    $
    35,905Investing activities
    
    
    (17,439
    )
    
    
    8,358Financing activities
    
    
    (23,106
    )
    
    
    (21,239
    )
 Cash flows from operating activities
  Cash flows from investing activities
  Cash flows from financing activities
   25




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##### Table of Contents



Cash Position
   Short-term Debt
   
 
 Senior Secured Second Lien Notes
  26




---



##### Table of Contents



Credit Facility
  European Credit Facilities
  Covenants
  
    
    incur additional indebtedness;
    
    pay dividends or distributions on our capital stock, repurchase or retire our capital
stock and redeem, repurchase or defease any subordinated indebtedness;
    
    make certain investments;
    
    create or incur certain liens;
    
    create restrictions on the payment of dividends or other distributions to us from our
subsidiaries;
    
    transfer or sell assets;
    
    engage in certain transactions with our affiliates; and
    
    merge or consolidate with other companies or transfer all or substantially all of our
assets.
  Critical Accounting Policies and Estimates
  Recent Accounting Pronouncements
  27




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##### Table of Contents



Cautionary Note Regarding Forward-Looking Statements and Risk Factors
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Cash and Cash Equivalents
  28




---



##### Table of Contents



Interest Rates
    Foreign Currency
   29




---



##### Table of Contents



General Market Risk
  
 Item 4.
    
    Controls and Procedures
     30




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 6.
    
    Exhibits
 31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a).31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a).32.1
    
    
    Certification of 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 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 of Part II are not applicable and have been omitted.
 31




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##### Table of Contents



SIGNATURES
  CLAIRES STORES, INC.June 6, 2011
    By:
    /s/ Eugene S. KahnEugene S. Kahn, Chief Executive Officer(principal executive officer) June 6, 2011
    By:
    /s/ J. Per BrodinJ. Per Brodin, Executive Vice President andChief Financial Officer (principal financial and
accounting officer) 
 32




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##### Table of Contents



INDEX TO EXHIBITS
 EXHIBIT NO.
    
    DESCRIPTION31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).32.1
    
    Certification of Chief Executive Officer pursuant to 18 USC Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 USC Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 33