UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

 

FORM 10-K

 

 

CHRISTOPHER & BANKS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, par value $.01 per share

 

 

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   ý       NO   o

 

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

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
YES   ý       NO   o

 

The aggregate market value of the Common Stock, par value $0.01 per share, held by non-affiliates of the registrant as of August 31, 2002 was approximately $706,377,358 based on the closing price of such stock as quoted on the New York Stock Exchange ($29.10) on such date.

 

The number of shares outstanding of the registrant’s Common Stock, par value $0.01 per share, was 24,804,637 as of May 9, 2003.

 

DOCUENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held July 30, 2003
(the “Proxy Statement”) are incorporated by reference into Part III.

 

 

CHRISTOPHER & BANKS CORPORATION

 

2003 FORM 10-K ANNUAL REPORT

 

TABLE OF CONTENTS

 

		Page
PART I
Item 1.	Business	1
Item 2.	Properties	4
Item 3.	Legal Proceedings	6
Item 4.	Submission of Matters to a Vote of Security Holders	6
Item 4a.	Executive Officers of the Registrant	7
PART II
Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters	9
Item 6.	Selected Consolidated Financial Data	10
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 7a.	Quantitative and Qualitative Disclosure About Market Risk	19
Item 8.	Consolidated Financial Statements and Supplementary Data	20
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	37
PART III
Item 10.	Directors and Executive Officers of the Registrant	37
Item 11.	Executive Compensation	37
Item 12.	Security Ownership of Certain Beneficial Owners and Management	37
Item 13.	Certain Relationships and Related Transactions	37
Item 14.	Controls and Procedures	38
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	38
	Signatures	40
	Certification of Chief Executive Officer	41
	Certification of Chief Financial Officer	42

 

 

PART I

ITEM 1.

BUSINESS

General

Christopher & Banks Corporation is a Minneapolis-based retailer of women’s specialty apparel, which operates retail stores through its wholly-owned subsidiaries, Christopher & Banks, Inc. and Christopher & Banks Company, collectively referred to as “Christopher & Banks” or the “Company”.  As of May 9, 2003, the Company operated 466 stores in 41 states including 348 Christopher & Banks, 103 C.J. Banks and 15 Braun’s stores.  The Company’s Christopher & Banks and Braun’s stores offer distinctive fashions featuring exclusively designed, coordinated assortments of sportswear, sweaters and casual dresses in sizes four to 16. The Company’s C.J. Banks stores offer similar assortments of women’s specialty apparel in sizes 14W and up.

 

During the fiscal year ended March 1, 2003 (“fiscal 2003”), the Company opened 58 Christopher & Banks stores and 36 C.J. Banks stores.  The Company closed seven stores during fiscal 2003.  In fiscal 2004, the Company plans to open approximately 100 new stores including 70 Christopher & Banks stores and 30 C.J. Banks stores.  The Company anticipates it will open approximately 34 stores in the first quarter, 26 stores in the second quarter and 40 stores in the third quarter of fiscal 2004.  Approximately 40 of the 100 new stores planned to open in fiscal 2004 will be located in Tennessee, Missouri, North Carolina, Pennsylvania, Wisconsin and Michigan.  The Company intends to continue growing its store base by 20% annually, including approximately 105 new stores in fiscal 2005 and 125 new stores in fiscal 2006.

 

Fiscal 2003 Events

On July 17, 2002, the Company listed its common stock on the New York Stock Exchange and began trading under the symbol “CBK”.  Prior to July 17, 2002, the Company’s common stock was traded on the Nasdaq Stock Market under the symbol “CHBS”.

 

In February 2003, the Company’s Board of Directors authorized a stock repurchase program enabling the Company to purchase up to $20 million of its common stock, subject to market conditions.  As of May 9, 2003, the Company purchased 1,072,000 shares of its common stock under this program at a total cost, including commissions, of approximately $17.3 million.  The common stock purchased is being held in treasury and reduced the number of shares of the Company’s outstanding common stock by approximately 4%.

 

Business Strategy

The Company’s business strategy is to provide its target customer with high quality, moderately-priced, coordinated ensembles that are interchangeable between work and leisure activities; to differentiate itself from its competitors through its focused merchandising approach, including an emphasis on private brand merchandise designed and manufactured exclusively for the Company under its proprietary names, Christopher & Banks and C.J. Banks; to utilize information systems to effectively manage its merchandise inventories; and to expand its store base and maintain updated, attractive store locations.

 

The key elements of the Company’s strategy are as follows:

 

•                  Focus on a target customer and meet her needs

•                  Deliver a well defined merchandise assortment

•                  Use information systems to drive decision making and maintain disciplined inventory management

•                  Expand store base in existing and new markets

•                  Grow through development of new concepts

 

Focus on a target customer and meet her needs.  Christopher & Banks’ target customer is a 35 to 55 year old working woman with an annual family income of $50,000 and above.  Management believes this target customer leads a busy life, shops in regional malls and purchases fashions which are suitable for both work and leisure activities.

 

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The Company utilizes point-of-sale inventory tracking to analyze the buying patterns of its customers. Christopher & Banks also uses a product testing program to identify consumer demand for clothing styles, designs and colors. This test and reorder philosophy gives the Company the ability to offer proven best sellers throughout a selling season. The Company’s objective is to be recognized by its target customer as offering quality fashions at moderate prices. Christopher & Banks differentiates itself from other women’s specialty apparel retailers through offering a merchandise assortment that is characterized by novelty designs with many featuring seasonal themes.

 

Deliver a well defined merchandising assortment. In fiscal 2003, the Company’s lines of merchandise included three principal categories: sportswear, sweaters and dresses. The Company discontinued the sale of most accessories in fiscal 2001.  Selling space previously allocated to accessories was shifted to higher margin merchandise categories of sweaters and sportswear.  The following table sets forth the approximate percentage of net sales attributable to each merchandise group for the past three fiscal years.

 

 

The Company has developed a variety of strategies and programs to distinguish itself from its competitors. Major elements of its merchandising strategy include:

 

Strong Visual Merchandise Presentation. The Company relies heavily on attracting mall traffic through appealing visual presentation.  Christopher & Banks carefully designs front-of-store displays to draw customers into its stores.  The visual program emphasizes attractive window displays focusing attention on current merchandise styles and a brightly lit, open store entrance area.  To keep its fashions fresh, Christopher & Banks introduces six different color stories each year.  Merchandise from each color story is featured in the Company’s stores for approximately 12 to 16 weeks.  Each color story has a two to four week build-up period in the back of the store.  The color story is then featured in the front of the store for approximately eight weeks.  Remaining merchandise from the color story is then moved to the back of the store for a two to four week liquidation phase.

 

Direct Import Program.  During fiscal 2003, the Company directly imported approximately 95% of its total merchandise purchases. The Company anticipates that direct imports, as a percent of total purchases, will be approximately the same in fiscal 2004. Management believes direct importing allows Christopher & Banks to obtain high quality merchandise at a lower cost. This in turn provides the Company with the ability to sell garments, comparable in quality and design to those sold in department stores, at a lower price.

 

Private Brand Clothing — Christopher & Banks, C.J. Banks.  The use of private brand clothing produced exclusively for the Company creates a unique store identity and establishes a competitive “point of difference”. The Company’s design staff, guided by its merchants, continually develops new designs for the Company’s private brand merchandise.  The Company uses its proprietary names, Christopher & Banks and C.J. Banks, for its private brand clothing.  Sales of private brand clothing comprised substantially all of the Company’s sales in fiscal 2003 and 2002.  The Company anticipates private brand clothing will account for substantially all of its sales again in fiscal 2004.

 

Key Vendor Relationships. The Company’s ongoing relationships with key vendors have enabled it to exclusively feature its private brand offerings in order to project a merchandising point of difference.  Key vendor relationships also allow the Company to execute a timely product testing and reorder program which gives Christopher & Banks the ability to feature best selling styles throughout a selling season.

 

Quality Assurance. The Company employs a variety of quality control measures including color, fabric and construction analysis and sizing verification, to ensure that all merchandise meets the Company’s quality standards.

 

2

 

Use information systems to drive decision making and maintain disciplined inventory management.  The Company’s merchandise and financial information systems are updated daily with information from the Company’s point-of-sale registers.  Management believes these systems provide detailed merchandise planning, sales tracking and analysis capabilities. The Company also believes the merchandise information systems provide distribution center processing, planning and allocation features which allow the Company to efficiently manage its merchandise assortment at its stores.

 

The Company also utilizes a cost-effective program to efficiently deliver merchandise on a daily basis from the Company’s distribution center to each of its stores.  Through using its systems effectively, inventories can be maintained at an efficient level throughout the year, which ensures a consistent flow of fresh merchandise to the stores and enables the Company to keep the aging of its inventory current.  The Company’s retail inventory turn-over was 4.7, 4.6 and 4.7 times in fiscal 2003, 2002 and 2001, respectively.

 

Expand store base in existing and new markets.   The Company plans to expand its store base by approximately 100 stores in fiscal 2004, including 70 Christopher & Banks stores and 30 C.J. Banks stores.  The Company anticipates it will open approximately 34 stores in the first quarter, 26 stores in the second quarter and 40 stores in the third quarter of fiscal 2004.  Approximately 40 of the 100 new stores planned to open in fiscal 2004 will be located in Tennessee, Missouri, North Carolina, Pennsylvania, Wisconsin and Michigan.  The highest concentration of new Christopher & Banks stores will open in Tennessee, North Carolina and Pennsylvania, while the new C.J. Banks stores will be concentrated most heavily in Missouri, Wisconsin and Michigan.  The Company intends to continue growing its store base by 20% annually, including approximately 105 new stores in fiscal 2005 and 125 new stores in fiscal 2006.

 

Expand through developing new concepts.  The Company intends to continue to evaluate different growth vehicles and new opportunities as it deems appropriate.  Accordingly, in fiscal 2001 the Company launched a new concept opening stores under the name C.J. Banks.  These stores serve the women’s large size market by offering coordinated assortments of exclusively designed sportswear, sweaters and dresses in sizes 14W and up.  In connection with this strategy, the Company developed a new C.J. Banks store prototype which is similar to, but slightly larger than, its Christopher & Banks store design.  The Company continued to grow the C.J. Banks concept by opening 36 stores in fiscal 2003 and plans to open approximately 30 additional C.J. Banks stores in fiscal 2004.  As of May 9, 2003, the Company operated 103 C.J. Banks stores.

 

Properties

The Company has developed an updated store design which has been used for new and remodeled stores since the beginning of fiscal 1998.  As of May 9, 2003, 409 of the Company’s 466 stores utilized this design.  The Company plans to continue to use this design for its new stores and remodeled stores.  This store design is open and inviting, which enables the Company to deliver a focused merchandise presentation to its customers.  With attractive decor and bright lighting, the Company’s customers enjoy a fun and exciting shopping atmosphere.  The Company typically effects a major or a minor remodeling of a store following renewal of the store’s lease.  However, during the interim, carpet replacement, painting and other minor improvements are made as needed.  The Company completed 13 store remodels in fiscal 2003 and plans to complete approximately 20 store remodels in fiscal 2004.

 

Store Operations

The Company manages its stores in a manner that encourages participation by the store manager and employees in the execution of the Company’s business and operational strategies.  Each store has a manager who is responsible for the day-to-day operations of the store.  Store managers complete a management training program and are eligible for Company incentive awards based upon exceeding planned store sales volume.

 

Purchasing/Sources of Supply

Direct imports accounted for approximately 95% of the Company’s total merchandise purchases in fiscal 2003.  During fiscal 2003, the Company purchased substantially all of its merchandise from 80 vendors and the Company’s ten largest vendors provided approximately 75% of the Company’s purchases.  In addition, purchases from the Company’s largest overseas supplier accounted for approximately 43% of total purchases, compared to 41% in fiscal 2002.

 

Although the Company believes that its relationship with its largest vendor is good, there can be no assurance that this relationship can be maintained in the future or that the vendor will continue to supply merchandise to the Company.  If there should be any significant disruption in the supply of merchandise from this vendor, management believes that it can shift to other suppliers so as to continue to secure the required volume of

 

3

 

product.  Nevertheless, there is some potential that any such disruption in supply could have a material adverse impact on the Company’s financial position and results of operations.  The Company intends to directly import approximately 95% of its purchases again in fiscal 2004.

 

Advertising and Promotion

Historically, the Company has not engaged in significant television, radio or print advertising.  Instead, the Company capitalizes on mall traffic at most of its locations.  To draw customers into its stores, the Company emphasizes attractive front-of-store displays and an open, clean, in-store visual presentation which focus attention on the Company’s merchandise.

 

The Company maintains internet websites at www.christopherandbanks.com and www.cjbanks.com.  The Company’s websites showcase current Christopher & Banks and C.J. Banks fashions and are updated six times annually with the change of merchandise color stories.  The websites also contain information about the Company’s business and history, investor relations, employment opportunities and store locations.  At this time the Company does not offer on-line purchasing of merchandise or gift certificates through its websites.

 

Seasonality

The Company’s sales show seasonal variation as sales in the third and fourth quarters, which include the fall and holiday seasons, have generally been higher than sales in the first and second quarters.  Sales generated during the fall and holiday seasons have a significant impact on the Company’s annual results of operations.

 

Competition

The women’s retail apparel business is highly competitive.  The Company believes that the principal bases upon which it competes are unique merchandise selection, quality garment construction, store location, visual merchandise presentation and customer service.  The Company competes with a broad range of national and regional retail chains that sell similar merchandise, including department stores and specialty stores.  Many of these competitors are larger and have greater financial resources than the Company.  The Company believes that its unique merchandise selection, strong visual presentation, product quality, and customer service enable the Company to compete effectively.

 

Employees

As of May 9, 2003, the Company had approximately 1,500 full-time and 3,000 part-time employees. The number of part-time employees increases during peak selling periods. None of the Company’s employees are represented by a labor union or are subject to a collective bargaining agreement. The Company has never experienced a work stoppage and considers its relationship with its employees to be good.

 

Trademarks and Service Marks

The Company is the owner of the federally registered trademark and service mark “Christopher & Banks” which is its predominant private brand, “C.J. Banks”, its large size private brand, and “Braun’s” with respect to articles of apparel. Common law rights have been established by the Company in other trademarks and service marks which it considers to be of lesser importance. Christopher & Banks believes its primary marks are important to its business and are recognized in the women’s retail apparel industry. Accordingly, the Company intends to maintain its marks and the related registrations.  Management is not aware of any challenges to the Company’s right to use its marks in the United States.

 

ITEM 2.

PROPERTIES

 

Store Locations

The Company’s stores are located primarily in regional shopping malls in mid-sized cities and suburban areas, which offer high-traffic by potential walk-in customers.  Approximately 85% of the Company’s stores are located in enclosed regional malls that typically have numerous specialty stores and two or more general merchandise chains or department stores as anchor tenants.  The rest of the Company’s stores are located in lifestyle, community and strip shopping centers.  The Company attempts to locate its stores strategically within the mall or shopping center to attract walk-in customers through attractive visual displays. The average store size is approximately 3,400 square feet, of which the Company estimates approximately 85% is selling space.

 

4

 

At May 9, 2003, the Company operated 466 stores in the following states:

 

State		Number of Christopher & Banks/ Braun’s Stores		Number of C.J. Banks Stores		Total Stores
Alabama		1		—		1
Arizona		3		—		3
Arkansas		3		—		3
California		1		—		1
Colorado		16		4		20
Connecticut		2		—		2
Florida		4		—		4
Georgia		2		—		2
Idaho		5		1		6
Illinois		16		7		23
Indiana		15		6		21
Iowa		24		6		30
Kansas		9		2		11
Kentucky		2		1		3
Maine		1		—		1
Maryland		2