UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ý ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 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 No. 0-19972
(Exact name of registrant as specified in its charter)
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Delaware |
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06 - 1195422 |
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(State or other jurisdiction
of |
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(I.R.S. Employer |
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2400 Xenium Lane North, Plymouth, Minnesota |
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55441 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (763) 551-5000
Securities registered pursuant to Section 12(b) of the Act: None
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 30, 2003, was approximately $1,082,403,402 based on the closing price of such stock as quoted on the New York Stock Exchange ($29.70) on such date.
The number of shares outstanding of the registrant’s Common Stock, par value $0.01 per share, was 37,570,965 as of April 30, 2004 (excluding treasury shares of 4,696,500).
DOCMUENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held July 28, 2004 (the “Proxy Statement”) are incorporated by reference into Part III.
CHRISTOPHER & BANKS CORPORATION
2004 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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 April 30, 2004, the Company operated 556 stores in 42 states including 426 Christopher & Banks stores and 130 C.J. Banks stores. The Company’s Christopher & Banks 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 February 28, 2004 (“fiscal 2004”), the Company opened 68 Christopher & Banks stores and 29 C.J. Banks stores. The Company closed one store during fiscal 2004. The Company intends to open approximately 100 new stores in fiscal 2005 and 115 to 120 new stores in fiscal 2006.
Fiscal 2004 Events
In July 2003, the Company’s Board of Directors approved a 3-for-2 stock split payable in the form of a stock dividend on the Company’s outstanding common stock. The record date was August 13, 2003 and the stock dividend was distributed on August 27, 2003. The Company previously distributed 3-for-2 stock splits on December 14, 1999, July 11, 2000, February 12, 2001 and December 12, 2001. Share and per share data contained within this Form 10-K have been restated to reflect the effect of the stock splits.
In September 2003, the Company’s Board of Directors declared the Company’s first cash dividend. The declaration provides for an on-going cash dividend of $0.04 per share to be paid quarterly, subject to Board approval. Quarterly dividends were paid on October 6, 2003, January 6, 2004 and April 6, 2004 to shareholders of record as of September 19, 2003, December 18, 2003 and March 19, 2004, respectively.
The Company’s Board of Directors authorized a stock repurchase program in February 2003, enabling the Company to purchase up to $20 million of its common stock, subject to market conditions. During February and March 2003, the Company purchased a total of 1,608,000 shares of its common stock for a total cost, including commissions, of approximately $17.3 million. This stock repurchase authorization expired in February 2004.
In February 2004, the Company’s Board of Directors authorized another stock repurchase program. This program allows the Company to purchase up to $25 million of its common stock, subject to market conditions. As of April 30, 2004, the Company purchased a total of 294,000 shares of its common stock for a total cost, including commissions, of approximately $4.9 million, leaving $20.1 million available under the current authorization.
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 40 to 60 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.
1
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. 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, many featuring seasonal themes.
Deliver a well defined merchandising assortment. In fiscal 2004, the Company’s lines of merchandise included three principal categories: sportswear, sweaters and dresses. The Company plans to reduce the amount of dresses sold in its stores in fiscal 2005. Selling space previously allocated to dresses will be shifted to other merchandise categories. The following table sets forth the approximate percentage of net sales attributable to each merchandise group for the past three fiscal years.
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Percentage of Net Sales |
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2004 |
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2003 |
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2002 |
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Merchandise Group |
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Sportswear |
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58.8 |
% |
54.5 |
% |
52.4 |
% |
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Sweaters |
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36.4 |
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39.6 |
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41.2 |
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Dresses |
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4.8 |
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5.9 |
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6.3 |
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Accessories |
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— |
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— |
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0.1 |
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Total |
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100.0 |
% |
100.0 |
% |
100.0 |
% |
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 2004, the Company directly imported approximately 96% of its total merchandise purchases. The Company anticipates that direct imports, as a percent of total purchases, will be approximately the same in fiscal 2005. Management believes direct importing allows Christopher & Banks to obtain high quality merchandise at a lower cost.
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 2004 and 2003. The Company anticipates private brand clothing will account for substantially all of its sales again in fiscal 2005.
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.
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 effective use of its systems, 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 4.3, 4.7 and 4.6 times in fiscal 2004, 2003 and 2002, respectively.
Expand store base in existing and new markets. The Company plans to expand its store base by approximately 100 new stores in fiscal 2005. Of these new stores, approximately 65 will be Christopher & Banks stores and approximately 35 will be C.J. Banks stores. The majority of new stores will be located in states where the Company currently operates. The Company intends to continue growing its store base with 115 to 120 new stores planned to open 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 29 stores in fiscal 2004. As of April 30, 2004, the Company operated 130 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 April 30, 2004, 524 of the Company’s 556 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 affects 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 18 store remodels in fiscal 2004 and plans to complete approximately 20 store remodels in fiscal 2005.
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 96% of the Company’s total merchandise purchases in fiscal 2004. During fiscal 2004, the Company purchased substantially all of its merchandise from 100 vendors and the Company’s ten largest vendors provided approximately 72% of the Company’s purchases. In addition, purchases from the Company’s largest overseas supplier accounted for approximately 41% of total purchases, compared to 43% in fiscal 2003. 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 production to other suppliers so as to continue to secure the required volume of 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 in fiscal 2005.
3
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 websites at www.christopherandbanks.com and www.cjbanks.com. The websites 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.
The Company’s web site references above are for textual reference only and it is not intended to incorporate the Company’s web site into this Annual Report on Form 10-K. The Company makes available free of charge, on or through its web site, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission.
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 April 30, 2004, the Company had approximately 1,700 full-time and 3,500 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 3,425 square feet, of which the Company estimates approximately 85% is selling space.
4
At April 30, 2004, the Company operated 556 stores in 42 states as follows:
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State |
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Number of |
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Number of |
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Total |
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Alabama |
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1 |
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— |
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1 |
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Arizona |
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5 |
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— |
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5 |
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Arkansas |
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4 |
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— |
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4 |
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California |
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2 |
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— |
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2 |
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Colorado |
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17 |
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4 |
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21 |
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Connecticut |
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2 |
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— |
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2 |
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Florida |
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4 |
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— |
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4 |
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Georgia |
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4 |
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— |
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4 |
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Idaho |
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7 |
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1 |
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8 |
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Illinois |
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24 |
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8 |
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32 |
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Indiana |
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15 |
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6 |
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21 |
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Iowa |
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24 |
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7 |
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31 |
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Kansas |
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11 |
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2 |
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13 |
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Kentucky |
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6 |
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2 |
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8 |
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Maine |
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1 |
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— |
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1 |
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Maryland |
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5 |
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1 |
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6 |
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Massachusetts |
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7 |
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1 |
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8 |
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Michigan |
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26 |
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11 |
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37 |
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Minnesota |
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38 |
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10 |
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48 |
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Missouri |
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13 |
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10 |
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23 |