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Children's Place (PLCE) Down 30% in 6 Months: Here's Why

Shares of The Children's Place, Inc. PLCE have plunged approximately 30% in the past six months compared with the industry’s decline of 23.1%. Stiff competition and aggressive promotional environment are acting as deterrents.

The Zacks Rank #4 (Sell) stock further came under pressure following the company’s third-quarter fiscal 2018 results, wherein the bottom line missed the Zacks Consensus Estimate. Further, slashed fiscal 2018 view and soft fourth-quarter projection were also not well perceived by investors.


Consequently, the Zacks Consensus Estimate has been witnessing a downtrend. We note that estimates for fiscal 2018 and fiscal 2019 have moved south by 48 cents and 29 cents to $7.73 and $9.29, respectively, in the past 30 days. For the fourth quarter of fiscal 2018, the estimates have tumbled 59 cents to $2.11. The company reported fiscal third-quarter adjusted earnings of $3.07 per share, which fell short of the consensus mark by a penny.

This children's apparel, footwear, and accessories retail landscape has been witnessing a sea change with the focus gradually shifting to online shopping. The company faces stiff competition from department stores as well as other discount stores. We believe that unhealthy price competition to gain market share and drive footfall might weigh on its results.

Management now anticipates adjusted earnings in the band of $7.69-$7.79 per share and total net sales in the range of $1.955-$1.960 billion for fiscal 2018, down from the prior guided range. Also, the company envisions fiscal fourth-quarter net sales and earnings in the range of $547-$552 million and $2.07-$2.17 per share, respectively, down from $570 million and $2.52 per share recorded in the prior-year period. Further, management expects low-single digit increase in comparable retail sales versus prior expectation of mid-single digit growth.

Moreover, Children’s Place has slashed fiscal 2018 adjusted operating margin guidance to 7.7-7.8% from the prior guided range of 8.5-8.7%. The new projection also compares unfavorably with 9.6% recorded in the prior year. The tepid outlook takes into account higher fulfillment expenses to support stronger demand in digital channels and shipping costs due to a shift from retail stores to online.

Nevertheless, the company’s multi-year strategic growth initiatives including digital transformation, product, alternate channels of distribution and fleet optimization bode well. Management expects digital penetration to increase to 27% of net sales from 23% in fiscal 2018.

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Further, the company remains focused on international expansion. However, we believe that such efforts will take time to yield favorable results and win back investors’ confidence in the stock.

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Abercrombie & Fitch Co. ANF has a long-term earnings growth rate of 12.5% and carries a Zacks Rank #1.

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Children's Place, Inc. (The) (PLCE) : Free Stock Analysis Report
 
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Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
 
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