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The Children's Place (PLCE) Q1 Earnings Miss, Sales Down Y/Y

The Children’s Place, Inc. PLCE reported first-quarter fiscal 2023 results, wherein both the top and bottom line missed the Zacks Consensus Estimate. This pure-play children’s specialty apparel retailer witnessed a year-over-year decline in both net sales and earnings per share.

Management lowered the top- and bottom-line guidance for fiscal 2023 and issuesd a dismal second-quarter guidance owing to a tough macroeconomic environment and tempered consumer sentiment.

During the market session on May 24, shares of Children's Play fell by more than 21.4%, primarily due to a year-over-year decline in revenues. Shares of this Zacks Rank #5 (Strong Sell) company have declined 55.3% in the past three months compared with the industry’s fall of 18.4%.

The Children's Place, Inc. Price, Consensus and EPS Surprise

The Children's Place, Inc. Price, Consensus and EPS Surprise
The Children's Place, Inc. Price, Consensus and EPS Surprise

The Children's Place, Inc. price-consensus-eps-surprise-chart | The Children's Place, Inc. Quote

Q1 in Detail

The Children’s Place posted adjusted loss per share of $2, missing the Zacks Consensus Estimate of a loss of $1.77 per share. The company posted an adjusted earnings of $1.05 per share in the year-ago quarter.

Net sales of $321.6 million declined 11.2% year over year, primarily due to soft consumer demand stemming from tough macroeconomic environment. Comparable retail sales declined 8.2% in the reported quarter. Net sales missed the Zacks Consensus Estimate of $338 million.

Management highlighted that digital comprised 46% of retail sales during the reported quarter compared with 45% in the year-ago period. The company witnessed double digit e-commerce traffic during the fiscal first quarter.

Gross profit came in at $96.5 million, down $45.4 million from $141.9 million reported in the year-ago quarter. Gross margin deleveraged 920 basis points (bps) to 30% due to increased supply chain costs that include inbound transportation expenses and higher input costs. Deleverage of fixed costs due to softness in net sales was a reason.

Adjusted selling, general and administrative (SG&A) expenses came in at $109.2 million, up from $108.2 million reported in the year-ago quarter. Adjusted SG&A, as a percentage of sales, deteriorated 400 bps to 33.9% due to the deleveraging of fixed costs and planned higher marketing spend.

Adjusted operating loss of $24.5 million declined from adjusted operating income of $20.6 million posted in the year-ago quarter. Adjusted operating income as a percentage of net sales deleveraged 1,330 bps to 7.6%.

Store Update

The company ended the quarter with 599 stores. With respect to its store fleet optimization strategy, PLCE permanently shuttered 600 stores since 2013. The company plans to close 80-100 stores in fiscal 2023.

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Other Financial Aspects

The Children’s Place ended the quarter with cash and cash equivalents of $18.2 million. The company had $300.8 million outstanding on its revolving credit facility as of Apr 29, 2023. Stockholders' equity at the end of the quarter was $125.8 million.

Outlook

PLCE estimates second-quarter fiscal 2023 net sales of $340-$345 million, representing an approximately 10% decline from the year-ago figures. It expects gross margin to decline by 200 bps. Also, the company envisions quarterly adjusted operating loss to be approximately (8)% of net sales. Lastly, adjusted net loss per share is anticipated in the range of $2.15-$2.20 in the fiscal second quarter.

Management downgraded its view for fiscal 2023 owing to tough macroeconomic headwinds. For fiscal 2023, net sales are anticipated between $1.575 billion and $1.590 billion, down from the previous guidance of $1.62 billion to $1.66 billion. The metric is expected to decline from $1.71 billion reported in fiscal 2022.

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Adjusted operating income is likely to be in the range of 2.5-2.9% of net sales during the year. The company expects adjusted earnings of $1.00-$1.50 per share for fiscal 2023, down from the previous guidance of $2.50-$3.00 per share.

Despite macroeconomic pressures, the company also highlighted that it expects double-digit operating margin and adjusted EPS of more than $5 in the second half of 2023.

Stocks to Consider

Some top-ranked stocks are Shake Shack Inc. SHAK, The Kroger Co. KR and The TJX Companies TJX.

SHAK has a trailing four-quarter earnings surprise of 58.6%, on average. Shake Shack currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Shake Shacks’ current financial year sales and earnings suggests growth of 21.3% and 141.9%, respectively, from the year-ago reported numbers.

The Kroger Co., which operates in the thin-margin grocery industry, currently has a Zacks Rank of 2 (Buy). KR has a trailing four-quarter earnings surprise of 9.8%, on average.

The Zacks Consensus Estimate for The Kroger’s current financial year sales and earnings suggests growth of 2.5% and 6.6%, respectively, from the year-ago reported numbers.

The TJX Companies is a leading off-price retailer of apparel and home fashions. It currently carries a Zacks Rank of 2. TJX has a trailing four-quarter earnings surprise of 4.4%, on average.

The Zacks Consensus Estimate for TJX’s current financial year sales and earnings suggests growth of 6.4% and 14.5%, respectively, from the year-ago reported numbers.

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