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-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%.
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.
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.
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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