A month has gone by since the last earnings report for The Children's Place (PLCE). Shares have added about 81.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is The Children's Place due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Children's Place Beats on Q4 Earnings Estimates
Children’s Place posted better-than-expected results for fourth-quarter fiscal 2019. While the bottom line registered solid growth year over year, the top line declined on soft comparable retail sales.
Further, management deferred the guidance for fiscal 2020 in the wake of the prevailing uncertainty surrounding the coronavirus outbreak. Although the company saw low single-digit growth in comparable sales for the first five weeks of first-quarter fiscal 2020, management cited that after five weeks, the impact of the pandemic increases. It further informed that Children’s Place has taken measures in the form of store closures and limited hours across the United States and Canada.
Nevertheless, the company has been receiving positive customer feedback for the Gymboree brand. The company also informed that it is not forecasting issues with product deliveries or delays due to the disruption in China, backed by strength in its diversification strategy and vendor partnerships.
The children's specialty apparel retailer reported adjusted earnings of $1.85 a share, which outshined the Zacks Consensus Estimate of $1.59. Also, the bottom line surged a whopping 68.2% from the year-ago quarter’s $1.10. Impressively, this marked the company’s fourth straight quarter of an earnings beat. The reported figure exceeded management’s guided earnings range of $1.48-$1.68 as well.
However, net sales fell 3.3% year over year to $513 million in the fiscal fourth quarter. The decline was mainly due to soft comparable retail sales, which fell 3.6%. Nonetheless, the top line marginally came ahead of the Zacks Consensus Estimate of $512 million, returning to a positive surprise after two straight quarters of miss. Further, the company’s digital business represented nearly 31% of total sales in the quarter under review.
Moreover, adjusted gross profit remained flat year over year at $166.9 million. Meanwhile, adjusted gross margin expanded 100 basis points (bps) to 32.5% owing to higher merchandise margins. The improvement was somewhat offset by deleveraged fixed expenses and higher penetration of e-commerce business that operates at a lower gross-margin rate.
Adjusted SG&A expenses fell 11.9% from the year-ago period to $113 million, while as a percentage of net sales, the metric leveraged 220 bps to 22%. The contraction in SG&A expenses primarily resulted from better expense management and lower incentive compensations, somewhat negated by higher fixed expenses.
As a result, the company’s adjusted operating income surged 62.4% to $35.4 million, with adjusted operating margin increasing 280 bps to 6.9%.
As part of store-fleet optimization endeavors, Children’s Place opened two stores and shuttered 33 in fourth-quarter fiscal 2019, thereby ending the quarter with 924 stores. Since the announcement of the store-fleet optimization program in 2013, it has shuttered 271 stores.
Additionally, its international franchise partners opened six net new points of distribution in fourth-quarter fiscal 2019. Consequently, the company had 266 international points of distribution open and operated by eight franchise partners across 19 countries, as of Feb 1, 2020.
Other Financial Details
Children's Place ended the quarter under review with cash and cash equivalents of $68.5 million compared with $69.1 million a year ago. The company exited the quarter with inventories of $327.2 million, up 7.8% year over year. Shareholders’ equity totaled $235.2 million as of Feb 1, 2020.
Moreover, the company generated operating cash flow of about $178 million in fiscal 2019. Also, it had $171 million outstanding on its $325-million revolving credit facility at the end of the fiscal year. This revolving credit facility also provides an additional $50 million in liquidity.
During the fiscal fourth quarter, the company bought back 557 thousand shares for roughly $38 million and paid out quarterly dividends worth nearly $8 million. In the fiscal year, it bought back about 1.6 million shares for roughly $131 million and paid out dividends of nearly $35 million. As of Feb 1, 2020, it had about $108 million remaining under its existing share repurchase program.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -198.78% due to these changes.
At this time, The Children's Place has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise The Children's Place has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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