U.S. markets close in 1 hour 37 minutes
  • S&P 500

    3,257.02
    +20.10 (+0.62%)
     
  • Dow 30

    26,916.80
    +153.67 (+0.57%)
     
  • Nasdaq

    10,708.47
    +75.48 (+0.71%)
     
  • Russell 2000

    1,466.30
    +14.84 (+1.02%)
     
  • Crude Oil

    40.28
    +0.35 (+0.88%)
     
  • Gold

    1,873.80
    +5.40 (+0.29%)
     
  • Silver

    23.23
    +0.12 (+0.52%)
     
  • EUR/USD

    1.1677
    +0.0015 (+0.13%)
     
  • 10-Yr Bond

    0.6690
    -0.0070 (-1.04%)
     
  • GBP/USD

    1.2754
    +0.0028 (+0.22%)
     
  • USD/JPY

    105.4160
    +0.0840 (+0.08%)
     
  • BTC-USD

    10,666.59
    +417.12 (+4.07%)
     
  • CMC Crypto 200

    217.26
    +8.32 (+3.98%)
     
  • FTSE 100

    5,822.78
    -76.48 (-1.30%)
     
  • Nikkei 225

    23,087.82
    -258.67 (-1.11%)
     

Bear Of The Day: Children's Place (PLCE)

Daniel Laboe

Children's Place (PLCE) is yet another product of the quickly escalating retail apocalypse. The COVID pandemic has been devasting to retail businesses that rely on brick-and-mortar foot-traffic, and PLCE is no exception. PLCE shares have run up unjustly these last few months, and I would pull my money out while I still had the chance. Analysts have been dropping their expectations for PLCE for some time, and this stock is now sitting at a Zacks Rank #5 (Strong Sell).

Pandemic Impact 

The business is getting hammered by the COVID pandemic, with sales down 38% in PLCE's Q1 (ending May 2nd). Earnings flipped to a massive loss of ($28.6) million (on an adjusted basis) and an EPS of ($1.96), which represents the company's worst quarter in over a decade.

Children's Place liquidity is dwindling with a disappearing line of credit that leaves the company with only about $100 million left in liquidity and currently liabilities up to $759 million. I am worried that if the business is unable to open its stores to full capacity in the next 6-months or so, it could be looking at a bankruptcy restructuring or worse.

The Retail Apocalypse & Recent Acquisition 

The company has closed over 200 stores since 2013, with 42 store closures in 2018 and another 45 closures in 2019. The company is en route to close about 1/3 of its stores in less than 10 years. Management will not give up despite the obvious systemic issues in its business model.

Children's Place just acquired children's brand Gymboree for $76 million (this acquisition also included Crazy 8 brand) after the company filed for its second bankruptcy in less than two years. Gymboree was forced to close down ¾ fourths of its stores following its January bankruptcy as the brand goes seemingly obsolete. Children's Place is attempting to revitalize the company through rebranding, which I expect will take a substantial amount of capital and may not be successful.

The acquisition brought on an extensive amount of debt to the firm's balance sheet bringing its total debt-to-capital up to 72%. This is a concerning level for me to see, especially when the firm is experiencing a declining top and bottom-line. If consumer discretionary spending dries up, this combined company will find itself in bankruptcy court pretty quickly. 

Children's Place is hoping to rejuvenate Gymboree with its 200 remaining stores and the relaunch of Gymboree.com in 2020. This whole venture is a massive risk, and I personally don't see it working out.

Take Away

Children's Place appears to have systemic issues that will not be improved by this new acquisition of an obsolete brand. I think that the purchase of Gymboree marks the beginning of the end for this enterprise. I would stay away from PLCE, especially after the unjustified share price run-up these past few months.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
The Childrens Place, Inc. (PLCE) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research