Yet another product of the retail apocalypse, Children’s Place (PLCE), has had a very disappointing year for investors, with its share price falling over 32% so far in 2019. This dying retailer saw massive profit declines bringing it close to loses for Q1 and Q2. Its topline is also declining as demand for this children’s apparel fades. Analysts have been dropping their expectations for PLCE for some time, and this stock is now sitting at a Zacks Rank #5 (Strong Sell).
The company has closed over 200 stores since 2013, with 42 store closures in 2018 and another 45 closure expected by the end of this year. 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.
Children’s Place appears to have systemic issues that this new acquisition of an obsolete brand will not improve. I think that the purchase of Gymboree will mark the beginning of the end for this enterprise. PLCE is a falling knife, and I would stay away from these shares.
Free: Zacks’ Single Best Stock Set to Double
Today you are invited to download our latest Special Report that reveals 5 stocks with the most potential to gain +100% or more in 2020. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
This pioneering tech ticker had soared to all-time highs and then subsided to a price that is irresistible. Now a pending acquisition could super-charge the company’s drive past competitors in the development of true Artificial Intelligence. The earlier you get in to this stock, the greater your potential gain.
See 5 Stocks Set to Double>>
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 Children's Place, Inc. (PLCE) : Free Stock Analysis Report
To read this article on Zacks.com click here.