Children's Place (PLCE) Gains on Omni-Channel Efforts Amid Risks
The Children's Place, Inc. PLCE is well-poised for growth, courtesy of strategic business initiatives, strong operational execution, a store fleet optimization strategy and solid omnichannel capabilities. However, soft consumer demand amid a high inflationary environment is concerning.
The Zacks Rank #3 (Hold) company has a market capitalization of $359.5 million and belongs to the Zacks Retail - Apparel and Shoes industry.
Factors Favoring The Children's Place
The Children's Place is leaving no stone unturned to improve its top-line performance by strengthening its customer base, increasing brand awareness, offering superior products and enhancing digital penetration. The company’s strategic growth initiatives and focus on inventory optimization are also likely to be tailwinds in the second half of fiscal 2023.
The company has also been directing resources toward digital platforms in order to better engage with customers, augment its supply chain and concentrate on improving financial flexibility. It is worth noting that its digital sales represented 48% of total retail sales during fiscal 2022. Management expects digital revenues to represent about 60% of retail sales or more than $1 billion in sales, by fiscal 2025.
The Children's Place remains focused on its store fleet optimization strategy. With respect to this strategy, PLCE has a target to close roughly 100 stores, with the bulk of store closures occurring in 2023. The company expects an optimized fleet of around 500 stores by the beginning of 2024. These store closures are in sync with PLCE’s effort to shift toward digitization due to the changing consumer shopping pattern.
With the gradual normalization of the global supply chain environment, the company expects costs to decline in the second half of fiscal 2023. It expects an annualized benefit of more than $100 million in 2023 from a reduction in these costs.
Factors Affecting the Company
The Children’s Place has been grappling with soft consumer demand due to high inflation and increased promotional activity from key competitors. Owing to the tough macroeconomic backdrop, management downgraded its view for fiscal 2023. For fiscal 2023, it expects to generate net sales in the range of $1.575-$1.590 billion, down from the previous guidance of $1.62-$1.66 billion. The metric indicates a decline from $1.71 billion reported in fiscal 2022.
The company expects adjusted operating income to be in the range of 2.5-2.9% of net sales during the year. Adjusted earnings is likely to be in the band of $1.00-$1.50 per share compared with its previous guidance of $2.50-$3.00 per share.
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In the past three months, PLCE shares have lost 11.6% compared with the industry’s decline of 0.3%.
Rising operating costs and expenses have also been a major concern for the company. For instance, in first-quarter fiscal 2023, its cost of sales recorded an increase of 2.2% year-over-year, whereas its selling, general and administrative expenses increased by 3.7%. As a result, its gross margin contracted 920 bps to 30% in the quarter.
Key Picks
Some better-ranked stocks are Abercrombie & Fitch Co. ANF, Stitch Fix, Inc. SFIX and Nordstrom, Inc. JWN. Abercrombie & Fitch currently sports a Zacks Rank #1 (Strong Buy), Stitch Fix and Nordstrom carry a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Abercrombie & Fitch operates as a specialty retailer of premium, high-quality casual apparel for men, women and kids. The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales suggests growth of 3.4%. Its earnings per share are expected to rise 732% from the corresponding year-ago reported figures. ANF has a trailing four-quarter earnings surprise of 480.6%, on average.
Stitch Fix specializes in manufacturing apparel, shoes and accessories for men, women and kids. The Zacks Consensus Estimate for Stitch Fix’s current financial-year earnings per share suggests growth of 9%, from the year-ago reported figure. SFIX has a trailing four-quarter earnings surprise of 7.7%, on average.
Nordstrom is a provider of apparel, shoes, beauty and home goods. The Zacks Consensus Estimate for JWN’s current financial-year earnings per share suggests growth of 17.8%, from the year-ago reported figure. The company has a trailing four-quarter earnings surprise of 54.1%, on average.
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