The Children's Place (PLCE) Unveils Q4 Preliminary Results
The Children's Place, Inc. PLCE is focused on improving its performance by strengthening the customer base, increasing brand awareness, offering superior products and enhancing digital penetration. Recently, PLCE unveiled the preliminary unaudited results for the fourth quarter of fiscal 2022.
Management further noted that the company’s 2022 operating results were hurt by roughly $125 million versus 2021 on three input costs. These are nearly $65 million of the incremental impacts to the 2022 operating results owing to the spike in cotton prices, the company’s largest product input cost; an approximate $30 million with respect to utilizing airfreight amidst the global supply-chain delays stemming from the pandemic; and $30 million of incremental impact from increased container costs.
As The Children's Place entered 2023, cotton prices lowered by nearly 40% from the 2022 highs and are likely to continue declining in 2023. The container costs are also approaching pre-pandemic rates now, and the company has eliminated the use of air freight in 2023. Management cited that the combined impact of the aforesaid input cost reductions is estimated to result in an annualized benefit to the operating results of over $100 million.
Reduction in the input costs as well as a solid focus on expense and inventory management position PLCE well to deliver growth in 2023. Given The Children's Place’s sturdy brands, the fleet optimization strategy, increasing digital penetration and the robust Amazon business, management expects reverting to double-digit operating margins in the back half of 2023 and beyond.
Q4 Preliminary Results
For the fourth quarter of fiscal 2022, management projects net sales between $454 million and $456 million, down 10.2% to 10.6% year over year. Further, operating loss for the fiscal quarter is likely to come in the bracket of (14.2%) to (15.6%) of net sales and adjusted operating loss of (13.4%) to (14.8%) after excluding nearly $3.6 million of adjustments.
This is mainly related to the store-level asset impairments and fleet optimization expenses to shut down a few retail locations. Management had earlier guided sales of $460 million at the low end and adjusted operating income of 2.5%-3.3% of net sales.
The Children's Place envisions a fourth-quarter loss per share of ($4.24) to ($4.63) and an adjusted loss per share of ($4.02) to ($4.41) after excluding about $3.6 million of adjustments. Previously, management forecasted adjusted earnings per share of 50-75 cents.
Fourth-quarter inventory is likely to improve 5.5-6.5% from the last year. Carryover inventory levels are estimated to be significantly lower than originally anticipated.
Management further stated the factors that are leading to a significant net loss in the fourth quarter, including a tough macroeconomic landscape and higher expenses. The macroeconomic environment during the quarter was tougher than expected, leading to lower sales and the need for higher promotions.
Consequently, management made various strategic decisions with respect to the level and composition of the inventory, which hurt short-term margins through lowered costs and end-of-season merchandise. The company’s inventory position was healthier as it entered 2023.
We note that The Children's Place incurred greater levels of fulfillment expenses on unplanned increases across the units shipped and split shipments, resulting in deleveraged fulfillment and shipping expenses. The company also witnessed higher selling, general and administrative expenses to boost sales.
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A glimpse of this Zacks Rank #3 (Hold) company’s price performance shows that its shares have increased 25.2% compared to the industry’s 32.6% growth.
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