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Here's Why Children's Place Appears to be a Solid Pick Now

Zacks Equity Research

The Children's Place, Inc.PLCE appears to be a preferred pick, given its sturdy efforts to remain on growth trajectory. We expect the company to continue gaining from its focus on multi-year strategic growth initiatives comprising product, alternate channels of distribution, digital transformation, fleet optimization and international expansion. These efforts also helped the company to post better-than-expected first-quarter fiscal 2019 results, prompting management to lift fiscal 2019 view.

All said, let’s delve deeper into the factors, which have been driving this Zacks Rank #1 (Strong Buy) stock. Shares of this Secaucus, NJ-based company have increased approximately 6% in the past six months, against the industry’s decline of 15.2%.


Factors Driving Children's Place Performance

Children's Place is leaving no stone unturned to improve the top-line performance and expand customer base. The company is making efforts to expand footprint not only in the U.S. market but also globally. This is evident from its license agreement with Zhejiang Semir Garment Co. Ltd (“Semir”) for the Greater China market, which covers Mainland China, Taiwan, Hong Kong and Macau.

Also, the company is focusing on digital transformation. It had rolled out "BOPIS" (Buy Online, Pick Up in Store), Ship from Store, and mobile POS to all its U.S. stores. Further, the company launched SMS texting capabilities and is implementing “BOSS” (Buy Online, Ship to Store). Notably, e-commerce penetration expanded 270 basis points to 29% of net sales during the first quarter of fiscal 2019. E-commerce penetration is projected to increase more than 30% of net sales in fiscal 2019 from approximately 28% in fiscal 2018.

Apart from these, the company’s store fleet optimization plan focuses on striking the right balance between digital and physical stores. Thus, it had closed 213 stores since 2013, till the end of the first quarter of fiscal 2019 and targets a closure of 300 stores by 2020. The company closed 42 stores in fiscal 2018, and plans to close 40-45 stores in fiscal 2019 and again roughly 45 stores in fiscal 2020. Children's Place has also planned 1000 lease renewals over the next three years. The company had earlier informed that this fleet optimization initiative will help it to achieve a 200-basis point improvement in operating margin from 2013 to 2020.

As a result of Gymboree’s bankruptcy, Children's Place intends to open 25 stores in centers with high productivity within a span of two years. The company entered into an Asset Purchase Agreement with Gymboree Group, Inc. and related entities to buy intellectual property assets of Gymboree and Crazy 8 (the “Gymboree Assets”) for $76 million. This buyout is likely to be accretive to fiscal 2020 adjusted earnings per share. Further, the company remains on track for an early 2020 rollout of the Gymboree product line.

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