Why Is The Children's Place (PLCE) Up 24.1% Since Last Earnings Report?
It has been about a month since the last earnings report for The Children's Place (PLCE). Shares have added about 24.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is The Children's Place due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
The Children's Place Q1 Earnings Miss, Sales Down Y/Y
The Children’s Place, Inc. reported first-quarter fiscal 2023 results, wherein both the top line and bottom line missed the Zacks Consensus Estimate. This pure-play children’s specialty apparel retailer witnessed a year-over-year decline in both net sales and earnings per share.
Management lowered the top- and bottom-line guidance for fiscal 2023 and gave dismal second-quarter guidance owing to a tough macroeconomic environment and tempered consumer sentiment.
Q1 in Detail
The Children’s Place posted adjusted loss per share of $2, missing the Zacks Consensus Estimate of a loss of $1.77 per share. The company posted an adjusted earnings of $1.05 per share in the year-ago quarter.
Net sales of $321.6 million declined 11.2% year over year, primarily due to soft consumer demand stemming from tough macroeconomic environment. Comparable retail sales declined 8.2% in the reported quarter. Net sales missed the Zacks Consensus Estimate of $338 million.
Management highlighted that digital comprised 46% of retail sales during the reported quarter compared with 45% in the year-ago period. The company witnessed double digit e-commerce traffic during the fiscal first quarter.
Gross profit came in at $96.5 million, down $45.4 million from $141.9 million reported in the year-ago quarter. Gross margin deleveraged 920 bps to 30% due to increased supply chain costs that include inbound transportation expenses and higher input costs. Deleverage of fixed costs due to softness in net sales was a reason.
Adjusted Selling, general and administrative (SG&A) expenses came in at $109.2 million, up from $108.2 million reported in the year-ago quarter. Adjusted SG&A, as a percentage of sales, deteriorated 400 bps to 33.9% due to the deleveraging of fixed costs and planned higher marketing spend.
Adjusted operating loss of $24.5 million declined from adjusted operating income of $20.6 million posted in the year-ago quarter. Adjusted operating income as a percentage of net sales deleveraged 1,330 bps to 7.6%.
Store Update
The company ended the quarter with 599 stores. With respect to its store fleet optimization strategy, it permanently shuttered 600 stores since 2013. The company plans to close 80-100 stores in fiscal 2023.
Other Financial Aspects
The Children’s Place ended the quarter with cash and cash equivalents of $18.2 million. The company had $300.8 million outstanding on its revolving credit facility as of Apr 29, 2023. Stockholders' equity at the end of the quarter was $125.8 million.
Outlook
The company estimates second-quarter fiscal 2023 net sales of $340-$345 million, representing an approximately 10% decline from the year-ago figures. It expects gross margin to decline by 200 bps. Also, the company envisions quarterly adjusted operating loss to be approximately (8)% of net sales. Lastly, adjusted net loss per share is anticipated in the range of $2.15-$2.20 in the fiscal second quarter.
Management downgraded its view for fiscal 2023 owing to tough macroeconomic headwinds. For fiscal 2023, net sales are anticipated between $1.575 billion and $1.590 billion, down from the previous guidance of $1.62 billion to $1.66 billion. The metric is expected to decline from $1.71 billion reported in fiscal 2022. Adjusted operating income is likely to be in the range of 2.5-2.9% of net sales during the year. The company expects adjusted earnings of $1.00-$1.50 per share for fiscal 2023, down from the previous guidance of $2.50-$3.00 per share.
Despite macroeconomic pressures, the company also highlighted that it expects double-digit operating margin and adjusted EPS of more than $5 in the second half of 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -52.37% due to these changes.
VGM Scores
At this time, The Children's Place has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, The Children's Place has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
The Children's Place is part of the Zacks Retail - Apparel and Shoes industry. Over the past month, Urban Outfitters (URBN), a stock from the same industry, has gained 4%. The company reported its results for the quarter ended April 2023 more than a month ago.
Urban Outfitters reported revenues of $1.11 billion in the last reported quarter, representing a year-over-year change of +5.9%. EPS of $0.56 for the same period compares with $0.33 a year ago.
Urban Outfitters is expected to post earnings of $0.85 per share for the current quarter, representing a year-over-year change of +32.8%. Over the last 30 days, the Zacks Consensus Estimate has changed +4.2%.
Urban Outfitters has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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