Place chart

The Children’s Place (PLCE) Third-quarter earnings lag estimates, see cutaway

Children’s Place, Inc. PLCE released third-quarter results for fiscal 2022, with net income missing Zacks’ consensus estimate and declining year-over-year. The top line declined but exceeded the consensus mark. However, comparable retail sales continued with a slow run in the quarter

Management lowered its revenue and earnings guidance for fiscal 2022 and the fourth quarter due to a challenging macroeconomic environment and continued supply chain cost pressure. The company pointed out that sales for the first two weeks of November were lower than expected. The company expects record inflation to continue to impact its main consumer, leading to reduced demand over the holiday season. Additionally, the company anticipates a significantly higher promotional environment in the fourth fiscal quarter.

The Children’s Place, Inc. Price, Consensus, and EPS Surprise

The Children’s Place, Inc. price-consensus-eps-surprise-chart | Quote from The Children’s Place, Inc.

let’s analyze

The Children’s Place posted adjusted earnings per share (EPS) of $3.33, down from $5.43 reported in the year-ago quarter. Earnings missed the Zacks consensus estimate of $3.97.

Net sales of $509.1 million decreased 8.8% year-over-year, primarily due to weak consumer demand from inflationary pressures, the impact of permanent store closures stores and the run-in of the enhanced child tax credit and the strong back-to-school season last August. Comparable retail sales decreased 10% in the current quarter. Net sales exceeded Zacks’ consensus estimate of $500.5 million.

Management pointed out that digital accounted for 50% of retail sales in the quarter under review, up from 48% at the prior year level. The company recorded impressive e-commerce traffic during the third quarter.

Adjusted gross profit was $176.9 million, down $68.1 million from $245.0 million in the prior year quarter. Adjusted gross margin was deleveraged by 910 basis points (bps) to 34.8% due to higher supply chain costs which include inbound freight, outbound freight and distribution costs. Fixed cost deleveraging due to weak net sales was one reason.

Adjusted general and administrative expenses were $105.4 million, down from $114.8 million in the prior year quarter. Adjusted general and administrative expenses, as a percentage of sales, deleveraged 10 basis points to 20.7% due to fixed cost deleveraging and higher planned marketing expenses. These were somewhat offset by lower incentive compensation and discretionary spending.

Adjusted operating income of $59.1 million decreased from $116.5 million in the prior year quarter. Adjusted operating income as a percentage of net sales was deleveraged by 930 basis points to 11.6%.

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Store update

Zacks Rank #3 (Hold) ended the quarter with 658 stores. Regarding its strategy of optimizing the store base, The Children’s Place has permanently closed 541 stores since 2013. The company plans to close 40 to 50 stores in fiscal 2022.

Other financial aspects

The Children’s Place ended the quarter with cash and cash equivalents of $19 million. The company had $265 million outstanding on its revolving credit facility as of October 29, 2022. Equity at the end of the quarter was $212.2 million.

During the quarter, the company repurchased 434,000 shares for approximately $18 million. As of October 29, 2022, the company had $178 million remaining under its existing share buyback program.

Outlook

The Children’s Place estimates net sales for the fourth quarter of fiscal 2022 at $460-470 million. The company predicts a drop of a few tens of percent in comparable retail sales. The company expects quarterly adjusted operating profit in the range of 2.5 to 3.3 percent of net sales. Finally, adjusted EPS is expected to be between 50 and 75 cents in the fourth fiscal quarter.

For fiscal year 2022, a net sale is expected between $1.713 billion and $1.723 billion. The metric was expected to reach nearly $1.725 billion in fiscal 2022. Management expects a double-digit decline in comparable retail sales in fiscal 2022. Adjusted operating income is expected to be between 4.7 and 4.8 percent of net sales in fiscal 2022. an. The company expects adjusted earnings of $4.05 to $4.30 per share for fiscal 2022. The company expects adjusted earnings of approximately $7.00 per share for fiscal 2022 .

The company’s outlook reflects the continuation of a challenging macroeconomic environment, record inflation, rising transportation and supply chain costs, an improved promotional environment and reduced incentive compensation, among others.

PLCE shares have fallen 28% in the past three months from industrydown 3.9%.

Look at these solid retail picks

We’ve highlighted three top-ranked stocks.

Dillard’s, Inc. DDS, a large retail store operator, currently has a Zacks rank of #1 (Strong Buy). DDS has a four-quarter earnings surprise of nearly 144.2%, on average. You can see the full list of today’s Zacks #1 Rank stocks here.

Zacks’ consensus estimate for Dillard’s current year sales and EPS suggests growth of 6.6% and 3.4%, respectively, over the prior year period.

General dollar DG is a discount retailer offering various merchandise products. DG currently wears a Zacks Rank #2 (Buy).

Zacks’ consensus estimate for Dollar General’s current-year sales and EPS suggests growth of 10.8% and 13.8%, respectively, over the prior-year period. Dollar General has a four-quarter earnings surprise of 2.2% on average.

sprout farmers SFM offers fresh, natural and organic food products. The stock currently carries a No. 2 Zacks rank. SFM forecasts an EPS growth rate of 10.4% over three to five years.

The Zacks consensus estimate for Sprouts Farmers current-year revenue and EPS suggests an increase of 4.6% and 9.5%, respectively, from the figure reported a year ago. Sprouts Farmers has a four-quarter earnings surprise of around 10%, on average.

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