When markets are looking shaky, it’s
usually not a good idea to bet on those companies that are shaky themselves. Children’s Place ((PLCE - Snapshot Report)) is not falling apart, but their
expected sales growth of negative 1% for the coming year is not a good place to
start when you have an economy barely hanging on to life.
Niche merchant Children’s Place is a
kid’s only retailer focused on North America.
They operate 1,095 stores and are growing their store count. The
company recently initiated a share buyback program, which is generally a sign
of confidence on the corporate side.
In its recent fourth quarter announcement,
PLCE earned $0.93 per diluted share, or $22.1 million, down from the $0.97, or
$24.2 million, it earned in the prior year quarter. Adjusting for one-time
charges, the company earned $1.15 per share, or $27.3 million, an improvement
from the $0.87 per share, or $21.8 million, it earned on the same basis a year
These results were actually better
than the Zacks consensus estimate for $1.03.
Even revenue (which included an
extra week in the quarter) increased from $457.4 million to $509.2 million, beating
When you look at quarter over
quarter sales, Children’s Place’s looked decent compared to its
competitors. Same-store sales rose 4.3%,
compared to an 8% decline at Aeropostale and a 1% gain at Abercrombie &
Fitch. Gap was a bit better, posting a
5% gain quarter over quarter.
The quarterly data doesn’t sound
bad, but when you look at the full year, Children’s Place only saw a paltry2% rise
The markets are always looking ahead
and Children’s Place made their view a bit cloudier at their last earnings announcement.
PLCE forecast earnings of $0.60 to
$0.65 for their first quarter, which is about 50% of the Zacks consensus
estimate of $1.20 just a month ago.
Full-year guidance was also slashed
to range between $2.90 to $3.10. The
current Zacks consensus estimate for FY2014 is $3.12, down from $3.60 just two
months ago. We have also seen downward
revisions across the board for this stock over the last 30 days.
To top off all that bad news, the
company told investors that same-store sales were already down 8% since the
beginning of the quarter, and reduced its gross margin forecast by 20-60 basis
points for the full year.
Buy Ahead of Upcoming Earnings?
Zacks ESP is negative or flat for
the current & next quarter as well as FY2014 and FY2015. When you combine this with a Zacks Rank of 5,
it makes for a very small chance of an upside surprise.
While shares are not astronomical at
15.4 times earnings, any deterioration in earnings growth could bump that
number up. Children’s Place doesn’t offer
a dividend to offer some “rental income” if you are thinking about parking your
money in it and looking for a turnaround.
Analysts’ actions and PLCE’s
negative earnings momentum might be telling us to wait and see what the next
report brings and if there are any material improvements in sales or the
For the time being, you might be
better suited checking out Abercrombie & Fitch Co ((ANF - Analyst Report)), a Zacks Rank #3 (slightly
better than PLCE) or BeBe Stores ((BEBE - Snapshot Report)), a Zacks Rank #2 or even
Gap Inc. ((GPS - Analyst Report)), Zacks Rank #3 with a small dividend.
Regardless of what company you
choose, just be aware that specialty retailers may all have a bumpy ride if the
economy doesn’t pick back up.
A Levy is one of the most highly sought after traders in the world and a former
member of three major stock exchanges. That is why you will frequently see him
appear on Fox Business, CNBC and Bloomberg providing his timely insights to
other investors. He has written and published two tomes, “Your Options Handbook” and “The Bloomberg Visual Guide
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