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Bear of the Day: The Children's Place (PLCE)

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Based in Secaucus, NJ, The Children’s Place (PLCE - Free Report) is one of the largest pure-play children’s specialty apparel retailers in the market today. It designs, contracts to manufacture, sells, and licenses to sell fashionable, high-quality merchandise at value prices, primarily under the proprietary The Children's Place, Place and Baby Place brand names.

The Children’s Place operates over 1,000 stores in the U.S., Canada, and Puerto Rico, in addition to its online store and 190 international points of distribution, which are operated by seven franchise partners in 19 countries.

PLCE reported decent fourth quarter results, but analysts didn’t seem too impressed with guidance, and the stock is currently sitting at a #5 (Strong Sell) on the Zacks Rank. What’s next for this children’s apparel stock?

Shares Fall Despite Q4 Beat

Last month, The Children’s Place reported earnings of $2.52, which was its sixth-straight quarter of positive earnings surprise.

Revenues were up 9.4% year-over-year to $570 million, and this number came in line with the consensus mark. Comparable retail sales increased 8.2% thanks to robust sales in all geographies and channels.

Adjusted gross profit grew 12.3% year-over-year to $211.1 million, while gross margin expanded 90 basis points (bps) to 37%.

However, shares of PLCE declined nearly 8% after the report was released, which was primarily due to soft Q1 and fiscal 2018 guidance.

Management projects adjusted EPS in the range of $7.95 to $8.20 for the year and a band of $2.21 to $2.22 for the quarter, well below the Zacks Consensus of $8.95 per share and $2.53 per share at the time, respectively.

Earnings Outlook Lowered

As a result, estimates took a hit in the days following the report.

For the current quarter, three analysts cut their outlook in the last 60 days (though one has changed course during that same time period), and the consensus has dipped from $2.47 to $2.22 per share. But, earnings are expected to grow about almost 14% for the quarter

Five analysts have revised their estimates downward for the current fiscal year, and earnings are expected to only grow 3%. The consensus has fallen from $9.02 to $8.15 per share.

Looking at the next fiscal year, earnings could grow 7.5%, and the current consensus sits at $9.27 per share.

Can PLCE Get Back on Track?

Shares of The Children’s Place are down over 13% so far this year but have actually gained around 12.6% in the past one year. The past three months, in particular, have been hard for PLCE, and the stock has lost over 20% in value compared to the S&P 500’s loss of 5.7%.

The company is currently trading at a forward P/E of about 15.6X.

While it remains to be seen how its current outlook will impact its performance going forward, and its mall-based locations certainly aren’t helpful, PLCE does have a history of beating earnings estimates, and revenue growth remains solid. Investors should watch out for The Children’s Place’s next quarterly earnings report, which is due in mid-May.

For investors wanting an apparel stock with more near-term potential, they should consider Buckle, Inc. (BKE - Free Report) , a mall-based company that makes casual apparel, footwear, and accessories for men and women. It’s a #1 (Strong Buy) on the Zacks Rank right now and the Zacks Consensus for the current fiscal year has jumped eight cents in the last two months.

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