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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 - Free 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.

Recent Developments
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 earlier.

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 most estimates.

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 in sales. 

Poor Guidance
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 outlook.

For the time being, you might be better suited checking out Abercrombie & Fitch Co ((ANF - Free Report) ), a Zacks Rank #3 (slightly better than PLCE) or BeBe Stores (), a Zacks Rank #2 or even Gap Inc. ((GPS - Free 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.

Jared 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 to Options”.  You can discover more of his insights and recommendations through his two portfolio recommendation services:

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