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Children's Place (PLCE) Marching Ahead of Industry: Here's Why

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The Children's Place, Inc. (PLCE - Free Report) , one of the widely recognized names in the Retail - Apparel And Shoes industry, has exhibited an outstanding run on the bourses in the past six months. Thanks to its operational initiatives — strengthening of omni-channel solutions, expanding customer reach and focus on brand innovation — the stock has outpaced the industry and the Retail-Wholesale sector. In the said period, shares of Children's Place have soared about 102.2% compared with the industry’s rally of 38.3%. Meanwhile, the sector has declined 2.8%.

This pure-play children’s specialty apparel retailer commenced fiscal 2021 on a strong note, reporting stronger-than-anticipated results. The company witnessed a significant improvement in net sales that even surpassed pre-pandemic level despite having 261 or 27% fewer stores at the end of first-quarter fiscal 2021 compared with first-quarter fiscal 2019. The two-pronged approach of massive coronavirus stimulus package and mass vaccination acted as a tailwind.

The Zacks Consensus Estimate for the current and next financial year has increased about 11.2% and 4.4% to $6.85 and $8.36, respectively, over the past seven days. Notably, this Zacks Rank #1 (Strong Buy) stock’s long-term earnings growth rate of 8% and a Momentum Score of A highlight its inherent strength. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s Introspect

Children's Place has been aggressively adopting strategies and making planned investments to cater to consumer demand and behavior. It has been on track with growth efforts such as enhancing digital capabilities, augmenting supply chain and improving financial flexibility. The company is leaving no stone unturned to improve its top-line performance and expand customer base. It is focusing on superior product strategy to resonate well with millennial customers and advancing omni-channel capabilities.

This NJ-based company has been making investments to upgrade its omni-channel capabilities as part of its digital transformation strategy. The company’s $50 million digital transformation investment to enhance omni-channel capabilities in order to meet online demand is reaping benefits. Markedly, the company has one of the highest digital penetrations in the industry.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

We note that the company’s consolidated digital sales surged 37% during first-quarter fiscal 2021, representing 42% of total sales. Digital sales rose 35% in the United States and 82% in Canada. The expansion of digital business coupled with the significant sales transfer rate that the company is attaining owing to the strategic decision to shutter 300 stores is resulting in long-term steady state annual digital penetration of 50%.

Children's Place has rolled out "BOPIS" (Buy Online, Pick Up in Store), Save the Sale and Ship from Store. Further, it launched SMS texting capabilities. It has also rolled out “BOSS” (Buy Online, Ship to Store), the response to which has been encouraging. With changing consumer shopping pattern, the company has been making efforts to lower dependency on brick-and-mortar platform and shift toward digitization. It anticipates mall-based brick-and-mortar portfolio to account for less than 25% of revenues entering fiscal 2022.

With respect to its store fleet optimization strategy, Children’s Place permanently shuttered 25 stores during the first quarter. The company now plans to shutter additional 98 stores in fiscal 2021. This will take the total store closure count to 300 for the two-year period.

Wrapping Up

Management foresees sales opportunities and operational efficiencies when social distancing measures as well as other restrictions such as limited-hour operations are further removed and the company’s stores and distribution centers start to operate normally. Also, the company remains on track to accelerate operating margin expansion in fiscal 2021 and beyond. Management notified that lower occupancy costs owing to fleet optimization strategy should continue to fuel margin expansion. Additionally, if the majority of elementary schools returned to in-person learning this fall, the company will be among the big gainers.

3 More Stocks Looking Red Hot

Abercrombie & Fitch (ANF - Free Report) has a long-term earnings growth rate of 18%. It presently sports a Zacks Rank #1.

Boot Barn Holdings (BOOT - Free Report) has a trailing four-quarter earnings surprise of 51.7%, on average. The stock sports a Zacks Rank #1.

L Brands (LB - Free Report) has a long-term earnings growth rate of 13%. It currently carries a Zacks Rank #2 (Buy).

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