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The Children's Place (PLCE) Q2 Earnings Beat, Sales View Down
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The Children’s Place, Inc. (PLCE - Free Report) reported second-quarter fiscal 2023 results, wherein both top and bottom lines beat the Zacks Consensus Estimate. However, this pure-play children’s specialty apparel retailer witnessed a year-over-year decline in both the metrics.
Management narrowed down its previously provided fiscal 2023 guidance for the top and bottom line and issued a dismal third-quarter guidance owing to a tough macroeconomic environment and tempered consumer sentiment.
Shares of this Zacks Rank #3 (Hold) company have increased 14.7% in the past three months compared with the industry’s growth of 6.2%.
The Children's Place, Inc. Price, Consensus and EPS Surprise
The Children’s Place posted an adjusted loss per share of $2.12, narrower than the Zacks Consensus Estimate of a loss of $2.16 per share. The company posted an adjusted loss of 89 cents per share in the year-ago quarter.
Net sales of $345.6 million declined 9.3% year over year, primarily due to soft consumer demand stemming from a high inflationary environment and the impact of permanent store closures. Comparable retail sales declined 9% in the reported quarter compared with our estimate of a 7.7% decline. Net sales surpassed the Zacks Consensus Estimate of $342 million.
Management highlighted that digital channel comprised 51% of retail sales during the reported quarter compared with 47% in the year-ago period. The company witnessed low double-digit growth in e-commerce traffic during the fiscal second quarter.
Adjusted gross profit came in at $87.8 million, down $27 million from $114.8 million reported in the year-ago quarter. Adjusted gross margin deleveraged 480 basis points (bps) to 25.4% due to increased input and supply chain costs and the impacts of the accelerated liquidation of seasonal inventory. Deleverage of fixed costs due to softness in net sales was also a reason. We expected an adjusted gross margin of 28.2% for the quarter under review.
Adjusted selling, general and administrative (SG&A) expenses came in at $101.7 million, down from $113.5 million reported in the year-ago quarter. Adjusted SG&A, as a percentage of sales, deteriorated by 40 bps to 29.4% and fared better than our estimate of 33%. The metric declined due to reduced store expenses, equity compensation expenses and home office payroll, partially offset by the deleveraging of fixed costs and planned higher marketing spend.
Adjusted operating loss came in at $25 million compared with an adjusted operating loss of $11.7 million posted in the year-ago quarter. Adjusted operating loss as a percentage of net sales deleveraged 410 bps to 7.2%. Our estimate for adjusted operating loss was $27.8 million for the quarter under review.
Store Update
The company ended the quarter with 596 stores. With respect to its store fleet optimization strategy, PLCE permanently shuttered 603 stores since 2013. It plans to close 80-100 stores in fiscal 2023.
Other Financial Aspects
The Children’s Place ended the quarter with cash and cash equivalents of $19 million. The company had $348 million outstanding on its revolving credit facility as of Jul 29, 2023. Stockholders' equity at the end of the quarter was $85.9 million.
Outlook
PLCE estimates third-quarter fiscal 2023 net sales of $470-$475 million, representing approximately a 7% decline from the year-ago figure. It expects gross margin to expand by 200-300 bps. The company envisions quarterly adjusted operating profit to be approximately 13.5% of net sales. Lastly, adjusted net earnings per share is anticipated in the band of $3.55-$3.65 in the fiscal third quarter. For the fiscal third quarter, it expects interest expenses of $7-$7.5 million, while the tax rate is projected in the range of 20%-21%.
For the second half of fiscal 2023, PLCE expects net sales of $910-$920 million, indicating a year-over-year decline in the mid-single digit percentage range. Adjusted operating income is likely to be 10% of net sales during the second half. Adjusted net earnings per share is anticipated in the band of $5.00-$5.25 in the same period. For the second half of fiscal 2023, it expects an interest expense of $13 million, while the tax rate is projected in the range of 20%-21%.
Management downgraded its view for fiscal 2023 owing to tough macroeconomic headwinds. For fiscal 2023, net sales are anticipated between $1.575 billion and $1.585 billion, narrowing down from the previous guidance of $1.575-$1.590 billion. The metric is expected to decline from $1.71 billion reported in fiscal 2022.
Adjusted operating income is likely to be in the band of 2.7-3% of net sales during the fiscal year. The company expects adjusted earnings of $1.00-$1.25 per share for fiscal 2023, compared with the previous guidance of $1.00-$1.50 per share.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings per share suggests growth of 3.4% and 736%, respectively, from the year-ago reported figures. ANF has delivered an earnings surprise of 480.6% in the last four quarters.
The Kroger Co., which operates in the thin-margin grocery industry, currently has a Zacks Rank #2 (Buy). KR has a trailing four-quarter earnings surprise of 7.8%, on average.
The Zacks Consensus Estimate for The Kroger’s current financial year sales and earnings suggests growth of 2.2% and 6.9%, respectively, from the year-ago reported numbers.
The TJX Companies is a leading off-price retailer of apparel and home fashions. It currently carries a Zacks Rank #2. TJX has a trailing four-quarter earnings surprise of 6.6%, on average.
The Zacks Consensus Estimate for TJX’s current financial year sales and earnings suggests growth of 6.5% and 15.4%, respectively, from the year-ago reported numbers.
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The Children's Place (PLCE) Q2 Earnings Beat, Sales View Down
The Children’s Place, Inc. (PLCE - Free Report) reported second-quarter fiscal 2023 results, wherein both top and bottom lines beat the Zacks Consensus Estimate. However, this pure-play children’s specialty apparel retailer witnessed a year-over-year decline in both the metrics.
Management narrowed down its previously provided fiscal 2023 guidance for the top and bottom line and issued a dismal third-quarter guidance owing to a tough macroeconomic environment and tempered consumer sentiment.
Shares of this Zacks Rank #3 (Hold) company have increased 14.7% in the past three months compared with the industry’s growth of 6.2%.
The Children's Place, Inc. Price, Consensus and EPS Surprise
The Children's Place, Inc. price-consensus-eps-surprise-chart | The Children's Place, Inc. Quote
Q2 in Detail
The Children’s Place posted an adjusted loss per share of $2.12, narrower than the Zacks Consensus Estimate of a loss of $2.16 per share. The company posted an adjusted loss of 89 cents per share in the year-ago quarter.
Net sales of $345.6 million declined 9.3% year over year, primarily due to soft consumer demand stemming from a high inflationary environment and the impact of permanent store closures. Comparable retail sales declined 9% in the reported quarter compared with our estimate of a 7.7% decline. Net sales surpassed the Zacks Consensus Estimate of $342 million.
Management highlighted that digital channel comprised 51% of retail sales during the reported quarter compared with 47% in the year-ago period. The company witnessed low double-digit growth in e-commerce traffic during the fiscal second quarter.
Adjusted gross profit came in at $87.8 million, down $27 million from $114.8 million reported in the year-ago quarter. Adjusted gross margin deleveraged 480 basis points (bps) to 25.4% due to increased input and supply chain costs and the impacts of the accelerated liquidation of seasonal inventory. Deleverage of fixed costs due to softness in net sales was also a reason. We expected an adjusted gross margin of 28.2% for the quarter under review.
Adjusted selling, general and administrative (SG&A) expenses came in at $101.7 million, down from $113.5 million reported in the year-ago quarter. Adjusted SG&A, as a percentage of sales, deteriorated by 40 bps to 29.4% and fared better than our estimate of 33%. The metric declined due to reduced store expenses, equity compensation expenses and home office payroll, partially offset by the deleveraging of fixed costs and planned higher marketing spend.
Adjusted operating loss came in at $25 million compared with an adjusted operating loss of $11.7 million posted in the year-ago quarter. Adjusted operating loss as a percentage of net sales deleveraged 410 bps to 7.2%. Our estimate for adjusted operating loss was $27.8 million for the quarter under review.
Store Update
The company ended the quarter with 596 stores. With respect to its store fleet optimization strategy, PLCE permanently shuttered 603 stores since 2013. It plans to close 80-100 stores in fiscal 2023.
Other Financial Aspects
The Children’s Place ended the quarter with cash and cash equivalents of $19 million. The company had $348 million outstanding on its revolving credit facility as of Jul 29, 2023. Stockholders' equity at the end of the quarter was $85.9 million.
Outlook
PLCE estimates third-quarter fiscal 2023 net sales of $470-$475 million, representing approximately a 7% decline from the year-ago figure. It expects gross margin to expand by 200-300 bps. The company envisions quarterly adjusted operating profit to be approximately 13.5% of net sales. Lastly, adjusted net earnings per share is anticipated in the band of $3.55-$3.65 in the fiscal third quarter. For the fiscal third quarter, it expects interest expenses of $7-$7.5 million, while the tax rate is projected in the range of 20%-21%.
For the second half of fiscal 2023, PLCE expects net sales of $910-$920 million, indicating a year-over-year decline in the mid-single digit percentage range. Adjusted operating income is likely to be 10% of net sales during the second half. Adjusted net earnings per share is anticipated in the band of $5.00-$5.25 in the same period. For the second half of fiscal 2023, it expects an interest expense of $13 million, while the tax rate is projected in the range of 20%-21%.
Management downgraded its view for fiscal 2023 owing to tough macroeconomic headwinds. For fiscal 2023, net sales are anticipated between $1.575 billion and $1.585 billion, narrowing down from the previous guidance of $1.575-$1.590 billion. The metric is expected to decline from $1.71 billion reported in fiscal 2022.
Adjusted operating income is likely to be in the band of 2.7-3% of net sales during the fiscal year. The company expects adjusted earnings of $1.00-$1.25 per share for fiscal 2023, compared with the previous guidance of $1.00-$1.50 per share.
Stocks to Consider
Some top-ranked stocks are Abercrombie & Fitch (ANF - Free Report) , The Kroger Co. (KR - Free Report) and The TJX Companies (TJX - Free Report) .
Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings per share suggests growth of 3.4% and 736%, respectively, from the year-ago reported figures. ANF has delivered an earnings surprise of 480.6% in the last four quarters.
The Kroger Co., which operates in the thin-margin grocery industry, currently has a Zacks Rank #2 (Buy). KR has a trailing four-quarter earnings surprise of 7.8%, on average.
The Zacks Consensus Estimate for The Kroger’s current financial year sales and earnings suggests growth of 2.2% and 6.9%, respectively, from the year-ago reported numbers.
The TJX Companies is a leading off-price retailer of apparel and home fashions. It currently carries a Zacks Rank #2. TJX has a trailing four-quarter earnings surprise of 6.6%, on average.
The Zacks Consensus Estimate for TJX’s current financial year sales and earnings suggests growth of 6.5% and 15.4%, respectively, from the year-ago reported numbers.