The Children’s Place, Inc. (PLCE Quick QuotePLCE - Free Report) reported third-quarter fiscal 2023 results, wherein the top line beat the Zacks Consensus Estimate, but the bottom line missed the same.

This pure-play children’s specialty apparel retailer witnessed a year-over-year decline in both metrics. Management updated its previously provided fiscal 2023 guidance for the top and bottom lines and issued a solid fourth-quarter guidance.

Shares of this Zacks Rank #1 (Strong Buy) company have increased by 1.1% in the past three months compared with the industry’s growth of 2.2%.

Q3 in Detail

The Children’s Place posted an adjusted earnings per share of $3.22, lagging the Zacks Consensus Estimate of $3.49 per share. The company posted adjusted earnings of $3.33 per share in the year-ago quarter.

Net sales of $480.2 million declined 5.7% year over year, primarily due to soft consumer demand stemming from a high inflationary environment, geo-political concerns affecting consumer confidence and the impact of permanent store closures. Comparable retail sales declined 7.3% in the reported quarter compared with our estimate of a 3.8% decline. Net sales surpassed the Zacks Consensus Estimate of $472 million.

Management highlighted that its e-commerce channel comprised 57% of retail sales during the reported quarter compared with 50% in the year-ago period. The company witnessed low single-digit growth in ecommerce sales, backed by a double-digit increase in e-commerce traffic during the fiscal third quarter.

Adjusted gross profit came in at $162.1 million, down $14.8 million from $176.9 million reported in the year-ago quarter. Adjusted gross margin deleveraged 110 basis points (bps) to 33.7% due to increased distribution and fulfillment expenses, partially offset by lower supply chain and cotton costs. We expected an adjusted gross margin of 37.2% for the quarter under review.

Adjusted selling, general and administrative (“SG&A”) expenses came in at $102.9 million, down from $105.4 million reported in the year-ago quarter. Adjusted SG&A, as a percentage of sales, deleveraged by 70 bps to 21.4% and came in line with our estimate. The company witnessed a deleverage of fixed costs and planned higher marketing spend in the quarter, along with reduced store expenses, equity compensation expenses and home office payroll.

Adjusted operating income came in at $47.9 million compared with $59.1 million generated in the year-ago quarter. Adjusted operating income, as a percentage of net sales, deleveraged 160 bps to 10%. Our estimate for adjusted operating income was $63.8 million for the quarter under review.

Store Update

The company ended the quarter with 591 stores. With respect to its store fleet optimization strategy, PLCE permanently shuttered 608 stores since 2013. It plans to close another 64 stores by the end of fourth-quarter fiscal 2023.

Other Financial Aspects

The Children’s Place ended the quarter with cash and cash equivalents of $13.5 million. The company had $359 million outstanding on its revolving credit facility as of Oct 28, 2023. Stockholders' equity at the end of the quarter was $118.1 million.

Outlook

PLCE estimates fourth-quarter fiscal 2023 net sales of $460-$465 million, representing a low single-digit growth from the year-ago figure. The company envisions quarterly adjusted operating profit to be approximately 2-3% of net sales. Lastly, adjusted net earnings per share are anticipated in the band of 25-45 cents in the fiscal fourth quarter. For the quarter, it expects interest expenses of about $6.5 million, while the tax rate is projected to be 27%.

For fiscal 2023, management anticipates net sales to lie in the range of $1.605 billion to $1.610 billion compared with the previous guidance of $1.575-$1.585 billion. The metric is expected to decline from $1.71 billion reported in fiscal 2022.

The company expects adjusted operating income to be in the low single-digit percentage range of net sales during the fiscal year. Adjusted loss is currently envisioned in the range of 39-59 cents per share for fiscal 2023 compared with the adjusted earnings guidance of $1.00-$1.25 per share guided previously. PLCE’s guidance includes the impact of the 53rd week in 2023, based on the retail calendar.

Other Stocks to Consider

A few other top-ranked stocks in the same space are American Eagle Outfitters Inc. (AEO Quick QuoteAEO - Free Report) , Abercrombie & Fitch Co. (ANF Quick QuoteANF - Free Report) and Deckers Outdoor Corporation (DECK Quick QuoteDECK - Free Report) .

American Eagle Outfitters is a specialty retailer of casual apparel, accessories and footwear. It sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal-year earnings and sales indicates growth of 37.1% and 2.4%, respectively, from the previous year’s reported figures. AEO has a trailing four-quarter average earnings surprise of 43.2%.

Abercrombie & Fitch is a specialty retailer of premium, high-quality casual apparel. The company currently carries a Zacks Rank #2 (Buy). ANF delivered a significant earnings surprise in the last reported quarter.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current fiscal-year sales implies growth of 10.3% from the previous year’s reported number. ANF has a trailing four-quarter average earnings surprise of 724.8%.

Deckers Outdoor is a leading designer, producer and brand manager of innovative, niche footwear and accessories. It currently carries a Zacks Rank #2. The Zacks Consensus Estimate for Deckers’ current fiscal-year earnings and sales indicates growth of 20.8% and 11.2%, respectively, from the previous year’s reported figures. DECK has a trailing four-quarter average earnings surprise of 26.3%.