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Why Is The Children's Place (PLCE) Down 8.1% Since Last Earnings Report?
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A month has gone by since the last earnings report for The Children's Place (PLCE - Free Report) . Shares have lost about 8.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is The Children's Place due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Children's Place Q2 Earnings & Sales Top, View Up
The Children’s Place, Inc.’s multi-year strategic growth initiatives comprising digital transformation and fleet optimization aided this NJ-based company to report better-than-expected second-quarter fiscal 2018 results. The company also witnessed highest ever quarterly comparable retail sales buoyed by improved traffic. We note that although top line increased, bottom line continues to decline year over year but this did not deter management from raising fiscal year view.
Let’s Delve Deep
After witnessing a negative earnings surprise of 15.8% in the first quarter, Children’s Place posted an earnings beat of 22.8% during the second quarter. The company reported adjusted earnings of 70 cents a share that topped the Zacks Consensus Estimate of 57 cents and also came above the high-point of the earlier provided guidance range of 51-61 cents.
However, the bottom line plunged 18.6% during the quarter under review, following a decline of 4.1% in the preceding quarter. This year-over-year decline can be attributable to higher cost of sales and SG&A expenses. Even improved top line performance as well as share repurchase activity did not help much.
The company generated net sales of $448.7 million that increased 20.1% year over year and also came ahead the Zacks Consensus Estimate of $428.1 million, after missing in the preceding two quarters.
The increase in net sales were due to rise in comparable retail sales of 13.2%, about $22 million benefit from the calendar shift related to the 53rd week in fiscal 2017, and roughly $5 million due to the new revenue recognition rules. The company registered mid-single digit increase in traffic. U.S. and Canada comparable retail sales increased 14.2% and 4.2%, respectively. E-commerce, which represented 26% of total net sales, surged 41% during the quarter.
The company’s private label credit card penetration rose to 23% of sales from 21% last year, while private label credit card file surged 25% compared with the prior-year period. Management expects to attain a 30% private label credit card penetration by 2020.
Adjusted gross profit surged 20.3% to $154.8 million, whereas gross margin increased 10 basis points to 34.5% on account of fixed cost leverage on the back of robust comparable retail sales, the reclassification of certain items due to the recognition of new revenue rules, offset by reduced merchandise margins and increased e-commerce penetration.
Adjusted operating income came in at $15.7 million, up significantly from $5.1 million, while operating margin expanded 210 basis points to 3.5%.
Adjusted SG&A expenses increased 13.8% to $122.5 million, however, as a percentage of net sales, the same contracted 150 basis points to 27.3%. The increase in SG&A expenses were due to higher expenditures in transformation efforts and the reclassification of certain items on account of new revenue recognition rules. This was partly offset by lower incentive compensation expenses.
Store Update
As a part of store fleet optimization endeavors, the company shuttered 10 stores and did not open any outlet, thereby ending the quarter with 992 stores. Since the announcement of fleet optimization plan in 2013, the company has shuttered 191 outlets.
The company’s international franchise partners opened 11 points of distribution and closed one, thereby ending the quarter with 211 international points of distribution open and operated by its eight franchise partners in 20 countries. The company’s international franchise partners is on track to add over 40 points of distribution in 2018.
Other Financial Details
Children's Place ended the quarter with cash and cash equivalents of $106.4 million compared with $202.3 million a year ago. The company exited the quarter with inventories of $366.5 million and shareholders’ equity of $323.1 million. The company has a revolving loan of $89.3 million. Management projects capital expenditures of approximately $75-$85 million for the fiscal year.
During the quarter, the company bought back 440,147 shares of worth roughly $25 million. At the end of the quarter, the company still has approximately $307 million remaining under its existing share repurchase program.
A Glance at the Outlook
Management now anticipates adjusted earnings in the band of $8.09-$8.29 per share for fiscal 2018, up from the prior guided range of $7.95-$8.20 and earnings of $7.91 reported in fiscal 2017. Children's Place now envisions total net sales in the range of $1.945-$1.955 billion compared with $1.92-$1.94 billion projected earlier.
The company forecast mid-single digit growth in comparable retail sales and reiterated adjusted operating margin estimate of 8.5-8.7%. Management expects digital penetration to increase to 26% of net sales from 23%.
The company projects third quarter earnings between $2.97 and $3.07 per share, up from $2.58 posted in the prior-year period. Management expects mid-single digit increase in comparable retail sales.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, The Children's Place has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, The Children's Place has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is The Children's Place (PLCE) Down 8.1% Since Last Earnings Report?
A month has gone by since the last earnings report for The Children's Place (PLCE - Free Report) . Shares have lost about 8.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is The Children's Place due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Children's Place Q2 Earnings & Sales Top, View Up
The Children’s Place, Inc.’s multi-year strategic growth initiatives comprising digital transformation and fleet optimization aided this NJ-based company to report better-than-expected second-quarter fiscal 2018 results. The company also witnessed highest ever quarterly comparable retail sales buoyed by improved traffic. We note that although top line increased, bottom line continues to decline year over year but this did not deter management from raising fiscal year view.
Let’s Delve Deep
After witnessing a negative earnings surprise of 15.8% in the first quarter, Children’s Place posted an earnings beat of 22.8% during the second quarter. The company reported adjusted earnings of 70 cents a share that topped the Zacks Consensus Estimate of 57 cents and also came above the high-point of the earlier provided guidance range of 51-61 cents.
However, the bottom line plunged 18.6% during the quarter under review, following a decline of 4.1% in the preceding quarter. This year-over-year decline can be attributable to higher cost of sales and SG&A expenses. Even improved top line performance as well as share repurchase activity did not help much.
The company generated net sales of $448.7 million that increased 20.1% year over year and also came ahead the Zacks Consensus Estimate of $428.1 million, after missing in the preceding two quarters.
The increase in net sales were due to rise in comparable retail sales of 13.2%, about $22 million benefit from the calendar shift related to the 53rd week in fiscal 2017, and roughly $5 million due to the new revenue recognition rules. The company registered mid-single digit increase in traffic. U.S. and Canada comparable retail sales increased 14.2% and 4.2%, respectively. E-commerce, which represented 26% of total net sales, surged 41% during the quarter.
The company’s private label credit card penetration rose to 23% of sales from 21% last year, while private label credit card file surged 25% compared with the prior-year period. Management expects to attain a 30% private label credit card penetration by 2020.
Adjusted gross profit surged 20.3% to $154.8 million, whereas gross margin increased 10 basis points to 34.5% on account of fixed cost leverage on the back of robust comparable retail sales, the reclassification of certain items due to the recognition of new revenue rules, offset by reduced merchandise margins and increased e-commerce penetration.
Adjusted operating income came in at $15.7 million, up significantly from $5.1 million, while operating margin expanded 210 basis points to 3.5%.
Adjusted SG&A expenses increased 13.8% to $122.5 million, however, as a percentage of net sales, the same contracted 150 basis points to 27.3%. The increase in SG&A expenses were due to higher expenditures in transformation efforts and the reclassification of certain items on account of new revenue recognition rules. This was partly offset by lower incentive compensation expenses.
Store Update
As a part of store fleet optimization endeavors, the company shuttered 10 stores and did not open any outlet, thereby ending the quarter with 992 stores. Since the announcement of fleet optimization plan in 2013, the company has shuttered 191 outlets.
The company’s international franchise partners opened 11 points of distribution and closed one, thereby ending the quarter with 211 international points of distribution open and operated by its eight franchise partners in 20 countries. The company’s international franchise partners is on track to add over 40 points of distribution in 2018.
Other Financial Details
Children's Place ended the quarter with cash and cash equivalents of $106.4 million compared with $202.3 million a year ago. The company exited the quarter with inventories of $366.5 million and shareholders’ equity of $323.1 million. The company has a revolving loan of $89.3 million. Management projects capital expenditures of approximately $75-$85 million for the fiscal year.
During the quarter, the company bought back 440,147 shares of worth roughly $25 million. At the end of the quarter, the company still has approximately $307 million remaining under its existing share repurchase program.
A Glance at the Outlook
Management now anticipates adjusted earnings in the band of $8.09-$8.29 per share for fiscal 2018, up from the prior guided range of $7.95-$8.20 and earnings of $7.91 reported in fiscal 2017. Children's Place now envisions total net sales in the range of $1.945-$1.955 billion compared with $1.92-$1.94 billion projected earlier.
The company forecast mid-single digit growth in comparable retail sales and reiterated adjusted operating margin estimate of 8.5-8.7%. Management expects digital penetration to increase to 26% of net sales from 23%.
The company projects third quarter earnings between $2.97 and $3.07 per share, up from $2.58 posted in the prior-year period. Management expects mid-single digit increase in comparable retail sales.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, The Children's Place has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, The Children's Place has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.