Children’s Place earnings climb 34%; Shares plunge on outlook, revenue miss

Benefitting from strong sales growth, pre-tax earnings of The Children’s Place (PLCE) jumped 34% in the fourth quarter, beating analysts’ estimates. Meanwhile, revenues fell short of expectations, triggering a massive sell-off that dragged the stock by more than 8% in early trading today to a four-month low. The company’s soft outlook also added to the downbeat investor sentiment.

The results, however, show that the company’s efforts to expand market share through innovations in its product portfolio are bearing fruit.

Net income, excluding charges related to the recent tax reform, came in at $2.52 per share as the Kids’ apparel retailer registered an 8.2% gain in comparable store sales, marking the fourth consecutive year of continued growth. At $570 million, net sales were higher by 9% compared to the year-ago quarter.

Including $52 million in tax-related charges, the company reported a loss of $0.57 per share during the three-month period, compared to a profit of $1.86 per share a year earlier.

Earlier this month, Gap Inc. (GPS), another leading apparel retailer, reported a 5% growth in comparable store sales for its most recent quarter, supported by the strong holiday season. There was a corresponding growth in profit also.

Looking ahead, Children’s Place expects to leverage its digital technologies, supply chain optimization and a new partnership in China to boost market share growth.

The company is looking for operating margin of 12% and earnings of $12 per share by 2020. The annual capital expenditure for the next two years, with the primary focus on transformation initiatives, is estimated to be in the range of $75 million to $85 million.

In the first quarter of 2018, comparable retail sales growth is expected to be in the low single digit, which would translate the earnings outlook to $2.12-$2.22 per share. For the whole of 2018, EPS is estimated to be in the $7.95-$8.20 range.

Comparable store sales of Children’s Place grew 8.2% in Q4, continuing the trend that began four years ago

The specialty retailer also announced a new $250-million share buyback program and raised its quarterly dividend by $0.10 to $0.50 per share. The next dividend will be paid on April 27, 2018.

Separately, Children’s Place said it signed a license agreement with Zhejiang Semir Garment Co. for the Greater China market, covering Mainland China, Taiwan, Hong Kong and Macau. Zhejiang is the parent of Balabala, a leading children’s apparel retailer in China.