Earnings preview: The Children’s Place likely to get a treat in Q3

The Children’s Place (PLCE) is scheduled to report its earnings for the third quarter on Thursday before the bell. The company is expected to post upbeat results helped by higher revenue as well as positive comparable retail sales and a rise in customer base.

Analysts, on average, expect the company to post earnings of $3.07 per share on revenue of $511.19 million for the third quarter. In comparison, during the previous year quarter, the company reported a profit of $2.58 per share on revenue of $490.03 million. Majority of the analysts recommended a “strong buy” or “buy” rating on the stock with an average price target of $162.14.

The children’s specialty apparel retailer’s top line is likely to be benefited by the higher customer base, a rise in stores, and an increase in comparable sales. The bottom line could be driven by the higher revenue. The company has ventured into the digital transformation by planning to invest about $50 million in selling, general and administrative over the next three years. By 2020, about 35% of the revenue could be coming from the digital channel.

However, investors are concerned on the bottom line growth as it could be hurt by higher costs and expenses as well as an increase in asset impairment charges. Also, headwinds remained due to stiff competition and aggressive promotional environment. Traders expect the company to declare a dividend for the third quarter.

The Children’s Place gains on upbeat Q2 results, strong outlook

For the second quarter, the company reported a 48% dip in earnings due to higher costs and expenses. Sales grew 20% on a 13.2% increase in comparable retail sales, a calendar shift benefit related to the 53rd week in fiscal 2017, and new revenue recognition rules.

For the third quarter, the company had expected earnings in the range of $2.97 to $3.07 per share and comparable retail sales growth in the high-single-digit range. For the full year 2018, the company had projected adjusted earnings in the range of $8.09 to $8.29 per share and total net sales in the range of $1.945 billion to $1.955 billion. Comparable retail sales growth for the full year was predicted to be in the mid-single-digit range.

During the second quarter, the company closed 10 stores and did not open any stores that were consistent with store fleet optimization initiative. The company ended the second quarter with 992 stores and square footage of 4.6 million, a decrease of 4% compared to the prior year.

Shares of the retailer opened higher on Tuesday but changed course to the red territory during the early trade. The stock has fallen over 12% in the year so far and over 4% in the past year.

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