The Children’s Place Q1 profit plunges 86% but beat estimates

The Children’s Place (PLCE) reported a 86% plunge in earnings for the first quarter of 2019, due to the adverse impact from Gymboree liquidation and 70% store overlap with about 800 Gymboree and Crazy 8 liquidations as well as the headwind of a later Easter. The results exceeded analysts’ expectations. The specialty retailer of kids’ apparel lifted its earnings and sales outlook for fiscal 2019.

Net income dropped 86% year-over-year to $4.5 million and earnings fell 84% to $0.28 per share. Adjusted earnings plunged by 81% to $0.36 per share.

The results were adversely impacted by Gymboree liquidation, higher adjusted tax rate resulting from the impact on share-based compensation tax deductibility due to current share price, and Gymboree and Crazy 8 acquisition.

Net sales declined 5.5% to $412.4 million, which was above the company’s guidance range of $385 million to $395 million. Comparable retail sales decreased by 4.6% in the first quarter of 2019. The company’s sales began to accelerate in mid-March and continued to strengthen through the end of the quarter, resulting in positive comparable retail sales in excess of 20% for the month of April.

Looking ahead into the second quarter, the company expects adjusted earnings in the range of $0.00 to $0.20 per share and net sales in the range of $415 million to $420 million. Comparable retail sales are anticipated to decline in the range of 5% to 4%. Adjusted operating margin is predicted to be in the range of 0.4% to 1.3%.

For fiscal 2019, the company lifted its net sales outlook to the range of $1.905 billion to $1.925 billion from the prior range of $1.89 billion to $1.915 billion. Adjusted earnings guidance is lifted to the range of $5.75 to $6.25 per share from the previous range of $5.25 to $5.75 per share. Comparable retail sales are now expected to be about flat to 2018. Adjusted operating margin is now projected to be in the range of 6.4% to 6.9%.

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For the first quarter, the company opened one store and closed two stores, consistent with its store fleet optimization initiative. The company ended the quarter with 971 stores and square footage of 4.5 million, a decrease of 3.2% compared to the prior year. Since the fleet optimization initiative was announced in 2013, The Children’s Place has closed 213 stores.

In a separate release, the company’s board of directors declared a quarterly cash dividend of $0.56 per share. The dividend will be paid on June 28, 2019, to shareholders of record at the close of business on June 18, 2019. The continuation of dividend is a further reflection of the company’s confidence in its ability to execute on strategic initiatives and continuing commitment to return excess capital to shareholders.

For the first quarter, the company repurchased 344,000 shares for about $33 million, inclusive of shares repurchased and surrendered to cover tax withholdings associated with the vesting of equity awards held by management. The company also paid a quarterly dividend of about $9 million, or $0.56 per share, in the quarter.

Shares of The Children’s Place ended Tuesday’s regular session up 3.36% at $112.11 on the Nasdaq. Following the earnings release, the stock inched up over 6% in the premarket session.

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