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Earnings preview: What to look for when Children’s Place releases Q1 report

The Children’s Place (Nasdaq: PLCE) has been successful in consolidating its position in the children’s apparel sector, while effectively tackling the adverse market conditions. The company will be publishing results for the first quarter of 2019 on Wednesday before the market opens.

There is apprehension that the challenges in the retail sector might have weighed down on the company’s overall performance. It is expected to slip to a loss of $0.52 per share in the first quarter from earnings of $1.87 per share in the same period last year. The bearish outlook for profitability reflects an estimated 10.4% decline in revenues to $391.05 million.

The forecast is broadly in line with the guidance issued by the company, which also sees 10-12% drop in comparable retail sales. In the trailing quarters, the bottom line performance was generally disappointing in comparison with the market’s expectations. The stock is experiencing intense volatility ahead of the earnings report, which calls for caution as far as buying is concerned.

There is apprehension that the challenges in the retail sector might have weighed down on the company’s overall performance

The management had informed that the $76-million acquisition of Gymboree Group’s assets earlier this year will impact earnings throughout the year, mainly due to the investments needed for tapping the opportunities offered by the acquired assets. It is speculated that the transaction will be accretive to adjusted earnings from early next year.

While the first two quarters of the current fiscal year are expected to be relatively weak, things will improve in the later part of the year aided by a more favorable demand-supply mix.

Meanwhile, the specialty retailer has an effective strategy in place to return to the high-growth mode in the long term, such as the adoption of technology to ramp up its digital platform, exploring new overseas markets and streamlining of store operations.  

For the fourth quarter, the company reported adjusted earnings of $1.10 per share, which missed analysts’ forecast by a wide margin. There was a 7% decline in revenues to $530.56 million. While publishing the results, the management had predicted a net loss in the range of $0.70 per share to $0.40 per share for the first quarter.

Related: The Children’s Place Q3 2018 Earnings Conference Call Transcript

Gap Inc. (GPS), which shares the specialty apparel retail space with The Children’s Place, is scheduled to release first-quarter earnings on May 30 after the regular market hours. It is widely expected to report a 24% decline in earnings per share to $0.32, on revenues of $3.8 billion.

Children’s Place shares reached a peak nearly a year ago and maintained the uptrend during most part of last year, before falling to a three-year low in December. They stabilized at the beginning of the year and gained 23% so far.

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