Children's Place Stock Falls Since Q1 Earnings: Here's Why

Shares of The Children's Place, Inc. PLCE have declined 9.2% since it reported first-quarter fiscal 2018 earnings results on May 17. The company not only missed the Zacks Consensus Estimate on both earnings and revenue fronts but also witnessed a year-over-year decline in the bottom line. A decrease in comparable retail sales, along with the contraction in margins, also hurt investors’ sentiments.

Apart from the above-mentioned factors, the soft view was also disappointing for the investors. For the fiscal second quarter, the company projected adjusted earnings per share of 51-61 cents, sharply down from 86 cents in the year-ago quarter.

Evidently, this Zacks Rank #3 (Hold) company witnessed a downward revision of estimates over the past seven days for fiscal 2018.

Children's Place, Inc. (The) Price, Consensus and EPS Surprise

Children's Place, Inc. (The) Price, Consensus and EPS Surprise | Children's Place, Inc. (The) Quote

 

We note that in the past three months, shares of this Secaucus, NJ-based company have lost 13.8%, wider than the industry’s decline of 4%.

Three Factors Pulling the Stock Down

Earnings & Net Sales Miss Estimates

We note that the quarter under review broke Children's Place’s long streak of reporting positive earnings surprise. The company posted earnings of $1.87 in the fiscal first quarter, which missed the Zacks Consensus Estimate of $2.22. It also missed the company’s own projection of $2.12-$2.22. The results were impacted by unseasonable cooler weather and declining traffic.  The figure declined 4.1% on a year-over-year basis.

On the other hand, net sales remained almost flat at $436.3 million but missed the consensus mark of $443 million.

Decline in Comps

Notably, the company’s comparable sales have declined for the first time, after increasing in the last nine quarters. Comparable retail sales were down 1.8%versus 6.1% growth registered in the year-ago quarter. The U.S. and Canada comp sales decreased 1.4% and 7.1%, respectively.

Weak Margins

Adjusted gross profit declined 5.6% year over year to $161.5 million while gross margin contracted 220 basis points (bps) to 37%. This specialty retailer of children's apparel reported adjusted operating income of $25.4 million, down from $48.4 million in the prior-year quarter. Moreover, operating margin decreased 530 bps to 5.8%.

For fiscal 2018, management expects adjusted operating margin to be 8.5-8.7% compared with 8.7-9% announced earlier.

Here are Few Fundamentals to Look at

Strategic Initiatives

The company has been widening its operations via deals and collaborations to increase its customer base. We note that the company’s partnership with Zhejiang Semir Garment Co. Ltd in China is progressing well. Children's Place expects to open five stores for the first time in the super tier-one cities of Shanghai, Beijing and Shenzhen. Further, it has revealed plans to open a new e-commerce site with Tmall, the e-commerce platform of Alibaba, in the second half of fiscal 2018.

Moreover, the company is going to launch a brand store on Amazon in the second quarter of fiscal 2018. The company is planning to participate in the launch of Amazon’s Prime Wardrobe, allowing the Prime members to try on products before purchasing.

Guidance

For fiscal 2018, the company reaffirmed the guidance for adjusted earnings per share of $7.95 - $8.20compared with $7.91 last year. It now expects total net sales of $1.92-$1.94 billion from the earlier guidance of $1.91-$1.93 billion. It anticipates comparable retail sales to increase 3.5-4.5% from the earlier projection of 2.5-3.5%.

Furthermore, Children's Place reiterated its fiscal-2020 target. It continues to expect earnings of $12.00 per share and adjusted operating margin to expand 12% by the end of fiscal 2020. The company anticipates total net sales of approximately $2.1 billion by fiscal 2020, on the back of 3.5-4.5% comp sales growth in fiscal 2018, mid-single-digit comp sales growth in fiscal 2019 and 2020 along with growth in the international and wholesale businesses.

Key Picks

Best Buy BBY delivered an average positive earnings surprise of 19.1% in the trailing four quarters. It has long-term earnings growth rate of 14.6% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fossil Group FOSL delivered an average positive earnings surprise of 54.1% in the trailing four quarters and carries a Zacks Rank #2.

DSW Inc. DSW delivered an average positive earnings surprise of 13.4% in the trailing four quarters. It has long-term earnings growth rate of 7.3% and carries a Zacks Rank #2.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Fossil Group, Inc. (FOSL) : Free Stock Analysis Report
 
DSW Inc. (DSW) : Free Stock Analysis Report
 
Children's Place, Inc. (The) (PLCE) : Free Stock Analysis Report
 
Best Buy Co., Inc. (BBY) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research