Children's Place's (NASDAQ:PLCE) Posts Q2 Sales In Line With Estimates, Provides Encouraging Full-Year Guidance

Petr Huřťák /
2023/08/17 7:18 am EDT

Kid’s apparel and accessories retailer The Children’s Place (NASDAQ:PLCE) reported results in line with analysts' expectations in Q2 FY2023, with revenue down 9.26% year on year to $345.6 million. Guidance for next quarter's revenue was also better than expected at $472.5 million at the midpoint, 1.31% above analysts' estimates. Children's Place made a GAAP loss of $35.4 million, down from its loss of $13.3 million in the same quarter last year.

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Children's Place (PLCE) Q2 FY2023 Highlights:

  • Revenue: $345.6 million vs analyst estimates of $342.6 million (0.86% beat)
  • EPS: -$2.82 vs analyst expectations of -$2.10 (34.5% miss)
  • Revenue Guidance for Q3 2023 is $472.5 million at the midpoint, above analyst estimates of $466.4 million
  • EPS (non-GAAP) Guidance for Q3 2023 is $3.60 at the midpoint, below analyst estimates of $3.67
  • The company reconfirmed revenue guidance for the full year of $1.58 billion at the midpoint
  • Gross Margin (GAAP): 25.4%, down from 30.3% in the same quarter last year
  • Same-Store Sales were down 9% year on year
  • Store Locations: 596 at quarter end, decreasing by 62 over the last 12 months

Jane Elfers, President and CEO said, “Our Q2 results exceeded our guidance on both the top- and bottom-lines. The top-line beat was the result of a strong digital performance fueled by a strong start to Back-to-School, driven by our successful First-to-Market Back-to-School digital marketing strategies, and our on-trend product assortments. In addition, our wholesale channel delivered another outstanding quarter driven by the strength of our Amazon partnership. The bottom-line beat was the result of our continued strong focus on expense management. With respect to monthly sales cadence, May was our weakest month, June improved significantly with the kickoff of our Back-to-School strategy and July was our strongest month of the quarter”.

Offering sizes up to young teens, The Children’s Place (NASDAQ:PLCE) is a specialty retailer that sells its own brands of kid’s apparel and accessories.

Apparel sales are not driven so much by personal need but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

Sales Growth

Children's Place is a small retailer, which sometimes brings disadvantages compared to larger competitors that benefit from economies of scale.

As you can see below, the company's revenue has declined over the last four years, dropping 3.54% annually as its store count and sales at existing, established stores have both shrunk.

Children's Place Total Revenue

This quarter, Children's Place reported a rather uninspiring 9.26% year-on-year revenue decline, in line with Wall Street analysts' estimates. The company is guiding for a 7.19% year-on-year revenue decline next quarter to $472.5 million, an improvement from the 8.8% year-on-year decrease it had recorded in the same quarter last year. Looking ahead, Wall Street expects revenue to decline 4.6% over the next 12 months.

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Number of Stores

The number of stores a retailer operates is a major determinant of how much it can sell, and its growth is a critical driver of how quickly company-level sales can grow.

When a retailer like Children's Place is shuttering stores, it usually means that brick-and-mortar demand is less than supply, and the company is responding by closing underperforming locations and possibly shifting sales online. Since last year, Children's Place's store count shrank by 62 locations, or 9.42%, to 596 total retail locations in the most recently reported quarter.

Children's Place Operating Retail Locations

Taking a step back, the company has generally closed its stores over the last two years, averaging a 9.14% annual decline in its physical footprint. A smaller store base means that the company must rely on higher foot traffic and sales per customer at its remaining stores as well as e-commerce sales to fuel revenue growth.

Same-Store Sales

Same-store sales growth is a key performance indicator used to measure organic growth and demand for retailers.

Children's Place's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 2.01% year on year. The company has been reducing its store count as fewer locations sometimes lead to higher same-store sales, but that hasn't been the case here.

Children's Place Year On Year Same Store Sales Growth

In the latest quarter, Children's Place's same-store sales fell 9% year on year. This decrease was a deceleration from the 8.7% year-on-year decline it had posted 12 months ago. We hope the business can get back on track.

Key Takeaways from Children's Place's Q2 Results

With a market capitalization of $330.8 million and $18.8 million in cash on hand, Children's Place isn't as well capitalized as its peers.

It was good to see Children's Place lift its revenue guidance for next quarter. Other than that, we struggled to find many strong positives in these results. This was a mixed quarter for Children's Place. The stock is flat after reporting and currently trades at $26.5 per share.

So should you invest in Children's Place right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.