Why Children's Place (PLCE) Shares Are Getting Obliterated Today

Petr Huřťák /
2023/11/16 11:45 am EST

What Happened:

Shares of kid’s apparel and accessories retailer The Children’s Place (NASDAQ:PLCE) fell 10.7% in the morning session after the company reported third quarter results that missed analysts' expectations for same-store sales and earnings per share. Management attributed the lower bottom-line results to unexpectedly high distribution costs, driven by a combination of unplanned factors. These included elevated fulfilment costs, substantially increased labor expenses, and a delay in realizing certain planned savings in freight and fulfilment. Looking forward, the company anticipates these elevated distribution costs to persist into the fourth quarter. Moving ahead, revenue guidance for the next quarter was ahead, while full-year earnings forecast underwhelmed. Overall, the results could have been better and show the company is under pressure from a cost perspective.

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What is the market telling us:

Children's Place's shares are a little volatile and over the last year have had 55 moves greater than 5%. Moves this big are very rare for Children's Place and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was three months ago, when the stock gained 6.6% on the news that the company reported second quarter revenue and non-GAAP earnings per share that beat Wall Street's expectations. Notably, the topline beat was attributed to " 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." Similarly, revenue guidance for the next quarter and the full year exceeded Consensus. Regarding the near term growth outlook, management provided some encouraging updates showing the current quarter is off to a good start and adding that "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." On the other hand, revenue and same store sales declined in absolute terms due to a slowdown in consumer demand and store closures in line with the company's store optimization initiative. Gross margin also deteriorated. 

Overall, it wasn't a perfect quarter but one that is giving some more bullish signals about the health of the business. The guidance, in particular, will likely have Wall Street analysts adjusting their projections upwards. As a reminder, stocks follow the direction of estimates and projections, so it's no surprise that the stock is up today.

Children's Place is down 41% since the beginning of the year, and at $21.15 per share it is trading 55% below its 52-week high of $47.05 from February 2023. Investors who bought $1,000 worth of Children's Place's shares 5 years ago would now be looking at an investment worth $161.01.

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