Children’s specialty apparel retailer The Children's Place
(PLCE 103.22, -19.93, -16.18%) slips on Thursday following the company’s fiscal 2018
earnings outlook cut.
PLCE’s guidance cut seems to be driving the majority of the decline today, so it may be prudent to touch on that point at the outset. In this morning’s press release, PLCE management lowered its expectations for fiscal 2018 adjusted earnings per share to a range of $7.69-7.79 compared to previous guidance in the range of $8.09-8.29. For sake of comparison, in fiscal 2017, the company achieved to adjusted net income per diluted share of $7.91. Management now expects total net sales for the year to be in the range of $1.955 to $1.960 bln compared to the prior $1.945-1.955 bln expectation.
Assumed by and accounted for in this guidance is an increase in comparable retail sales in the positive mid-single digits; this is unchanged from previous guidance. The company now expects adjusted operating margin to be in the range of 7.7-7.8% from its prior expectation for 8.5-8.7%. The updated margin outlook reflects $5 mln, or $0.24 in EPS, of added fulfillment costs in the fourth quarter to support the exposure of PLCE’s brick-and-mortar inventory on-line and its ship from store capabilities. Additionally, the outlook considers the potential margin impact of increased competitiveness as the industry attempts to win market share abandoned by distressed competitors.
PLCE, then, also gave guidance for the final quarter; adjusted EPS is expected between $2.07-2.17 on total net sales of $547-552 mln, backed by a positive low-single digit comparable retail sales increase. Management highlighted that the company ended the month of November with comparable retail sales up low-single digits. Additionally, given recent competitor news (such as Gymboree store closings), the company’s updated outlook also assumes the sales and margin impact of potentially significant liquidation events.
Swinging back to the third quarter results, PLCE reported EPS of $3.07 on revenue growth of 6.6% to $522.5 mln. The sales increase was driven mostly by a positive comparable retail sales increase of 9.5% and around $5.0 mln due to the new revenue recognition rules, partially offset by an approximately a $14.0 mln adverse impact from the calendar shift related to the 53rd week in fiscal 2017.
Adjusted gross margin deleveraged 220 basis points in the third quarter to 39.1% of sales as a result of stronger sales in e-commerce and the company’s decision to compete aggressively for market share, partially offset by fixed cost leverage on stronger comparable retail sales and the reclassification of certain items due to the new revenue recognition rules.
As it stands, the guidance trim seems to be driving the lion’s share of PLCE’s Thursday losses. The outlook cut comes even as the company decently beat comp expectations in Q3; management highlighted that, due to stronger than anticipated digital demand in the back-half of 2018, the company was forced to accelerate online access to its brick-and-mortar inventory and its ship from store fulfillment capabilities.
All told PLCE’s stock sinks to 15-month lows, now down just shy of 30% on the year, outpacing the approximately 1.7% decline in the S&P Retail SPDR (XRT 44.49, -0.76, -1.7%) since the start of the year.
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