The Children's Place on Wednesday reported third quarter net sales increased 0.4% to $524.8 million from $522.5 million in the year-ago quarter, driven primarily by a 0.8% comparable sales increase (against a 9.5% increase last year). U.S. same-store sales increased 1.2%, while Canada comps declined 2.8%.
Net income in the quarter fell nearly 14% to $43 million from $49.9 million a year ago, according to a company press release. Adjusted net income was $47.1 million, a 7% decrease from $50.7 million in the year-ago period. Operating income fell more than 10% to $58 million.
- The Children's Place closed 12 stores and opened six, ending the quarter with 955 stores. On a call with analysts, CFO Mike Scarpa said the company raised its expected closures by the end of the year to 60 from the previously expected 40 to 45 locations, bringing total store closures to 271 and on pace toward its goal to close 300 locations by the end of 2020.
The Children's Place lowered its Q4 outlook "due to meaningfully weaker than planned mall traffic quarter-to-date," CEO Jane Elfers told analysts. This, coupled with lower than expected comps, sent shares down some 23% Wednesday.
The children's apparel retailer now expects revenue to be between $504 million and $509 million in the fourth quarter, and earnings per share to be between $1.48 and $1.68. For the full year, The Children's Place adjusted earnings per diluted share guidance to between $5.00 and $5.20 (from $5.40 to $5.75), lower than the B Riley FBR estimate of $5.62 to $5.70.
Elfers attributed the softer third quarter sales to warmer weather hampering its fall product assortment in its "key regional market." The company ended the quarter with inventories up 3% from last year and seasonal carryover inventory "down double digits," Elfers added.
The Children's Place directed attention to the relaunch of the Gymboree brand, which is set to take place in early 2020. The brand will be available both online on a newly revamped website and in shop-in-shops in more than 200 Children's Place locations.
Elfers views the Gymboree relaunch as a significant opportunity for The Children's Place to gain market share, particularly among millennials.
"We believe that as the millennials pay down debt, marry and purchase homes later than prior generations, growth in the children's apparel space will continue to be realized through market share gains for the foreseeable future," she said.
The company said its online and omnichannel customers increased about 14% in the quarter and now represents about 40% of total customers, an increase of nearly 600 basis points from last year. And it expects growth in that channel going forward: The Children's Place projects e-commerce penetration to grow to about 31% of total net sales. "[O]nline is a star," Elfers said, adding that it "continues to outperform and digital penetration continues in each quarter to exceed our expectations."
However, GlobalData Retail Managing Director Neil Saunders believes sales at the retailer are, in part, being hurt from growing competition in the space. The children's apparel market is getting more saturated with everyone from mass merchants like Target and its Cat & Jack private label, to rental service Rent the Runway, which in April expanded its assortment to include kids.
"Target, for example, has made significant share gains in kidswear and has a strong overlap with the customer base of The Children's Place," Saunders said in emailed comments. "This barely gets mentioned by the company's management, but it is a major cause for concern which could derail the recovery plans, much of which rest on making significant sales gains."