The Children's Place shifts to omnichannel, digital to reach millennial moms
The Children's Place on Thursday reported that third quarter net sales rose $32.5 million or 6.6% to $522.5 million from $490 million in the year-ago quarter, primarily driven by a 9.5% retail comparable sales rise and some $5 million from new revenue recognition rules, partially offset by about $14 million hit because of last year's extra selling week. Digital sales rose 38% to 29% of net sales.
Net income reached $49.9 million in the quarter, up from $44.1 million in the year-ago quarter, according to a company press release. Adjusted net income reached $50.7 million up from $46.7 million last year. Operating income reached $64.6 million from $64.1 million a year ago, and adjusted operating income declined to $65.5 million, or 12.5% of net sales, compared to $68.4 million last year.
The retailer is on pace to meet its goal, announced five years ago, of shuttering 300 stores by 2020, having closed four locations in the third quarter and 45 by year's end (leaving 85 to go), Chief Financial Officer and Chief Operating Officer Mike Scarpa told analysts on a conference call Thursday morning. The Children's Place ended the quarter with 988 stores and square footage of 4.6 million, a 4% year-over-year decrease. The company has closed 195 stores in the past five years, according to the release.
The Children's Place President and CEO Jane Elfers made a splash earlier this year saying the retailer was intent on taking market share from struggling rival Gymboree, but during a conference call on Thursday she said the retailer's market opportunities in kidswear are found well beyond "capital constrained" and otherwise troubled businesses like Gymboree and Sears.
Last month the retailer announced the departures of President of Global Product Pamela Wallack and CFO Anurup Pruthi, and said that Elfers would take on Wallack's duties while Sharpa will take on Pruthi 's. In comments emailed to Retail Dive, B. Riley analysts said that consolidation, which Elfers said is permanent, promises to be smooth and will deliver efficiencies, considering Elfers' already close involvement in product development and Sharpa's previous stint as CFO.
The retailer is aiming for millennial moms and, cognizant that "100% of our customers grow out of our product," is focused on customer acquisition and retention and on growing sales online and through omnichannel services like in-store pickup, executives said. The company's Amazon sales, driven especially by replenishment, rose 40% year over year in the quarter. "All is positive on the Amazon front," Sharpa said.
The company has the luck of being less vulnerable than many apparel retailers to much-discussed tariffs on goods sourced from China, according to Coresight Research, which noted in a report this week that "The Children's Place uses the China plus Vietnam plus many sourcing strategy."
When Elfers arrived eight years ago, 40% of its merchandise came from China, while now that's in the "mid-teens" and by 2020 will fall to "mid-single digits," Sharpa said. Last year, along with China, the company sourced 17% of its goods from Bangladesh, 13% from Vietnam, 12% from Indonesia and 11% from India, according to Coresight's report. As a result of that "modest" exposure, the retailer won't be raising prices next year, according to Sharpa.
Follow Daphne Howland on Twitter