The Children's Place on Tuesday reported fourth quarter net sales rose 9.4% to $570 million as same-store sales rose 8.2%. The apparel retailer's net loss in the quarter was $9.9 million, compared to net income of $34.2 million in the previous year, according to a company press release. Adjusted net income, which excluded restructuring, legal and tax costs, was $45.3 million, or $2.52 per diluted share. That beat the B. Riley FBR estimate for between $2.47 and $2.46 per share and the company's own guidance of $2.45 to $2.50 per share.
Adjusted gross profit was $211.1 million, up from $187.9 million last year, driven by fixed expenses from the strong comps and the company's 12th straight quarter of merchandise margin expansion. Margin growth was partially offset by higher fulfillment costs associated with the company's growing e-commerce business.
The children's apparel retailer also announced an exclusive license agreement for the greater China market with Zhejiang Semir Garment Co., parent of China's largest specialty children's apparel retailer, Balabala. CEO Jane Elfers told analysts the tie-up is a "game changer" that "fundamentally changes the trajectory of our international growth opportunity" and could add up to $150 million to annual sales in five years, according to a transcript from Seeking Alpha. GlobalData Retail Managing Director Neil Saunders called that estimate feasible.
The Children's Place is making assertive moves online and off, but Elfers and analysts alike noted Tuesday that the specialty apparel retailer is also benefiting from the bankruptcies of Toys R Us and its Babies R Us unit, and of rival Gymboree last year.
"Simply put, 2017 was a stellar year for the Children's Place," Elfers said on the call. "We have delivered consistent industry-leading results for several years, with 2017 being our fourth consecutive year of positive comps. … A large part of our success comes from our ability to consistently grow market share through our unique and compelling product offerings."
The U.S. kids market was approximately $26 billion last year, and the retailer's U.S. market share rose to 5.8% versus 5.6% in 2016, according to Elfers. That was accomplished by style improvements as well as the addition of larger sizes to bring in more older girls, she said.
The company had projected that the addition of size 16 to all stores in both genders could generate $50 million in annual sales volume, and that was exceeded in one year, she said. The retailer also added extended sizes in shoes and accessories online last year and is now adding them to its stores. "That brings the combination of extended larger sizes in apparel and accessories to an almost $100 million sales opportunity," Elfers said.
Analysts were pleased not just with the strong fourth quarter but also the retailer's room for potential. "Margin gains from better sourcing, improved economies of scale and less discounting all helped to ease up operating performance," Saunders said in comments emailed to Retail Dive. "Despite this being the 12th consecutive quarter of product margin expansion, we believe that Children's Place can make further gains as it moves into its new fiscal year."
The market share forfeit from Toys R Us, the company's China expansion and the retailer's ongoing merchandise improvements all make Saunders optimistic about its prospects. "The Children's Place offer is unique and compelling, and this helps it to differentiate it from rivals," he said. "The extensive amount of choice also means there is something to suit all tastes, which has made it a destination for parents and older kids alike."