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Children's Place Q1 Results Beat View, Lifts Low-end Of 2014 Outlook Range

Children's Place Retail Stores, Inc. (PLCE) on Thursday reported a 29 percent decline in profit for the first quarter from last year, reflecting one-time charges and lower sales. However, both revenue and adjusted earnings per share for the quarter beat analysts' expectations.

Looking ahead, the children's specialty apparel retailer forecast adjusted loss for the second quarter to be narrower than Street estimates and raised the lower end of its fiscal 2014 adjusted earnings outlook range.

In addition, the company said it has entered into a franchise agreement with Grupo David Enterprises, a retail corporation headquartered in Panama, to expand its brand to Latin America and the Caribbean.

Jane Elfers, President and Chief Executive Officer of Children's Place said, "We delivered first quarter results which exceeded our expectations despite weather challenges that continued into early April. We achieved a positive 9% sales comp in April with the benefit of a later Easter and normalized weather patterns in the Northeast and Midwest regions of the United States. Our sales acceleration is a positive catalyst as we move forward into the second quarter."

The Secaucus, New Jersey-based company's net income for the first quarter declined to $13.60 million or $0.61 per share from $19.27 million or $0.83 per share in the year-ago period.

The latest quarter's results included charges of $2.6 million for unusual items, primarily consisting of severance associated with a corporate restructuring as well as severance associated with the company's fleet optimization initiative.

Excluding items, adjusted net income for the quarter was $15.28 million or $0.68 per share, compared to $19.30 million or $0.83 per share in the previous-year quarter. On average, 18 analysts polled by Thomson Reuters expected the company to report earnings of $0.61 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter declined 3 percent to $410.15 million from $423.16 million in the same period last year. Analysts had a consensus revenue estimate of $407.99 million for the quarter.

Net sales for the latest quarter included the negative impact of $3.5 million from currency exchange rate fluctuations. Comparable retail sales for the quarter declined 3.6 percent.

Adjusted gross margin declined 240 basis points to 36.2 percent of sales, due to deleverage on the lower sales base and modest merchandise margin deleverage.

The company opened 4 stores and closed 5 during the first quarter, ending the quarter with 1,106 stores and square footage of 5.195 million, a decrease of 2 percent compared to the prior year.

Looking ahead to the second quarter, Children's Place forecasts adjusted loss in a range of $0.47 to $0.41 per share, assuming comparable retail sales to be down low single digits. This compares to adjusted net loss of $0.42 per share in the year-ago period. Analysts expect the company to report loss of $0.49 per share for the quarter.

For fiscal 2014, Children's Place raised the lower-end of its adjusted earnings outlook raneg. The company now forecasts adjusted earnings in a range of $2.90 to $3.05 per share, compared to the prior range of $2.85 to $3.05 per share. The company expects foreign exchange rates to hurt annual earnings by $0.10. Street expects the company to report earnings of $2.97 per share for the year.

The outlook assumes comparable retail sales for the year will be flat to negative 1 percent, and anticipates a significant negative impact from foreign exchange in 2014.

In 2014, Children's Place now plans to open about 25 stores, 10 fewer than the original plan, and close 35, for a net of 10 fewer stores in North America. The company said that due to its fleet optimization initiative, it will curtail new store openings in North America for 2014 and beyond, and reprioritize capital investments to its omni-channel growth initiatives.

The company's board of directors approved a quarterly dividend of $0.1325 per share, payable on July 17 to shareholders on record at the close of business on June 27.

Children's Place noted that the franchise agreement with Grupo David Enterprises has the potential to open 35 to 40 stores over the next few years, beginning in the fall of 2014.

PLCE closed Wednesday's trading at $45.49, down $1.34 or 2.86 percent on a volume of 792,578 shares.

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