Children's Place (PLCE) Down On Q4 Earnings Miss & Muted View
Zacks Investment Research | Mar 04, 2019 08:11PM ET
Shares of The Children’s Place, Inc. (NASDAQ:PLCE) plunged roughly 10.3% during the trading session on Mar 4 following the company’s lower-than-expected fourth-quarter fiscal 2018 results, wherein both the top and bottom line declined on a year-over-year basis. The company’s bleak fiscal 2019 view on account of unforeseen challenges owing to the bankruptcy of its rival, Gymboree, and a very late Easter also affected this Zacks Rank #4 (Sell) stock. Management had earlier indicated that Gymboree’s liquidation activity may ramp up promotional environment.
To mitigate the impact of the same, Children’s Place successfully liquidated its seasonal inventories and exited the fourth quarter with a much leaner inventory level. Total inventories declined 6.5% compared with management’s guidance of flat to up low-single digits. This accelerated liquidation negatively impacted fourth-quarter earnings by about 79 cents a share. Management expects first half of fiscal 2019 to be quite tough with performance anticipated to improve in the back-half on account of lower supply in the children’s apparel space. Margins are likely to gain from lower inventory levels and fall in product costs.
Concurrently with earnings release, this pure-play children’s specialty apparel retailer announced that it has entered into an Asset Purchase Agreement with Gymboree Group, Inc. and related entities to buy intellectual property assets of Gymboree and Crazy 8 (the “Gymboree Assets”) for $76 million. Although this buyout is likely to be accretive to fiscal 2020 adjusted earnings per share, it may have a negative low-teens percentage impact on fiscal 2019 earnings owing to incremental investments to harness opportunities provided by the Gymboree assets.
We note that shares of Children’s Place have plummeted 20.5% in the past three months, as against the Original post
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