The Children's Place (PLCE), which bills itself as the largest pure-play children's specialty apparel retailer in North America, is trading lower this morning despite a surprisingly strong Q1 (Apr) earnings report.
PLCE announced some big news in March 2019 when it purchased assets from rival, Gymboree, which was in bankruptcy proceedings. PLCE acquired the intellectual property and related assets of Gymboree and Crazy 8 for $76 mln in cash. The deal included trademarks, websites, and customer databases.
CEO Jane Elfers said at the time that the "acquisition will be an attractive vehicle to expand our business across price and channel. It will provide us with a path to revitalize the Gymboree brand across various channels, including e-commerce, TCP stores, wholesale, and international."
With that as context, let's turn to the Q1 (Apr) earnings report. Analysts were expecting a pretty sizeable loss in the quarter, but instead PLCE reported non-GAAP EPS of $0.36 vs prior guidance of $(0.70)-(0.40). Revenue fell 5.5% yr/yr to $412.4 mln, which was above prior guidance of $385-395 mln.
What makes the Q1 results particularly impressive was that PLCE was facing a couple of sizeable headwinds:
- PLCE notes that it has a 70% store overlap with approximately 800 Gymboree and Crazy 8 stores, which were undergoing liquidations during the quarter
- Easter, which typically acts as a nice sales tailwind, was much later than normal.
Same store comps are always a key metric for retailers and while the quarter as a whole saw a -4.6% decline, Elfers said that "sales began to accelerate in mid-March and continued to strengthen through the end of the quarter, resulting in positive [comps] in excess of 20% for... April. Our product clearly resonated with our customers and our inventory is well positioned entering Q2."
A couple of thoughts here. It's always good to see a retailer close out a quarter with accelerating comps. This bodes well for that momentum to continue into the next quarter. Also, if April comps were 20+% and the full quarter was negative, comps must have been pretty awful in February and early March. But it was good to see comps accelerate later in the quarter.
Regarding other items, PLCE says Gymboree integration is on track for an early 2020 launch. Also, Elfers said "Importantly, the recent launch of Tiny Collections, the curated toddler line we developed in response to Gymboree's failed merchandising strategy, is performing above expectations, generating a significantly higher AUR as compared to our TCP-branded product."
This was a very good quarter for PLCE and a nice surprise for investors. Last quarter, PLCE announced a large EPS miss so to rebound with such a strong EPS result was good to see. As for why the stock is trading lower, we are not seeing an obvious reason (same thing is happening with TCS). It was trading higher pre-market but opened lower. It's possible that PLCE's comp guidance for Q2 (Jul) of -5% to -4% is being seen as a disappointment. Also, the market is weak today overall. Overall, PLCE's numbers look quite good.