The Children's Place (PLCE 99.90) is the largest pure-play children's specialty apparel retailer in North America. It reported its fourth quarter results this morning and issued fiscal 2017 guidance. It shared a lot in its report, only it was glaringly obvious that something was missing in its report. The thing that was missing was bad news.
During the fourth quarter and fiscal 2016, The Children's Place must have been operating in an alternate universe. There was no mention in its report of weak mall traffic or secular changes in the industry brought on by the rise of e-commerce.
Nope. It was a good, old-fashioned report from this traditional retailer, replete with sales increases, comparable sales growth, margin expansion, and upbeat guidance.
For the 13-week period ended January 28, 2017, The Children's Place reported a 4.5% increase in net sales to $520.8 million on the back of a 6.9% increase in comparable retail sales. Its adjusted gross margin rate increased 50 basis points to 36.1% while its adjusted operating margin rate increased 290 basis points to 9.6%. The retailer's adjusted earnings of $1.88 per share were up 58% year-over-year and well ahead of analysts' average estimate.
The Children's Place didn't face an easy comparison either. To wit, in the year-ago period it reported a 6.7% increase in comparable retail sales.
Customers responded very well to the merchandise offerings in the company's stores and management did a commendable job of managing expenses and the retailer's fleet optimization strategy. The Children's Place closed 22 stores and did not open any new stores during the fourth quarter. On a related note, The Children's Place expanded its fleet optimization plan from a target of 200 closures by the end of 2017 to a minimum of 300 closures by 2020.
Other salient guidance from the company included an acknowledgment that it is generating positive comparable sales quarter-to-date despite a significant delay in tax refunds earlier in the quarter.
That positive sales trend looks likely to carry on based on first quarter adjusted earnings per share guidance of $1.45 to $1.55 that assumes a low single digit increase in comparable retail sales. For fiscal 2017, The Children's Place is also projecting a low single digit comparable sales increase with adjusted earnings expected to be between $6.05 and $6.20 per share, which is comfortably above analysts' average expectation.
In a reflection of the positive operating trends driving The Children's Place, its Board of Directors authorized a new $250 million share repurchase program and a 100% increase in the quarterly dividend from $0.20 per share to $0.40 per share.
Shares of PLCE have trailed the broader market action so far this year, declining 1.0% since the end of 2016. They are indicated 7% higher this morning, however, and for good reason. There was a notable absence of bad news in its earnings report and outlook.