What happened
Shares of children's apparel retailer Children's Place (PLCE -3.45%) were moving higher today after the company reported mixed results in its third-quarter earnings report this morning.
The stock actually opened lower today but gained over the course of the trading session, perhaps because investors believed the apparel stock was oversold.
After opening the day down 10.7%, Children's Place rallied to finish up 7.7%.
So what
The apparel retailer beat estimates on the top line but missed on the bottom line, and the company lowered its guidance for the full year.
Up against difficult comparisons with the quarter a year ago, when consumers were spending on the first post-pandemic back-to-school season and were still flush with stimulus money, revenue fell 8.8% to $509.1 million, though that beat estimates at $499.4 million.
Children's Place has been in the process of a store rationalization program, shuttering underperforming locations and shifting business to e-commerce. In line with that objective, the company said the digital channel represented 50% of sales, up from 48% in the quarter a year ago and 37% in Q3 2019.
Further down the income statement, adjusted gross margin fell 910 basis points from the quarter a year ago to 34.8%, due to higher supply chain, freight, and distribution costs.
On the bottom line, adjusted earnings per share fell from $5.43 to $3.33, which was below estimates at $3.73. However, that figure still beat its Q3 2019 result of $3.03.
CEO Jane Elfers said in a press release: "We have reduced our top- and bottom-line expectations for the fourth quarter and the full year, due to the combination of an increasingly challenging macro-economic environment and continued supply chain cost pressure. Sales for the first two weeks of November were below expectations, and we anticipate that the record levels of inflation impacting our core consumer will continue to result in lower demand this holiday season."
Now what
Due to macroeconomic headwinds and a slow start to the fourth quarter, Children's Place also lowered its full-year adjusted EPS guidance, now calling for $4.05 to $4.30, compared to the consensus at $6.46.
Despite the disappointing forecast, investors seemed to spy opportunity in the stock as even with the reduced forecast, Children's Place trades at a price-to-earnings ratio of around 9. For a company with a smart digital strategy and reliable profits, that seems to make the stock a good value.
