Children's Place Bounces Back

Is The Children's Place (Nasdaq: PLCE  ) once more becoming The Investor's Place? Its stock price jumped more than 15% in initial trading, after its first-quarter earnings report beat analysts' earnings estimates.

Overall net income jumped a whopping 32.6%, but inched up just 1.8% on a continuing-operations basis. In March, The Children's Place gave up on Mickey Mouse and returned its Disney Stores to Disney's (NYSE: DIS  ) control. The company says that the costs of this divestiture are on the "low end" of the $50 million to $100 million range originally projected -- more good news for investors.

Net sales rose 12%, with a same-store sales increase of 5% for the quarter, beating rival Gymboree's (Nasdaq: GYMB  ) 4% comps jump. The Children's Place only opened three new stores for the quarter, part of its ongoing plans to strengthen profits by cutting cost structure, capital spending, and inventory.

Balance-sheet inventory levels are still increasing, with a 12.2% year-over-year jump in inventory (although down 8.9% from last quarter). The Children's Place kept costs under control; its gross margin remained at 42% from last year, and selling, general, and administrative expenses were in line with its top-line growth, increasing roughly 11%.

The company cited strong customer response to its summer line of apparel, and same-store sales certainly reflect a jump in revenue. From what I've seen, The Children's Place has been running some great sales lately, with $3 shirts and skirts for girls. That's certainly a draw for consumers in today's tough economic environment. Competing on price with retailers such as Target (NYSE: TGT  ) and Wal-Mart (NYSE: WMT  ) isn't necessarily a bad idea for the time being, although it will be interesting to see whether the company maintains this strategy.

The Children's Place still has to demonstrate that its Disney Store sale was its first step back toward a magic kingdom of its own. Compared to last quarter's $58.5 million loss, though, The Children's Place has certainly made good progress.

Further fashionable Foolishness:

Disney is a Motley Fool Stock Advisor selection. Wal-Mart has been recommended by Inside Value. Looking for investing advice? Give the Motley Fool's newsletters a try free for 30 days.

Fool contributor Colleen Paulson does not hold positions in any of the stocks mentioned in this article. The Fool's disclosure policy is a kid at heart.


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