Why Children's Place Shares Jumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of The Children's Place (NASDAQ: PLCE  ) moved higher today, gaining as much as 15% after a better-than-expected earnings report.

So what: The children's-clothing retailer posted a $0.42-per-share loss, but that beat expectations of a $0.54 loss. Revenue, meanwhile, was up 6% to $382.4 million, ahead of expectations at $381.1 million, but same-store sales declined 0.4%. Further encouraging investors was management's decision to lift its guidance to $3.15-$3.28 from a previous range of $3.05-$3.20. Management also now sees EPS of $1.83-$1.89.

Now what: The second quarter is a seasonally weak one for The Children's Place, so the quarterly loss should be seen in that light. However, the guidance lift is a little odd, as management dialed back its same-store sales forecast for the year, saying it now expects a drop in the low single digits. EPS have also been inflated by an aggressive buyback, an odd choice given that the company is in the midst of a transition, closing 100 of its underperforming stores over the next three years. Considering that transition and the declining same-store sales, shares seem overbought after today's rally, especially with a P/E of 17 based on this year's earnings projection.

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Editor's note: A previous version of this article reported a $0.43-per-share loss. The Fool regrets the error.

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9/26/2016 10:25 AM
PLCE $79.76 Up +0.25 +0.31%
Children's Place R… CAPS Rating: ***