Children's Place Makes Some Noise

The last time we checked in on children's apparel specialist Children's Place (Nasdaq: PLCE), the retailer had just recently applied the finishing touches on an impressive fourth quarter that saw same-store sales advance 17% and revenues nearly double. At the same time, my two-year-old son was busy wearing out his expensive new clothes with the help of a few impromptu mud-puddle parties in the back yard. Several months later, he has developed more of an affinity for ketchup and flour, and Children's Place is still consistently posting impressive top-line growth, with first-quarter revenues climbing nearly two-thirds higher to $369.2 million.

The acquisition of Disney's (NYSE: DIS) retail operations last November continues to fuel much of the growth, with the Disney store chain tallying $88.5 million in sales for the quarter. Even without that help, though, revenues still jumped 24%, driven by a solid 13% gain in same-store sales at Children's Place. While still healthy, comps appear to be slowing somewhat from the torrid upper-teens pace that seemed to be the norm for much of last year.

However, a modest slowdown in that key metric shouldn't necessarily come as a surprise, as the company is now overlapping some challenging comparisons. The 13% first-quarter improvement is stacked on top of a hefty 16% gain from a year ago. Meanwhile, rival Gymboree (Nasdaq: GYMB) could only manage a toddler-sized 3% increase in first-quarter comps, though the shares have spiked more than 16% this morning on a smaller-than-expected drop in earnings. Elsewhere, OshKoshB'Gosh (Nasdaq: GOSHA) reported a 7.8% gain, just in time for shareholders to have some of their lunch money taken away by a low-ball buyout offer from Carter's (NYSE: CRI) .

Net income for the quarter fell 11% to $10.2 million, with most of the shortfall attributed to a one-time $1.2 million inventory-related charge. Nevertheless, earnings of $0.36 came in ahead of expectations as well as internal targets, and full-year guidance of $2.15 to $2.25 -- a 40% increase from last year -- was left intact. The impact of the Disney stores is clearly weighing on earnings, as the acquisition explained much of the 340-basis-point drop in gross margins to 38.3%. However, Children's Place is only six months into the repositioning of the franchise, and on the conference call management expressed confidence that operating margins at both concepts could rise into the double-digits.

After peaking at more than 700 stores several years ago, there are only around 300 Disney outlets today. However, two new stores have recently opened in high-profile locations, and another 40 are expected to be either opened or remodeled later this year. There are encouraging signs that during this learning process, the company is finding new ways to better leverage the rights to many of the world's most beloved characters in time for the pivotal fourth quarter.

In the meantime, Children's Place stores continue to bully their rivals, taking away a remarkable 120 basis points in market share over the past year. Over that same span, the company's shares have more than doubled, but still trade at a very reasonable enterprise value-to-free cash flow ratio of less than eight. Like an energetic child, Children's Place may be relatively small, but it is still clearly being heard.

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Fool contributor Nathan Slaughter is in desperate need of a professional house cleaner. He owns shares of Children's Place, but none of the other companies mentioned.