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How Strong Management Is Pushing Children's Place Inc to Fresh All-time Highs

By Motley Fool Staff - Mar 20, 2017 at 10:06AM

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The kids apparel retailer generously boosted its dividend as the company faces down non-existent top line growth with growing efficiency and profits.

In this segment from Motley Fool Money, Chris Hill and Jason Moser dig into the bullish trading behind The Children's Place (PLCE -5.09%). While sales have largely stagnated for this specialty retailer, management is doing everything it can to increase profitability and reward shareholders.

A full transcript follows the video.

This video was recorded on March 10, 2017.

Chris Hill: Shares of Children's Place are hitting a new high this week, the kid's apparel retailer is putting up strong numbers in the fourth quarter, and announced they are doubling their quarterly dividend. Jason, this is not $0.02 to $0.04. They're going from $0.20 to $0.40.

Jason Moser: Yeah, and we talk about this challenging retail environment. You would look at this Children's Place news and think, "These guys must be immune to all of this." That's not the case, actually. This has been a fascinating stock to watch, because if you look over the last five years, top line revenue for this business has remained ultimately flat. It's going nowhere. But in the same period, we've seen the stock price more than double. So, you start trying to wonder, what are they doing to actually make that happen? At least over the last couple of years, they're relying on that big retail buzzword we've come to know so well, omnichannel. As the internet takes over and e-commerce spreads its presence there, these businesses are trying to take advantage of their physical infrastructure, and translating that into more digital sales. I think that Children's Place is doing that to a degree, but I think they're also letting technology wring out some efficiencies in the business.

So, while sales have remained flat, margins have improved, and I think that's something that's slated to continue. And ultimately, I think management has just done a very good job of bringing results down to the bottom line. We can see that through modest growth in net income, better growth in earnings per share, and that is partly because they brought the share count down about 25% over the same period of time. So, this is a good example of where, no, it's not a business that's firing on all cylinders, as Ron Gross might say, but management is really doing right by shareholders here in managing the business well, and ultimately looking out for all stakeholders involved. And ultimately, this brings me back to one of my better investments I ever made, and that was in Gymboree, and it was right after I'd become a father. As you guys know, I have two daughters. I made the leap pretty quickly that with Gymboree, if a company had figured out how to make it easy for a dummy like me to buy clothes for little girls, and actually do OK with it, there was something there. And I think that Children's Place is a similar style of investment. That is just a specialty retail niche that's really tough to disrupt. Gymboree was taken private not too long after that by Bain Capital. I wouldn't be terribly surprised to see private equity take an interest in Children's Place, either, because this is a good business. They're not going to be growing that store base, but I think we could expect to see modest top line growth, and continued operational efficiencies play out pretty well for shareholders.

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The Children's Place, Inc.
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