What happened

Shares of The Children's Place (NASDAQ:PLCE) were rallying today after the children's apparel retailer posted blowout results in its first-quarter earnings report. 

As of 1:31 p.m. EDT, the stock was up 4.9% after gaining as much as 16.7% earlier in the morning.

Children standing in a line holding hands

Image source: Getty Images.

So what

Like other brick-and-mortar apparel retailers, Children's Place benefited from the beginning stages of the economic reopening and stimulus checks distributed in March as revenue surged past even 2019 levels.

For the first quarter, it posted revenue of $435.5 million, up 70.6% from the year-ago quarter, and topped Q1 2019 results by 5.7% even as the company has 27% fewer stores than it did two years ago. That result easily beat estimates at $354.8 million.

Gross margin, operating margin, and earnings per share all reached record levels as the company benefited from store closures, lease renegotiations, higher average prices, and improving e-commerce fulfillment optimization.

Gross margin in the period hit 43.2%, up from 36.9% in Q1 two years ago, showing the company made tremendous strides in its strategic transformation. It also expects increased profitability to continue as more of its sales shift to the digital channel. The company said "steady-state" digital penetration is at 50%, making it an industry leader in the pivot to e-commerce.

Selling, general, and administrative expenses were also down by nearly 20% from Q1 2019, and its operating margin reached 15%. On the bottom line, the company reported adjusted earnings per share of $3.25, which smashed estimates of just $0.06.

CEO Jane Elfers said:

We are operating at a high level. We continue to navigate the extraordinary complexity of the pandemic while remaining firmly on offense. Our long-standing strategic plan has served us well. We are a stronger company today than we were prior to the pandemic and we look forward to continuing to deliver accelerated operating margin expansion for our shareholders in 2021 and beyond.

Now what

Children's Place declined to provide guidance, but the company did sound upbeat about the rest of the year, noting the tailwind that would come from 100% in-person learning in the fall and from the new child tax credits that will give most American families $250 to $300 per month per child. Additionally, management said the second quarter was off to a strong start.

The first-quarter report seems especially auspicious for Children's Place as it normally makes most of its profits in the back half of the year, during the back-to-school and holiday seasons. If that pattern holds true this year, it wouldn't be unreasonable for the company to report $15 in earnings per share this year, making the stock a bargain at less than $100 a share today.

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