Shares of The Children's Place (PLCE -0.26%) were climbing today even after the company issued a disappointing first-quarter earnings report. The stock's gains seem to be more of a reflection of negativity already being priced into the stock, rather than any reason to cheer the results, though profitability was still improved compared to pre-pandemic levels.
Shares of the children's apparel retailer were up 12.2% as of 2:06 p.m. ET on Thursday.
Like other discretionary retailers, The Children's Place was up against difficult comparisons with the quarter a year ago, when consumers received stimulus checks. Revenue fell 16.8% to $362.4 million, badly missing estimates at $401.6 million, and the top line was also down 12.1% compared to the first quarter of 2019, which was partly due to its closing nearly a third of its store base during that time.
Profits also fell sharply after the boom a year ago as inflation and supply chain issues added to cost pressures. The company reported adjusted earnings per share of $1.05, down from $3.25 in the first quarter of 2021, but better than $0.36 in the same period in 2019, showing that its long-term cost-cutting initiatives have paid off. That result also missed estimates at $1.46.
CEO Jane Elfers said:
Our Q1 results were negatively impacted by several factors, the largest being lapping the unprecedented stimulus released into the economy in March of 2021. March sales this year were extremely challenging with sales down approximately 35% versus March 2021. We also believe that the combination of the unseasonably cold weather that lasted through the end of the quarter in most of our key markets, and the unprecedented levels of inflation, particularly with respect to gasoline and food prices, negatively impacted our Q1 results.
The Children's Place declined to offer guidance, but there is at least one reason the stock is moving higher today. Historically, the company has made the vast majority of its profits in the second half of the year, due to the back-to-school and holiday seasons, so investors should expect profits to improve as the year progresses.
Also, the fact that profits tripled versus the last pre-pandemic quarter, in spite of a number of headwinds, shows how far the business has come in that time. Trading at a run-rate P/E of 12 based on first-quarter results, there's a good argument that the apparel stock is undervalued.