What happened
Shares of Children's Place (PLCE -1.55%), the leading pure-play children's apparel retailer, fell today after the company delivered disappointing results in its second-quarter earnings report.
As of 2 p.m. ET, the stock was down 12.5%.
So what
Faced with pressure from inflation, the consumer slowdown, markdowns from competitors, and supply chain issues, Children's Place reported a surprise loss of $0.89 per share on an adjusted basis. That compares to analysts' estimate for a per-share profit of $0.56.
That figure was also down significantly from the $1.71 in adjusted EPS the company delivered in the quarter a year ago, but that was in a very different macroeconomic environment, with strong e-commerce spending and consumers still benefiting from recently distributed stimulus checks and the enhanced child tax credit.
The top-line performance was also disappointing. Revenue fell 8% to $380.9 million, missing estimates for $382.4 million, with comparable sales down 8.7%.
As a share of total revenue, digital sales -- which is the company's highest operating margin channel -- rose to 47% in the quarter, showing it's executing its store rationalization strategy of shifting sales from the physical channel to the digital channel. It aims to achieve 60% digital penetration by 2024. Management also touted strong performance selling on Amazon's Prime Day and selling its Gymboree brand on Amazon, which could open up a new revenue stream.
CEO Jane Elfers said, "Our Q2 sales and profitability fell well short of our expectations due to a significant miss to our internal retail sales projections in the period from early June through early July. The combination of an unexpected and meaningful increase in promotional activity from our key competitors and the widely reported inflation-driven consumer slowdown, put significant downward pressure on our fashion AUR's and margins during the quarter."
Now what
Children's Place's guidance for the year should help reassure some investors, as it still expects decent profits in the second half of the year, its seasonally strongest period thanks to the back-to-school and holiday seasons. For the full year, the company guided to adjusted earnings per share of $7.00, which compares to analysts' estimates of $7.61. It also called for $1.725 billion in revenue, which was slightly lower than the consensus, due to a low double-digit comparable-sales decrease.
While that guidance may seem disappointing, the stock looks cheap based on those numbers, trading at a forward price-to-earnings ratio of just 7. Considering the headwinds it's facing this year, Children's Place should return to growth in 2023.
