What happened
Shares of The Children's Place (PLCE 3.50%) were up 11% as of 9:46 a.m. ET on Thursday following the company's second-quarter earnings report.
The stock fell hard last year with the broader market sell-off. The children's retailer reported further pressure on its revenue and earnings per share but kept its full-year sales guidance mostly steady. Wall Street feared worse news, which sent this heavily discounted apparel stock surging.
So what
Second-quarter net sales fell 9.3% year over year, while the adjusted loss on the bottom line widened from $0.89 a year ago to $2.12 in the recent quarter. E-commerce sales increased slightly in the quarter and represented 51% of total retail sales, up from 30% in 2019.
Overall, the results exceeded management's previous guidance on the top and bottom lines. CEO Jane Elfers called the company "more resilient and streamlined" than before the pandemic.
Indeed, the higher digital sales means the business is probably performing much better than it otherwise would be, considering that comparable retail sales were down 9% in the quarter as consumers continue to struggle with inflation.
The company is also starting to see costs come down and is reducing inventory, which could lead to better stability in profitability in the second half of the year.
Now what
The Children's Place is still seeing downward pressure on sales and profits, so investors shouldn't get their hopes up for a sustainable rally in the stock just yet.
Previous guidance called for sales to come in between $1.575 billion to $1.59 billion. The only revision was to lower the top end of the range down to $1.585 billion, but that is still down from over $1.7 billion last year and $1.9 billion in fiscal 2021.
A positive, however, was the company's slightly higher estimate for adjusted operating margin this year of 2.7% to 3%, as it benefits from a reduction in costs and inventory. Improving margins could support the stock's current valuation.
