Children's Place (NASDAQ:PLCE) just can't seem to win. Back in May, the children's retailer (not actually children, but children's clothes) reported stellar results, yet fell 7%. This time, the company announced increased June sales but warned of wider-than-projected losses for the second quarter. Once again, investors weren't happy.
Yesterday, investors focused on the negative and dropped the stock nearly 16% to its lowest level in nine months. Everybody was anxious to drop the stock, which saw trading at a volume nearly six times its daily average.
Investors were reacting to the fact that Children's Place reported that it expects a loss of $0.38 to $0.40 per share for the second quarter ending July 31, which is significantly more than the estimated loss of $0.30. In the same period last year, the company recorded a loss of $0.35.
Based upon those kinds of numbers, it appears investors had every right to tear down Children's Place. However, the company also reported a plethora of positive news.
In a difficult month for retailers, the company generated an impressive 9% increase in same-store sales, which is generally a good indicator of a retailer's strength. Additionally, Children's Place reported a 17% jump in total sales from a year ago to a level of $71.5 million for the five weeks ended July 3.
The company explained that its markups (and, therefore, margins) were hurt by higher cotton prices and by its investments in quality merchandise. Despite the negative forecast for the quarter and the recent pressures, Children's Place expects a hefty 40% increase in earnings for fiscal 2004.
Now, I may very well be naive, and I'm clearly in the minority, but I tend to believe the company. Sure, the most recent quarter is nothing to be proud of, but sales continue to be strong, and a 40% annual earnings increase can't be ignored. The company should see long-term benefits from its investments, and for shoppers, now may be the time to take advantage of the marked-down prices.
Fool contributor Mike Cianciolo doesn't own shares in Children's Place.
