Editor's note: A previous version of this story referred to plans for Children's Place to cut its workforce by 30%. The company is planning to cut its shared services division by 30%. The Fool regrets the error.
Children's Place posted a fourth-quarter loss of $58.5 million, or $2.01 a share, so there's really nowhere to go but up. The top line did rise 4% over last year, and comparable-store sales were up by 3%, which isn't too horrible in today's market (does a baby need a new pair of shoes, after all?). As far as future growth, management is estimating mid-single-digit sales growth for the coming year, with 30 new store openings.
The big news here (and the reason for the stock jump) isn't revenue growth potential - it's all about moving out of the Disney
Beyond transitioning out of the Disney Stores, Children's Place plans to cut its shared services division by 30%, for an annualized savings of $12 million. Capital expenditures will be slashed from 2007's level of $200 million to between $65 million and $75 million, with the company deciding not to expand its corporate headquarters. Balance-sheet inventory levels were up by more than 19% year over year, so Children's Place is looking at additional measures to move inventory. The company projects inventory levels in the flat to low-single-digit range by the end of the second quarter.
Looking at the fourth-quarter results, these cost-control measures are more than necessary. Cost of goods sold increased by 15.7%, and SG&A increased by almost 8%. Those are rates that far exceed sales growth.
Losing the Disney Stores should help Children's Place focus more on its main brand, and it certainly is time to cut costs wherever possible. Despite some of the work the company has ahead of itself, it still sells at a premium forward P/E of 14.7. This compares to its rivals Gymboree