Why Children’s Place Stock Plunged Today

What happened

Shares of Children’s place (NASDAQ: PLCE)the leading retailer of purely playful children’s clothing, fell today after the company reported disappointing results in its second-quarter earnings report.

As of 2 p.m. ET, the stock was down 12.5%.

So what

Faced with inflationary pressure, slowing consumption, competitor markdowns and supply chain issues, Children’s Place posted a surprise loss of $0.89 per share on an adjusted basis. That compares to analysts’ estimate for earnings per share of $0.56.

This figure was also down significantly from the adjusted EPS of $1.71 the company achieved in the year-ago quarter, but that was in a very different macro environment, with strong e-commerce spending. and consumers still benefiting from recently distributed stimulus checks and improvement. child tax credit.

Top-level 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 – reached 47% in the quarter, showing it is executing on its streamlining strategy. stores to shift sales from the physical channel to the digital channel. It aims to achieve 60% digital penetration by 2024. Management has also touted strong sales performance 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 second quarter sales and profitability were well below our expectations due to a significant failure of our internal retail sales projections in the period from early June at the beginning of July. The combination of an unexpected and significant increase in promotional activity from our key competitors and the widely reported inflation-related slowdown in consumption, exerted significant downward pressure on our AURs and fashion margins during of the quarter.”

Now what

Children’s Place’s forecast for the year should help reassure some investors, as it still expects decent profits in the second half, its most seasonal period thanks to back-to-school and holidays. For the full year, the company was on track for adjusted earnings per share of $7.00, which compares to analyst estimates of $7.61. It also called for revenue of $1.725 billion, which was slightly below consensus, due to a low double-digit drop in comparable sales.

While these predictions may seem disappointing, the stock looks cheap based on these numbers, trading at a forward price-to-earnings ratio of just 7. Given the headwinds it faces this year, Children’s Place is expected to return to growth in 2023.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Jeremy Bowman holds positions at Amazon and The Children’s Place. The Motley Fool holds positions and recommends Amazon. The Motley Fool has a disclosure policy.

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